Yankee Holding 10-Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: October 1, 2011

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: 333-141699-05

YCC HOLDINGS LLC

(Exact name of registrant as specified in its charter)

DELAWARE	20-8284193
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

16 YANKEE CANDLE WAY

SOUTH DEERFIELD, MASSACHUSETTS 01373

(Address of principal executive office and zip code)

(413) 665-8306

(Registrant’s telephone number, including area code)

YANKEE HOLDING CORP.

(Exact name of registrant as specified in its charter)

DELAWARE	20-8304743
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

16 YANKEE CANDLE WAY

SOUTH DEERFIELD, MASSACHUSETTS 01373

(Address of principal executive office and zip code)

(413) 665-8306

(Registrant’s telephone number, including area code)

Indicate by check mark whether each 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 such registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    

YCC Holdings LLC Yes     x     No    o

Yankee Holding Corp. Yes     o      No   x

Yankee Holding Corp. is a voluntary filer of reports required of companies with public securities under Section 13 or 15(d) of the Securities Exchange Act of 1934, and it will have filed all reports which would have been required of it during the past 12 months had it been subject to such provisions.

Indicate by check mark whether each 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that such registrant was required to submit and post such files).  

YCC Holdings LLC Yes    x    No     o

Yankee Holding Corp. Yes    x    No     o

Indicate by check mark whether each 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.

YCC Holdings LLC
Large accelerated filer	o	Accelerated filer	o	Non-accelerated filer	x	Smaller Reporting Company	o
Yankee Holding Corp.
Large accelerated filer	o	Accelerated filer	o	Non-accelerated filer	x	Smaller Reporting Company	o

Indicate by check mark whether either registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

YCC Holdings LLC does not issue common stock but has one member’s interest issued and outstanding.  YCC Holdings LLC’s sole member is Yankee Candle Investments LLC. 

As of November 11, 2011, there were 497,981 shares of Yankee Holding Corp. common stock, $0.01 par value, outstanding, all of which are owned by YCC Holdings LLC.

Yankee Holding Corp. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

2

Explanatory Note

This quarterly report is a combined report of YCC Holdings LLC (“YCC Holdings”) and Yankee Holding Corp. (“Holding Corp.”), a direct 100% owned subsidiary of YCC Holdings. Unless the context indicates otherwise, any reference in this report to the “Companies,” “we,” “us” and “our” refers to YCC Holdings together with its direct and indirect subsidiaries, including Holding Corp.

The principal subsidiary of YCC Holdings and Holding Corp. is The Yankee Candle Company, Inc. (together with its subsidiaries, “Yankee Candle”).  All of the operating results of YCC Holdings and Holding Corp. are derived from the operating results of Yankee Candle.  Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined.  Where information or an explanation is not substantially the same for each company, we have provided separate information and explanation.  In addition, separate financial statements for each company are included in Part I, Item 1.

Note Regarding Forward-Looking Statements

This quarterly report contains a number of forward-looking statements. Any statements contained herein, including without limitation statements to the effect that together the Companies or their management “believes”, “expects”, “anticipates”, “plans” and similar expressions, that relate to prospective events or developments should be considered forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Operating Results”. Management undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

Item			Page
Part I. Financial Information
Item 1.	Financial Statements - Unaudited
	YCC Holdings LLC
		Condensed Consolidated Balance Sheets as of October 1, 2011 and January 1, 2011	4
		Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended October 1, 2011 and October 2, 2010	5
		Condensed Consolidated Statements of Operations for the Thirty-Nine Weeks Ended October 1, 2011 and October 2, 2010	6
		Condensed Consolidated Statements of Changes in Member’s Equity (Deficit) for the Thirty-Nine Weeks Ended October 1, 2011 and October 2, 2010	7
		Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended October 1, 2011 and October 2, 2010	8
	Yankee Holding Corp.
		Condensed Consolidated Balance Sheets as of October 1, 2011 and January 1, 2011	9
		Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended October 1, 2011 and October 2, 2010	10
		Condensed Consolidated Statements of Operations for the Thirty-Nine Weeks Ended October 1, 2011 and October 2, 2010	11
		Condensed Consolidated Statements of Changes in Stockholder’s Equity for the Thirty-Nine Weeks Ended October 1, 2011 and October 2, 2010	12
		Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 1, 2011 and October 2, 2010	13
	YCC Holdings LLC and Yankee Holding Corp. Notes to Condensed Consolidated Financial Statements		14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 4.	Controls and Procedures		43
PART II. Other Information
Item 1.	Legal Proceedings		43
Item 1A.	Risk Factors		43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 3.	Defaults Upon Senior Securities		49
Item 5.	Other Information		49
Item 6.	Exhibits		50
Signatures			51

3

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)

	October 1, 2011			January 1, 2011
ASSETS
CURRENT ASSETS:
Cash	$	4,294		$	12,713
Accounts receivable, net		80,796			46,937
Inventory		130,418			67,387
Prepaid expenses and other current assets		25,403			10,813
Deferred tax assets		10,271			11,642
TOTAL CURRENT ASSETS		251,182			149,492
PROPERTY AND EQUIPMENT, NET		121,200			118,786
GOODWILL		643,570			643,570
INTANGIBLE ASSETS		272,532			281,749
DEFERRED FINANCING COSTS		20,980			14,271
OTHER ASSETS		1,949			1,832
TOTAL ASSETS	$	1,311,413		$	1,209,700
LIABILITIES AND MEMBER'S (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	40,357		$	26,291
Accrued payroll		8,837			12,669
Accrued interest		10,117			17,509
Accrued income taxes		-			18,840
Accrued purchases of property and equipment		5,384			2,269
Current portion of capital leases		903			667
Other accrued liabilities		41,929			45,508
TOTAL CURRENT LIABILITIES		107,527			123,753
DEFERRED TAX LIABILITIES		100,985			99,432
LONG-TERM DEBT		1,327,447			901,125
DEFERRED RENT		12,991			11,535
CAPITAL LEASES, NET OF CURRENT PORTION		2,326			1,677
OTHER LONG-TERM LIABILITIES		3,024			2,170
COMMITMENTS AND CONTINGENCIES
MEMBER'S (DEFICIT) EQUITY
Common Units		121,902			-
Class A, B and C common units		-			419,885
Accumulated deficit		(361,364	)		(346,516	)
Accumulated other comprehensive loss		(3,425	)		(3,361	)
Total member's (deficit) equity		(242,887	)		70,008
TOTAL LIABILITIES AND MEMBER'S (DEFICIT) EQUITY	$	1,311,413		$	1,209,700

See notes to condensed consolidated financial statements

4

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirteen Weeks Ended  October 1, 2011			Thirteen Weeks Ended  October 2, 2010
Sales	$	195,109		$	175,750
Cost of sales		87,958			74,103
Gross profit		107,151			101,647
Selling expenses		57,865			51,842
General and administrative expenses		15,486			15,676
Operating income		33,800			34,129
Interest expense		26,665			20,525
Other (income) expense, net		(2,372	)		484
Income from continuing operations before provision for income taxes		9,507			13,120
Provision for income taxes		3,090			4,247
Income from continuing operations		6,417			8,873
Loss from discontinued operations, net of income taxes		(42	)		(49	)
Net income	$	6,375		$	8,824

See notes to condensed consolidated financial statements

5

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirty-Nine Weeks Ended  October 1, 2011			Thirty-Nine Weeks Ended  October 2, 2010
Sales	$	469,136		$	442,093
Cost of sales		211,112			192,102
Gross profit		258,024			249,991
Selling expenses		163,055			149,668
General and administrative expenses		48,308			46,307
Restructuring charges		-			829
Operating income		46,661			53,187
Interest expense		75,719			58,794
Other (income) expense, net		(5,332	)		9,968
Loss from continuing operations before benefit from income taxes		(23,726	)		(15,575	)
Benefit from income taxes		(9,105	)		(6,051	)
Loss from continuing operations		(14,621	)		(9,524	)
Loss from discontinued operations, net of income taxes		(227	)		(342	)
Net loss	$	(14,848	)	$	(9,866	)

See notes to condensed consolidated financial statements

6

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFECIT)

(in thousands, except units)

(Unaudited)

	Common Units					Class A						Class B						Class C						Total A, B and C												Total Member's
	Units		Amount			Common Units			Amount			Common Units			Amount			Common Units			Amount			Common Units			Accumulated  Deficit			Accumulated Other Loss			Comprehensive Loss			Equity (Deficit)
BALANCE, JANUARY 2, 2010		-	$	-			4,268,723		$	417,127			363,080		$	2,407			97,564		$	282		$	419,816		$	(388,425	)	$	(8,148	)				$	23,243
Issuance of Class A and C common units		-		-			276			30			-			-			42,812			-			30			-			-						30
Repurchase of Class A, B and C common units		-		-			(1,740	)		(204	)		(28,428	)		(377	)		(52,560	)		(306	)		(887	)		-			-						(887	)
Equity-based compensation		-		-			-			-			-			482						234			716			-			-						716
Comprehensive loss:
Net loss		-		-			-			-			-			-			-			-			-			(9,866	)		-		$	(9,866	)		(9,866	)
Foreign currency translation		-		-			-			-			-			-			-			-			-			-			358			358			358
Unrealized gain on interest rate swap, net of tax		-		-			-			-			-			-			-			-			-			-			4,537			4,537			4,537
Comprehensive loss																																	$	(4,971	)
BALANCE, OCTOBER 2, 2010		-	$	-			4,267,259		$	416,953			334,652		$	2,512			87,816		$	210		$	419,675		$	(398,291	)	$	(3,253	)				$	18,131
BALANCE, JANUARY 1, 2011		-	$	-			4,267,228		$	416,956			333,466		$	2,637			86,826		$	292		$	419,885		$	(346,516	)	$	(3,361	)				$	70,008
Issuance of Class A and C common units		-		-			-			3			-			-			-			-			3			-			-						3
Repurchase of Class A, B and C common units		-		-			-			-			(21,423	)		(47	)		(900	)		(39	)		(86	)		-			-						(86	)
Conversion of Class A, B and C common units to Common Units		1,000		419,888			(4,267,228	)		(416,959	)		(312,043	)		(2,648	)		(85,926	)		(281	)		(419,888	)		-			-						-
Return of capital to Common Units		-		(297,825	)		-			-			-			-			-			-			-			-			-						(297,825	)
Issuance of Common Units		-		17			-			-			-			-			-			-			-			-			-						17
Repurchase of Common Units		-		(725	)		-			-			-			-			-			-			-			-			-						(725	)
Equity-based compensation		-		547			-			-			-			58			-			28			86			-			-						633
Comprehensive loss:
Net loss		-					-			-			-			-			-			-			-			(14,848	)		-		$	(14,848	)		(14,848	)
Foreign currency translation		-					-			-			-			-			-			-			-			-			(776	)		(776	)		(776	)
Unrealized gain on interest rate swap, net of tax		-					-			-			-			-			-			-			-			-			712			712			712
Comprehensive loss																																	$	(14,912	)
BALANCE, OCTOBER 1, 2011		1,000	$	121,902			-		$	-			-		$	-			-		$	-		$	-		$	(361,364	)	$	(3,425	)				$	(242,887	)

See notes to condensed consolidated financial statements

7

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Thirty-Nine Weeks Ended October 1, 2011			Thirty-Nine Weeks Ended October 2, 2010
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(14,848	)	$	(9,866	)
Adjustments to reconcile net loss to net cash used in operating activities:
Realized (gain) loss on derivative contracts		(4,333	)		11,109
Depreciation and amortization		32,181			31,608
Unrealized loss (gain) on marketable securities		122			(41	)
Equity-based compensation expense		633			716
Deferred taxes		2,325			630
Non-cash adjustments related to restructuring		-			10
Loss on disposal and impairment of property and equipment		782			64
Changes in assets and liabilities:
Accounts receivable		(33,795	)		(31,825	)
Inventory		(62,950	)		(40,660	)
Prepaid expenses and other assets		(2,260	)		(2,645	)
Accounts payable		14,061			18,904
Income taxes		(31,392	)		(8,250	)
Accrued expenses and other liabilities		(7,761	)		(18,292	)
NET CASH USED IN OPERATING ACTIVITIES		(107,235	)		(48,538	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		(17,267	)		(13,443	)
Proceeds from sale of property and equipment		38			197
NET CASH USED IN INVESTING ACTIVITIES		(17,229	)		(13,246	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Senior Secured Credit Facility		137,000			76,000
Repayments under Senior Secured Credit Facility		(20,000	)		(20,174	)
Borrowings under Senior PIK Notes		308,700			-
Financing costs		(10,478	)		-
Return of capital		(297,825	)		-
Proceeds from issuance of Class A and C common units		3			30
Proceeds from issuance of Common Units		17			-
Repurchase of Class A, B and C common units		(86	)		(887	)
Repurchase of Common Units		(725	)		-
Principal payments on capital lease obligations		(567	)		(234	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		116,039			54,735
EFFECT OF EXCHANGE RATE CHANGES ON CASH		6			(43	)
NET DECREASE IN CASH		(8,419	)		(7,092	)
CASH, BEGINNING OF PERIOD		12,713			9,095
CASH, END OF PERIOD	$	4,294		$	2,003
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	78,409		$	65,293
Income taxes	$	19,790		$	1,310
Net change in accrued purchases of property and equipment	$	(3,115	)	$	770
Capital lease obligations related to equipment purchase	$	1,452		$	1,974
Noncash Financing Activities:
Conversion of Class A, B and C common units to Common Units	$	419,888		$	-

See notes to condensed consolidated financial statements

8

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

(Unaudited)

	October 1, 2011			January 1, 2011
ASSETS
CURRENT ASSETS:
Cash	$	4,294		$	12,713
Accounts receivable, net		80,796			46,937
Inventory		130,418			67,387
Prepaid expenses and other current assets		25,403			10,813
Deferred tax assets		10,271			11,642
TOTAL CURRENT ASSETS		251,182			149,492
PROPERTY AND EQUIPMENT, NET		121,200			118,786
GOODWILL		643,570			643,570
INTANGIBLE ASSETS		272,532			281,749
DEFERRED FINANCING COSTS		11,959			14,271
OTHER ASSETS		1,949			1,832
TOTAL ASSETS	$	1,302,392		$	1,209,700
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	40,357		$	26,291
Accrued payroll		8,837			12,669
Accrued interest		5,994			17,509
Accrued income taxes		-			18,840
Accrued purchases of property and equipment		5,384			2,269
Current portion of capital leases		903			667
Other accrued liabilities		41,873			45,508
TOTAL CURRENT LIABILITIES		103,348			123,753
DEFERRED TAX LIABILITIES		100,985			99,432
LONG-TERM DEBT		1,018,125			901,125
DEFERRED RENT		12,991			11,535
CAPITAL LEASES, NET OF CURRENT PORTION		2,326			1,677
OTHER LONG-TERM LIABILITIES		3,024			2,170
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock: $.01 par value; 500,000 issued and 497,981 outstanding at October 1, 2011 and 500,000 issued and 498,042 outstanding at January 1, 2011		417,462			418,187
Additional paid-in capital		15,331			3,421
Treasury stock: at cost, 2,019 shares at October 1, 2011 and 1,958 shares at January 1, 2011		(1,809	)		(1,723	)
Accumulated deficit		(365,966	)		(346,516	)
Accumulated other comprehensive loss		(3,425	)		(3,361	)
Total stockholder's equity		61,593			70,008
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	1,302,392		$	1,209,700

See notes to condensed consolidated financial statements

9

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirteen Weeks Ended  October 1, 2011			Thirteen Weeks Ended  October 2, 2010
Sales	$	195,109		$	175,750
Cost of sales		87,958			74,103
Gross profit		107,151			101,647
Selling expenses		57,865			51,842
General and administrative expenses		15,273			15,676
Operating income		34,013			34,129
Interest expense		17,847			20,525
Other (income) expense, net		(2,372	)		484
Income from continuing operations before provision for income taxes		18,538			13,120
Provision for income taxes		6,044			4,247
Income from continuing operations		12,494			8,873
Loss from discontinued operations, net of income taxes		(42	)		(49	)
Net income	$	12,452		$	8,824

See notes to condensed consolidated financial statements

10

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirty-Nine Weeks Ended  October 1, 2011			Thirty-Nine Weeks Ended  October 2, 2010
Sales	$	469,136		$	442,093
Cost of sales		211,112			192,102
Gross profit		258,024			249,991
Selling expenses		163,055			149,668
General and administrative expenses		47,891			46,307
Restructuring charges		-			829
Operating income		47,078			53,187
Interest expense		53,303			58,794
Other (income) expense, net		(5,332	)		9,968
Loss from continuing operations before benefit from income taxes		(893	)		(15,575	)
Benefit from income taxes		(848	)		(6,051	)
Loss from continuing operations		(45	)		(9,524	)
Loss from discontinued operations, net of income taxes		(227	)		(342	)
Net loss	$	(272	)	$	(9,866	)

See notes to condensed consolidated financial statements

11

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

(in thousands, except treasury shares)

(Unaudited)

	Common Stock					Additional Paid in		Treasury Stock					Accumulated			Accumulated Other Comprehensive			Comprehensive
	Shares		Amount			Capital		Shares		Amount			Deficit			Loss			Loss			Total
BALANCE, JANUARY 2, 2010		500	$	418,187		$	2,419		1120	$	(790	)	$	(388,425	)	$	(8,148	)				$	23,243
Issuance of common stock		—		—			30		—		—			—			—						30
Repurchase of common stock		—		—			—		801		(887	)		—			—						(887	)
Equity-based compensation expense		—		—			716		—		—			—			—						716
Comprehensive loss:
Net loss		—		—			—		—		—			(9,866	)		—		$	(9,866	)		(9,866	)
Foreign currency translation		—		—			—		—		—			—			358			358			358
Unrealized gain on interest rate swaps, net of tax		—		—			—		—		—			—			4,537			4,537			4,537
Comprehensive loss																			$	(4,971	)
BALANCE, OCTOBER 2, 2010		500	$	418,187		$	3,165		1,921	$	(1,677	)	$	(398,291	)	$	(3,253	)				$	18,131
BALANCE, JANUARY 1, 2011		500	$	418,187		$	3,421		1,958	$	(1,723	)	$	(346,516	)	$	(3,361	)				$	70,008
Issuance of common stock		—		—			20		—		—			—			—						20
Repurchase of common stock		—		(725	)		—		61		(86	)		—			—						(811	)
Equity-based compensation expense		—		—			633		—		—			—			—						633
Contributions by YCC Holdings LLC		—		—			11,257		—		—			—			—						11,257
Dividend to YCC Holdings LLC		—		—			—		—		—			(19,178	)		—						(19,178	)
Comprehensive loss:
Net loss		—		—			—		—		—			(272	)		—		$	(272	)		(272	)
Foreign currency translation		—		—			—		—		—			—			(776	)		(776	)		(776	)
Unrealized gain on interest rate swaps, net of tax		—		—			—		—		—			—			712			712			712
Comprehensive loss																			$	(336	)
BALANCE, OCTOBER 1, 2011		500	$	417,462		$	15,331		2,019	$	(1,809	)	$	(365,966	)	$	(3,425	)				$	61,593

See notes to condensed consolidated financial statements

12

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Thirty-Nine Weeks Ended October 1, 2011			Thirty-Nine Weeks Ended October 2, 2010
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(272	)	$	(9,866	)
Adjustments to reconcile net loss to net cash used in operating activities:
Realized (gain) loss on derivative contracts		(4,333	)		11,109
Depreciation and amortization		30,570			31,608
Unrealized loss (gain) on marketable securities		122			(41	)
Equity-based compensation expense		633			716
Deferred taxes		2,325			630
Non-cash adjustments related to restructuring		-			10
Loss on disposal and impairment of property and equipment		782			64
Changes in assets and liabilities:
Accounts receivable		(33,795	)		(31,825	)
Inventory		(62,950	)		(40,660	)
Prepaid expenses and other assets		(2,260	)		(2,645	)
Accounts payable		14,061			18,904
Income taxes		(23,135	)		(8,250	)
Accrued expenses and other liabilities		(11,940	)		(18,292	)
NET CASH USED IN OPERATING ACTIVITIES		(90,192	)		(48,538	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		(17,267	)		(13,443	)
Proceeds from sale of property and equipment		38			197
NET CASH USED IN INVESTING ACTIVITIES		(17,229	)		(13,246	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Senior Secured Credit Facility		137,000			76,000
Repayments under Senior Secured Credit Facility		(20,000	)		(20,174	)
Financing costs		(468	)		-
Contributions by YCC Holdings LLC		3,000			-
Dividend to YCC Holdings LLC		(19,178	)		-
Proceeds from issuance of common stock		20			30
Repurchase of common stock		(811	)		(887	)
Principal payments on capital lease obligations		(567	)		(234	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		98,996			54,735
EFFECT OF EXCHANGE RATE CHANGES ON CASH		6			(43	)
NET DECREASE IN CASH		(8,419	)		(7,092	)
CASH, BEGINNING OF PERIOD		12,713			9,095
CASH, END OF PERIOD	$	4,294		$	2,003
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	61,727		$	65,293
Income taxes	$	19,790		$	1,310
Net change in accrued purchases of property and equipment	$	(3,115	)	$	770
Capital lease obligations related to equipment purchase	$	1,452		$	1,974
Noncash Financing Activities:
Noncash contribution by YCC Holdings LLC	$	8,257		$	-

See notes to condensed consolidated financial statements

13

YCC HOLDINGS LLC AND SUBSIDIARIES

YANKEE HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION AND ORGANIZATION

Basis of Presentation

The unaudited interim condensed consolidated financial statements of YCC Holdings LLC (“YCC Holdings”) and Yankee Holding Corp. (“Holding Corp.” and together with YCC Holdings, the “Companies”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”). The financial information included herein is unaudited; however, in the opinion of management such information reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position, results of operations, and cash flows as of the date and for the periods indicated. All intercompany transactions and balances have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.

The accompanying unaudited condensed financial statements of Holding Corp. should be read in conjunction with the audited consolidated financial statements of Holding Corp. for the year ended January 1, 2011 included in Holding Corp.’s Annual Report on Form 10-K. The accompanying unaudited condensed financial statements of YCC Holdings should be read in conjunction with the audited consolidated financial statements of YCC Holdings for the year ended January 1, 2011 included in YCC Holdings’ Registration Statement on Form S-4 originally filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2011. The registration statement was declared effective on August 4, 2011.

Organization and Current Events

YCC Holdings and Holding Corp. are holding companies with no direct operations. Their principal assets are the indirect equity interests in The Yankee Candle Company, Inc. (“Yankee Candle”), and all of their operations are conducted through Yankee Candle, the wholly owned operating subsidiary of Holding Corp. Holding Corp. is a wholly owned subsidiary of YCC Holdings. YCC Holdings is a wholly owned subsidiary of Yankee Candle Investments LLC (“Yankee Investments”), which is in turn a wholly owned subsidiary of Yankee Candle Group LLC (“Yankee Group”).  See the entity chart below:

February 2011 Senior Note Issuance.  

In February 2011, Yankee Investments and Yankee Finance, Inc. (“Yankee Finance”) were formed in connection with the co-issuance of $315.0 million Senior PIK Notes (as defined below) by YCC Holdings and Yankee Finance.  In connection with the issuance of the Senior PIK Notes, the equity interests in YCC Holdings were exchanged for new equity interests in its newly formed parent, Yankee Investments.  Pursuant to this exchange, holders of Class A, Class B and Class C common units in YCC Holdings exchanged such units on a one for one basis for an identical interest in Class A, Class B, and Class C common units of Yankee Investments.  After the exchange, each unit holder had the same ownership interest with the same rights and features in Yankee Investments that it previously had in YCC Holdings.  Subsequent to the exchange, all outstanding Class A, B and C common units in YCC Holdings were converted to 1,000 Common Units in YCC Holdings, all of which are now held by its parent and sole member, Yankee Investments.

In February 2011, YCC Holdings and Yankee Finance co-issued $315.0 million of 10.25%/11.00% Senior Notes due 2016 (the “Senior PIK Notes”) pursuant to an Indenture at a discount of $6.3 million for net proceeds of $308.7 million.   Issuance costs related to the Senior PIK Notes were $9.7 million, of which $7.8 million were paid for by YCC Holdings and $1.9 million were paid for by Holding Corp.  The costs paid for by Holding Corp. have been reflected as a dividend to YCC Holdings in the accompanying Holding Corp.’s condensed consolidated statement of stockholder’s equity.   The Senior PIK Notes were issued in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”); however, the issuers have filed a registration statement with the SEC relating to an offer to exchange the original notes for identical notes which are registered under the Securities Act.  The registration statement was declared effective on August 4, 2011 and all notes were subsequently exchanged.

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The proceeds from the Senior PIK Notes were used to pay transaction costs (exclusive of the amounts paid by Holding Corp.) and make a payment of $300.8 million to Yankee Investments which in turn made payments of $297.8 million to holders of Yankee Investments’ Class A common units and payments of $3.0 million in aggregate to holders of Yankee Investments’ Class B and Class C common units.   The payments to the Class A common unit holders represent a partial return of their original investment and are reflected as an equity transaction by Yankee Investments.  The payments to the Class B and Class C common unit holders who are members of management and directors of Holding Corp. did not affect the liquidation amounts for such units and accordingly are reflected as general and administrative expense in both YCC Holdings’ and Holding Corp.’s accompanying condensed consolidated statements of operations for the thirty-nine weeks ended October 1, 2011 and as a contribution by YCC Holdings in Holding Corp.’s accompanying condensed consolidated statement of stockholder’s equity for the thirty-nine weeks ended October 1, 2011.

Subsequent Exchange.

In the fiscal second quarter of 2011, the Companies formed Yankee Group, a Delaware limited liability company.  Yankee Group is the parent of Yankee Investments. The members of Yankee Group include certain funds affiliated with Madison Dearborn Partners, LLC (“Madison Dearborn”), as well as certain management and directors of Yankee Holdings.  In connection with the formation of Yankee Group, a second exchange of equity interests occurred, whereby holders of Class A, Class B and Class C common units in Yankee Investments exchanged such units on a one for one basis for an identical interest in Class A, Class B, and Class C common units of Yankee Group.  After the exchange, each unit holder had the same ownership interest with the same rights and features in Yankee Group that it previously had in Yankee Investments. All outstanding interests in Yankee Investments were exchanged pursuant to this transaction with the exception of 1,600 common units held by former employees of Yankee Candle whose employment had been terminated since the February 2011 transaction described above.  These 1,600 units are to remain held in Yankee Investments pending the planned repurchase of the units by Yankee Investments at the time and in the manner contemplated by the applicable equity documents.  During the thirteen weeks ended October 1, 2011, 470 common units were repurchased leaving 1,130 common units in Yankee Investments.  Following the planned repurchase of these remaining units, all outstanding common units of Yankee Investments will be owned by Yankee Group.

2. INVENTORY

The Companies value their inventory on the first–in first–out (“FIFO”) basis. The components of inventory were as follows (in thousands):

	October 1, 2011		January 1, 2011
Finished goods	$	113,540	$	58,153
Work-in-process		738		362
Raw materials and packaging		16,140		8,872
Total inventory	$	130,418	$	67,387

3. GOODWILL AND INTANGIBLE ASSETS

The Companies have determined that their tradenames have an indefinite useful life and, therefore, are not being amortized. In accordance with Accounting Standards Codification (“ASC”) Topic 350 “Intangibles - Goodwill and Other,” goodwill and indefinite lived intangible assets are not amortized but are subject to an annual impairment test. There were no changes in the carrying amount of goodwill during the thirty-nine weeks ended October 1, 2011 and October 2, 2010.

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Intangible Assets

The carrying amount and accumulated amortization of intangible assets consisted of the following (in thousands):

	Weighted Average Useful Life (in years)		Gross Carrying Amount		Accumulated Amortization			Net Book Value
October 1, 2011
Indefinite life:
Tradenames		N/A	$	267,755	$	-		$	267,755
Finite-lived intangible assets:
Customer lists		5		63,652		(59,303	)		4,349
Favorable lease agreements		5		2,330		(1,903	)		427
Other		3		36		(35	)		1
Total finite-lived intangible assets				66,018		(61,241	)		4,777
Total intangible assets			$	333,773	$	(61,241	)	$	272,532
January 1, 2011
Indefinite life:
Tradenames		N/A	$	267,755	$	-		$	267,755
Finite-lived intangible assets:
Customer lists		5		63,650		(50,234	)		13,416
Favorable lease agreements		5		2,330		(1,755	)		575
Other		3		36		(33	)		3
Total finite-lived intangible assets				66,016		(52,022	)		13,994
Total intangible assets			$	333,771	$	(52,022	)	$	281,749

Total amortization expense from finite–lived intangible assets was $3.1 million for each of the thirteen weeks ended October 1, 2011 and October 2, 2010. Total amortization expense from finite–lived intangible assets was $9.2 million and $9.4 million for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively.  These intangible assets are amortized on a straight line basis. Favorable lease agreements are amortized over the remaining lease term of each respective lease.

4. LONG-TERM DEBT

Long-term debt consisted of the following at October 1, 2011 and January 1, 2011 (in thousands):

	October 1, 2011		January 1, 2011
Holding Corp.
Senior secured revolving credit facility	$	117,000	$	-
Senior secured term loan facility		388,125		388,125
Senior notes due 2015		325,000		325,000
Senior subordinated notes due 2017		188,000		188,000
Total Holding Corp.		1,018,125		901,125
Senior PIK notes due 2016, net of unamortized discount of $5,678		309,322		-
Total YCC Holdings	$	1,327,447	$	901,125

Senior Secured Credit Facility

Yankee Candle’s senior secured credit facility (the “Credit Facility”) consists of a $650.0 million senior secured term loan facility (“Term Facility”) maturing on February 6, 2014 and a senior secured revolving credit facility (“Revolving Facility”), which expires on February 6, 2013. Amounts repaid under the Term Facility cannot be reborrowed. In April 2011, Yankee Candle entered into a Joinder Agreement to the Revolving Facility which provided a total of $15.0 million in new revolving loan commitments increasing Yankee Candle’s total revolving loan capacity under the Revolving Facility from $125.0 million to $140.0 million.

16

All borrowings under Yankee Candle’s Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at Yankee Candle’s option, (i) the higher of (a) the prime rate (as set forth on the British Banking Association Telerate Page 5) and (b) the federal funds effective rate, plus one-half percent (0.50%) per annum or (ii) the Eurodollar rate, and resets periodically. In addition to paying interest on outstanding principal under the senior secured credit facility, Yankee Candle is required to pay a commitment fee to the lenders in respect of unutilized loan commitments at a rate of 0.50% per annum. As of October 1, 2011, the weighted average combined interest rate on the Term Facility and the Revolving Facility was 2.1%.

Yankee Candle’s Credit Facility contains a financial covenant which requires that Yankee Candle maintain at the end of each fiscal quarter, commencing with the quarter ended January 1, 2011 through the quarter ending October 1, 2011, a consolidated total secured debt (net of cash and cash equivalents not to exceed $30.0 million) to Consolidated Adjusted EBITDA ratio of no more than 3.25 to 1.00. The consolidated total secured debt to Consolidated Adjusted EBITDA ratio will change to no more than 2.75 to 1.00 for the fourth quarter ending December 31, 2011. As of October 1, 2011, Yankee Candle’s actual secured leverage ratio was 2.65 to 1.00, as calculated in accordance with the Credit Facility. As of October 1, 2011, total secured debt was $504.1 million (net of $4.3 million of cash and including capital lease obligations of $3.2 million). Under the Credit Facility, Consolidated Adjusted EBITDA is defined as net income plus, interest, taxes, depreciation and amortization, further adjusted to add back extraordinary, unusual or non-recurring losses, non-cash stock option expense, fees and expenses related to the completion of the merger (the “Merger”), fees and expenses under the Management Agreement with our equity sponsor, restructuring charges or reserves, as well as other non-cash charges, expenses or losses, and further adjusted to subtract extraordinary, unusual or non-recurring gains, other non-cash income or gains, and certain cash contributions to Yankee Candle’s common equity.

As of October 1, 2011, Yankee Candle had outstanding letters of credit of $2.2 million and $117.0 million outstanding under the Revolving Facility, leaving $20.8 million in availability under the Revolving Facility.

Senior PIK Notes of YCC Holdings

In February 2011, YCC Holdings and Yankee Finance co-issued $315.0 million of Senior PIK Notes pursuant to an Indenture at a discount of $6.3 million for net proceeds of $308.7 million.   Issuance costs related to the Senior PIK Notes were $9.7 million, of which $7.8 million were paid for by YCC Holdings and $1.9 million were paid for by Holding Corp.

Cash interest on the Senior PIK Notes accrues at a rate of 10.25% per annum, and PIK Interest (defined below) accrues at the cash interest rate plus 0.75%. YCC Holdings is required to pay interest on the Senior PIK Notes (1) for the first interest payment date, entirely in cash and (2) for all subsequent interest payment dates, entirely in cash interest, unless the conditions described in the indenture are satisfied with respect to the related interest period, in which case, YCC Holdings may pay interest on the Senior PIK Notes for such interest period by increasing the principal amount of the Senior PIK Notes or by issuing new PIK Notes for up to the entire amount of the interest payment (in each case, “PIK Interest”) to the extent described in the related indenture.

YCC Holdings is indirectly dependent upon dividends from Yankee Candle to generate the funds necessary to meet its outstanding debt service obligations. Neither Yankee Candle nor Holding Corp. guarantees the Senior PIK Notes. Yankee Candle is not obligated to pay dividends to Holding Corp. and Holding Corp. is not obligated to pay dividends to YCC Holdings. Holding Corp. is allowed to make dividends to YCC Holdings (from dividends made by Yankee Candle to Holding Corp.) based upon the lower of (a) available excess cash flow based on provisions determined in Yankee Candle’s Credit Facility agreement, together with certain equity and debt issuances which, to date, have not occurred and (b) amounts available for restricted payments based on provisions included in the indentures governing Yankee Candle's senior notes and senior subordinated notes.

Available excess cash flow for Yankee Candle’s Credit Facility is defined as the aggregate cumulative amount of excess cash flow for all fiscal years subsequent to the date of the credit agreement (February 2007) that is not required to prepay the term debt.  On an annual basis, Yankee Candle is required to prepay the term debt by 50% of excess cash flow, which percentage is reduced to 25% if the consolidated total leverage ratio (as defined in the Credit Facility) is greater than 4.0 to 1.0 and not greater than 5.0 to 1.0.  Yankee Candle is not required to make a payment if the consolidated total leverage ratio is not greater than 4.0 to 1.0.  Excess cash flow is defined in the Credit Facility agreement as consolidated net income of Yankee Candle and its restricted subsidiaries plus all non cash charges including depreciation, amortization, deferred tax expense, non-cash losses on disposition of certain property, decreases in working capital and the net increase in deferred tax liabilities or net decrease in deferred tax assets , decreased by non-cash gains including gains or credits, cash paid for capital expenditures, acquisitions, certain other investments, regularly scheduled principal payments,  voluntary prepayments and certain mandatory prepayments of principal on debt, transaction costs for certain debt, equity, recapitalization, acquisition and investment transactions, purchase price adjustments in connection with acquisitions and certain payments to Madison Dearborn,  increases in working capital and the net decrease in deferred tax liabilities or net increase in deferred tax assets.

The indentures governing Yankee Candle's Senior Notes and Senior Subordinated notes permit Yankee Candle to pay dividends to Holding Corp. if: (i) there is no default or event of default under the indentures governing Yankee Candle’s notes; (ii) Yankee Candle would have a fixed charge coverage ratio of at least 2.0 to 1.0; and (iii) such dividend, together with the aggregate amount of all other “restricted payments” (as defined in such indentures) made by Yankee Candle and its restricted subsidiaries after February 6, 2007 (excluding certain restricted payments), is less than the sum (a) 50% of the Consolidated Net Income (as defined in such indentures) of Yankee Candle for the period (taken as one accounting period) from December 31, 2006 to the end of Yankee Candle’s most recently ended fiscal quarter for which internal financial statements are available at the time of such dividend (or, in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit), plus (b) the proceeds from specified equity contributions or issuances of equity.

In addition to the capacity described above, Yankee Candle has a “basket” of $35 million under the indentures from which it may make dividends in amount not to exceed $35.0 million (since the date of the issuance of Yankee Candle’s notes), so long there is no default or event of defaults under the indentures.  The ability of Yankee Candle and Holding Corp. to pay dividends to YCC Holdings and thus pay cash interest on the Senior PIK Notes is limited by Delaware law.

As of January 1, 2011, the amount available for dividends from Yankee Candle to YCC Holdings was approximately $138.0 million. During the thirty-nine weeks ended October 1, 2011 Holding Corp. made a dividend of $19.2 million to YCC Holdings, which decreased the amount available for future dividends.

Holding Corp.’s income tax receivable reflects the tax benefit of the related interest expense as a result of YCC Holdings’ issuance of Senior PIK Notes.  As such, in the first thirty-nine weeks of fiscal 2011 Holding Corp. received a non cash contribution of $8.3 million from YCC Holdings which increased Holding Corp.’s income tax receivable. The $8.3 million contribution is shownas a contribution by YCC Holdings LLC in Holding Corp.’s condensed consolidated statement of changes in stockholder’s equity and in Holding Corp.’s non-cash financing section of the condensed consolidated statements of cash flows.

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5. MEMBER’S (DEFICIT) EQUITY, STOCKHOLDER’S EQUITY AND EQUITY-BASED COMPENSATION

Prior to February 2011, member’s equity was held in the form of Class A, Class B and Class C common units in YCC Holdings.  As discussed in Note 1, in February 2011 equity interests in YCC Holdings were exchanged for new equity interests in its newly formed parent, Yankee Investments.  Pursuant to this exchange, holders of Class A, Class B and Class C common units in YCC Holdings exchanged such units on a one for one basis for an identical interest in Class A, Class B, and Class C common units of Yankee Investments.  After the exchange, each unit holder had the same ownership interest with the same rights and features in Yankee Investments that it previously had in YCC Holdings.  Subsequent to the exchange, all outstanding Class A, B and C common units in YCC Holdings were converted to 1,000 Common Units in YCC Holdings, all of which are now held by its parent and sole member, Yankee Investments.

Subsequently, in the second fiscal quarter of 2011, in connection with the formation of Yankee Group a second exchange of equity interests occurred, whereby holders of Class A, Class B and Class C common units in Yankee Investments exchanged such units on a one for one basis for an identical interest in Class A, Class B, and Class C common units of Yankee Group.  After the exchange, each unit holder had the same ownership interest with the same rights and features in Yankee Group that it previously had in Yankee Investments. All outstanding interests in Yankee Investments were exchanged pursuant to this transaction with the exception of 1,600 common units held by former employees of Yankee Candle whose employment had been terminated since the February 2011 transaction described above.  These 1,600 units will be held in Yankee Investments pending the planned repurchase of the units by Yankee Investments at the time and in the manner contemplated by the applicable equity documents.  During the thirteen weeks ended October 1, 2011, 470 common units were repurchased leaving 1,130 common units in Yankee Investments.  Following the planned repurchase of these remaining units, all outstanding common units of Yankee Investments will be owned by Yankee Group.

A summary of nonvested units for Yankee Group as of October 1, 2011 and for YCC Holdings as of October 2, 2010, and the activity for the thirty-nine weeks ended October 1, 2011 and October 2, 2010 is presented below (there are no nonvested units remaining in Yankee Investments):

	Class A Common Units			Weighted Average Calculated Value		Class B Common Units			Weighted Average Calculated Value		Class C Common Units			Weighted Average Calculated Value
Nonvested stock at January 1, 2011		-			-		73,293		$	9.39		62,747		$	23.16
Granted		213			-		-			-		11,650			28.97
Forfeited		-			-		(23,626	)	$	9.39		(397	)	$	36.33
Vested		(213	)		-		(34,044	)	$	9.39		(14,587	)	$	21.23
Nonvested stock at October 1, 2011		-			-		15,623		$	9.39		59,413		$	24.69

	Class A Common Units			Weighted Average Calculated Value		Class B Common Units			Weighted Average Calculated Value		Class C Common Units			Weighted Average Calculated Value
Nonvested stock at January 2, 2010		-			-		152,136		$	9.39		75,037		$	11.56
Granted		277			-		-			—		42,812		$	34.25
Forfeited		-			-		(11,128	)	$	9.39		(35,141	)	$	11.70
Vested		(277	)		-		(50,859	)	$	9.39		(14,958	)	$	18.69
Nonvested stock at October 2, 2010		-			-		90,149		$	9.39		67,750		$	24.25

During the thirty-nine weeks ended October 1, 2011, 619 Class A common units, 12,816 vested Class B common units and 948 vested Class C common units were repurchased for $0.8 million. During the thirty-nine weeks ended October 2, 2010, 1,741 vested Class A common units, 17,299 vested Class B common units and 17,419 vested Class C common units were repurchased for $0.9 million. Yankee Group anticipates that all of its nonvested common units will vest.

The total estimated fair value of equity awards vested during thirty-nine weeks ended October 1, 2011 and October 2, 2010 was $0.6 million and $0.8 million, respectively. Equity-based compensation expense for the thirty-nine weeks ended October 1, 2011 and October 2, 2010 was $3.7 million and $0.7 million, respectively. Included in the $3.7 million of equity-based compensation for the thirty-nine weeks ended October 1, 2011 was the $3.0 million payment to the holders of Class B common units and Class C common units discussed in Note 1.

As of October 1, 2011, there was approximately $1.6 million of total unrecognized compensation cost related to Yankee Group’s Class B and Class C common unit equity awards and there was no unrecognized expense related to Yankee Group’s Class A common unit equity awards. This cost is expected to be recognized over the remaining vesting period, of approximately 5 years (October 2011 to June 2016).

Presented below is a summary of assumptions for the indicated periods. There were 11,650 Class C grants and no Class B grants for the thirty-nine weeks ended October, 2011. There were 42,812 Class C grants and no Class B grants for the thirty-nine weeks ended October 2, 2010.

Assumptions	Thirty-Nine Weeks Ended October 1, 2011			Thirty-Nine Weeks Ended October 2, 2010
Weighted average calculated value of awards granted	$	28.97		$	34.25
Weighted average volatility		76.1	%		39.7	%
Weighted average expected term (in years)		5.0			5.0
Dividend yield		—			—
Weighted average risk-free interest rate		2.2	%		2.6	%

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With respect to the Class B and Class C common units, since YCC Holdings and Yankee Group are not publicly traded, the estimate of expected volatility is based on the median historical volatility of a group of eight comparable public companies, adjusted for differences in leverage. The historical volatilities of the comparable companies were measured over a 5-year historical period. The expected term of the Class B and Class C common units granted represents the period of time that the units are expected to be outstanding and is assumed to be approximately five years based on management’s estimate of the time to a liquidity event. Yankee Group does not expect to pay dividends, and accordingly, the dividend yield is zero. The risk free interest rate reflects a five-year period commensurate with the expected time to a liquidity event and was based on the U.S. Treasury yield curve.

6. DERIVATIVE FINANCIAL INSTRUMENTS

The Companies follow the guidance under ASC Topic 815 “Derivatives and Hedging,” which establishes accounting and reporting standards for derivative instruments. The guidance requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholder’s or member’s equity as accumulated other comprehensive income (loss) (“OCI”) or net income (loss) depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.

Interest Rate Swaps

Yankee Candle uses interest rate swaps to eliminate the variability of a portion of cash flows associated with the forecasted interest payments on its Term Facility. This is achieved through converting a portion of the floating rate Term Facility to a fixed rate by entering into pay-fixed interest rate swaps. During the second quarter of 2009 Yankee Candle changed the interest rate election on its Term Facility from the three-month LIBOR rate to the one-month LIBOR rate. As a result, Yankee Candle’s existing interest rate swaps were de-designated as cash flow hedges and Yankee Candle no longer accounts for these instruments using hedge accounting. Accordingly, changes in fair value are now recognized in the condensed consolidated statements of operations as a component of other (income) expense. The unrealized loss of $21.7 million which was included in OCI on the date Yankee Candle changed their interest rate election was amortized to other expense over the remaining term of the respective interest rate swap agreements. The unrealized loss was fully amortized during the thirty-nine weeks ended October 1, 2011.

Simultaneous with the de-designations, Yankee Candle entered into new interest rate swap agreements to further reduce the variability of cash flows associated with the forecasted interest payments on Yankee Candle’s Term Facility. These swaps are not designated as cash flow hedges and are measured at fair value with changes in fair value recognized in the condensed consolidated statements of operations as a component of other (income) expense. One of Yankee Candle’s original interest rate swaps terminated in March 2010 and the remaining original swap agreement terminated on March 31, 2011.

During the second and third quarters of 2009, Yankee Candle entered into forward starting, amortizing, interest rate swaps in the aggregate notional amount of $320.7 million with a blended fixed rate of 3.49% to eliminate the variability in future interest payments on its Term Facility by having Yankee Candle pay fixed-rate amounts in exchange for receipt of floating-rate interest payments. The effective date of the forward starting swaps was March 31, 2011 after the original swaps terminated. These new swaps are not designated as cash flow hedges and are measured at fair value with changes in fair value recognized in the condensed consolidated statements of operations as a component of other (income) expense.  The new swap agreements terminate in March 2013.

The fair values of the Companies’ derivative instruments as of October 1, 2011 and January 1, 2011, were as follows (in thousands):

	Fair Values of Derivative Instruments Asset Derivatives
	Balance Sheet Location	October 1,		January 1,
		2011		2011
Derivatives not designated as hedging instruments
Interest rate swap agreements	Prepaid expenses and other current assets	$	-	$	1,030
Total Derivative Assets		$	-	$	1,030

	Fair Value of Derivative Instruments Liability Derivatives
	Balance Sheet Location	October 1,			January 1,
		2011			2011
Derivatives not designated as hedging instruments
Interest rate swap agreements	Other accrued liabilities		$	11,479		$	18,011
Total Derivative Liabilities			$	11,479		$	18,011

19

The effect of derivative instruments on the condensed consolidated statements of operations for the thirteen and thirty-nine weeks ended October 1, 2011 and October 2, 2010, was as follows (in thousands):

		Amount of Realized Gain Recognized on Derivatives			Amount of Realized Loss Recognized on Derivatives
	Location of Realized Loss Recognized on Derivatives	Thirteen Weeks Ended October 1, 2011			Thirteen Weeks Ended October 2, 2010
Derivatives not designated as hedging instruments
Interest rate swap agreements	Other expense	$	(2,200	)	$	2,119
Total		$	(2,200	)	$	2,119

		Amount of Realized Gain Recognized on Derivatives			Amount of Realized Loss Recognized on Derivatives
	Location of Realized Loss Recognized on Derivatives	Thirty-Nine Weeks Ended October 1, 2011			Thirty-Nine Weeks Ended October 2, 2010
Derivatives not designated as hedging instruments
Interest rate swap agreements	Other expense	$	(4,333	)	$	11,109
Total		$	(4,333	)	$	11,109

		Amount of  Loss Reclassified from Accumulated OCI Into Income (Effective Portion)		Amount of  Loss Reclassified from Accumulated OCI Into Income (Effective Portion)
	Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Thirteen Weeks Ended October 1, 2011		Thirteen Weeks Ended October 2, 2010
Cash Flow Hedges
Interest rate swap agreements	Other expense	$	-	$	1,169
Total		$	-	$	1,169

		Amount of  Loss Reclassified from Accumulated OCI Into Income (Effective Portion)		Amount of  Loss Reclassified from Accumulated OCI Into Income (Effective Portion)
	Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Thirty-Nine Weeks Ended October 1, 2011		Thirty-Nine Weeks Ended October 2, 2010
Cash Flow Hedges
Interest rate swap agreements	Other expense	$	1,169	$	7,453
Total		$	1,169	$	7,453

20

7. FAIR VALUE MEASUREMENTS

The Companies follow the guidance prescribed by ASC Topic 820 “Fair Value Measurement.” ASC Topic 820 defines fair value and provides a consistent framework for measuring fair value under GAAP, including financial statement disclosure requirements. As specified under this Topic, valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. The Fair Value Measurement Topic classifies these inputs into the following hierarchy:

Level 1 Inputs– Quoted prices for identical instruments in active markets.

Level 2 Inputs– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs– Instruments with primarily unobservable value drivers.

The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of October 1, 2011 and January 1, 2011 (in thousands):

	Fair Value Measurements on a Recurring Basis
	as of October 1, 2011
	Level 1		Level 2		Level 3		Total
Assets
Marketable securities	$	1,514	$	-	$	-	$	1,514
Total Assets	$	1,514	$	-	$	-	$	1,514
Liabilities
Interest rate swap agreements	$	-	$	11,479	$		$	11,479
Total Liabilities	$	-	$	11,479	$	-	$	11,479

	Fair Value Measurements on a Recurring Basis
	as of January 1, 2011
	Level 1		Level 2		Level 3		Total
Assets
Marketable securities	$	1,182	$	-	$	-	$	1,182
Interest rate swap agreements		-		1,030		-		1,030
Total Assets	$	1,182	$	1,030	$	-	$	2,212
Liabilities
Interest rate swap agreements	$	-	$	18,011	$	-	$	18,011
Total Liabilities	$	-	$	18,011	$	-	$	18,011

The Companies hold marketable securities in Yankee Candle’s deferred compensation plan. The marketable securities consist of investments in mutual funds and are recorded at fair value based on third party quotes. The Companies use an income approach to value the asset and liability for Yankee Candle’s interest rate swaps using a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contract using current market information as of the reporting date such as the one month LIBOR curve and the creditworthiness of the Companies and their counterparties.

21

Financial Instruments Not Measured at Fair Value

The Companies’ long-term debt is recorded at historical amounts. The Companies determine the fair value of their long-term debt based on current quoted market prices. The following table represents the carrying value and fair value of Yankee Candle’s senior notes, senior subordinated notes and Term Facility and YCC Holdings’ Senior PIK Notes as of October 1, 2011 and January 1, 2011 (in thousands):

	October 1, 2011
	Carrying Value		Fair Value
Senior secured term loan facility	$	388,125	$	370,970
Senior notes due 2015		325,000		313,625
Senior subordinated notes due 2017		188,000		175,780
Senior PIK notes due 2016, net of unamortized discount of $5,678 (YCC Holdings only)		309,322		266,017

	January 1, 2011
	Carrying Value		Fair Value
Senior secured term loan facility	$	388,125	$	384,244
Senior notes due 2015		325,000		338,000
Senior subordinated notes due 2017		188,000		195,990

It is impracticable for the Companies to estimate the fair value of the Revolving Facility.

8. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION

The Companies have segmented their operations in a manner that reflects how their chief operating decision–maker (the “CEO”) currently reviews the results of the Companies and their subsidiaries’ businesses. In the prior fiscal year the Companies had two reportable segments, retail and wholesale. Wholesale had been an aggregation of the wholesale and international operating segments. Because of the increased importance of the international segment to the Companies’ operations, as evidenced by higher sales volumes and the appointment of a full time international president, the Companies have now disaggregated the international operations from the domestic wholesale operations.  The Companies have restated the prior year information to conform to the current period presentation.

The CEO evaluates its retail, wholesale, and international operations based on an “operating earnings” measure. Such measure gives recognition to specifically identifiable operating costs such as cost of sales and selling expenses.  Costs and income not specifically identifiable are included within the unallocated/corporate/other column and include administrative charges, interest expense, fair value changes of derivative contracts, restructuring charges for continuing operations and other costs not allocated to specific operating segments and are accordingly reflected in the unallocated/corporate/other column.  The Companies do not account for or report assets, capital expenditures or depreciation and amortization by segment to the CEO.

The following are the relevant data for the thirteen and thirty-nine weeks ended October 1, 2011 and October 2, 2010 (in thousands):

YCC Holdings
Thirteen Weeks Ended October 1, 2011	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	84,860	$	83,230	$	27,019	$	-		$	195,109
Gross profit		56,518		39,880		10,919		(166	)		107,151
Selling expenses		45,474		3,508		5,445		3,438			57,865
Operating income		11,044		36,372		5,474		(19,090	)		33,800
Interest and other expense, net		-		-		-		(24,293	)		(24,293	)
Income from continuing operations before provision for income taxes										$	9,507

Thirteen Weeks Ended October 2, 2010	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	79,585	$	76,244	$	19,921	$	-		$	175,750
Gross profit		55,095		39,130		7,510		(88	)		101,647
Selling expenses		41,245		2,985		4,110		3,502			51,842
Operating income		13,850		36,145		3,400		(19,266	)		34,129
Interest and other expense, net		-		-		-		(21,009	)		(21,009	)
Income from continuing operations before provision for income taxes										$	13,120

22

Holding Corp.
Thirteen Weeks Ended October 1, 2011	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	84,860	$	83,230	$	27,019	$	-		$	195,109
Gross profit		56,518		39,880		10,919		(166	)		107,151
Selling expenses		45,474		3,508		5,445		3,438			57,865
Operating income		11,044		36,372		5,474		(18,877	)		34,013
Interest and other expense, net		-		-		-		(15,475	)		(15,475	)
Income from continuing operations before provision for income taxes										$	18,538

Thirteen Weeks Ended October 2, 2010	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	79,585	$	76,244	$	19,921	$	-		$	175,750
Gross profit		55,095		39,130		7,510		(88	)		101,647
Selling expenses		41,245		2,985		4,110		3,502			51,842
Operating income		13,850		36,145		3,400		(19,266	)		34,129
Interest and other expense, net		-		-		-		(21,009	)		(21,009	)
Income from continuing operations before provision for income taxes										$	13,120

YCC Holdings
Thirty-Nine Weeks Ended October 1, 2011	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	232,708	$	168,802	$	67,626	$	-		$	469,136
Gross profit		150,483		80,263		27,628		(350	)		258,024
Selling expenses		127,545		9,821		15,359		10,330			163,055
Operating income		22,938		70,442		12,269		(58,988	)		46,661
Interest and other expense, net		-		-		-		(70,387	)		(70,387	)
Loss from continuing operations before benefit from income taxes										$	(23,726	)

Thirty-Nine Weeks Ended October 2, 2010	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	224,974	$	167,793	$	49,326	$	-		$	442,093
Gross profit		148,648		82,663		18,872		(192	)		249,991
Selling expenses		119,218		8,609		11,136		10,705			149,668
Operating income		29,430		74,054		7,736		(58,033	)		53,187
Interest and other expense, net		-		-		-		(68,762	)		(68,762	)
Loss from continuing operations before benefit from income taxes										$	(15,575	)

23

Holding Corp.
Thirty-Nine Weeks Ended October 1, 2011	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	232,708	$	168,802	$	67,626	$	-		$	469,136
Gross profit		150,483		80,263		27,628		(350	)		258,024
Selling expenses		127,545		9,821		15,359		10,330			163,055
Operating income		22,938		70,442		12,269		(58,571	)		47,078
Interest and other expense, net		-		-		-		(47,971	)		(47,971	)
Loss from continuing operations before benefit from income taxes										$	(893	)

Thirty-Nine Weeks Ended October 2, 2010	Retail		Wholesale		International		Unallocated/  Corporate/  Other			Balance per  Condensed  Consolidated  Statement of  Operations
Sales	$	224,974	$	167,793	$	49,326	$	-		$	442,093
Gross profit		148,648		82,663		18,872		(192	)		249,991
Selling expenses		119,218		8,609		11,136		10,705			149,668
Operating income		29,430		74,054		7,736		(58,033	)		53,187
Interest and other expense, net		-		-		-		(68,762	)		(68,762	)
Loss from continuing operations before benefit from income taxes										$	(15,575	)

Sales for the Companies’ international operations including sales that are classified within the wholesale and retail segments were approximately $27.7 million and $20.7 million for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively. Sales for the Companies’ international operations, including sales that are classified within the wholesale and retail segments, were approximately $68.8 million and $51.1 million for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively. Long lived assets of the Companies’ international operations were approximately $3.6 million and $2.4 million as of October 1, 2011 and January 1, 2011, respectively.

9. COMMITMENTS AND CONTINGENCIES

In August 2009, in connection with the Linens 'N Things bankruptcy proceedings, Linens Holding Co. and its affiliates ("Linens") filed a lawsuit against Yankee Candle in United States Bankruptcy Court in the District of Delaware alleging that pursuant to the United States Bankruptcy Code, Linens is entitled to recover from Yankee Candle certain amounts on the basis that they constitute "preferential transfers" under the Code. On April 4, 2011, the bankruptcy court approved a settlement of this matter, under which Yankee Candle paid $0.2 million.

In addition, the Companies are engaged in various lawsuits, either as plaintiff or defendant. In the opinion of management, the ultimate outcome of these lawsuits will not have a material adverse effect on the Companies’ financial condition, results of operations or cash flows.

10. FINANCIAL INFORMATION RELATED TO GUARANTOR SUBSIDIARIES UNDER YANKEE CANDLE’S SENIOR NOTES AND SENIOR SUBORDINATED NOTES

Obligations under the senior notes of Yankee Candle are guaranteed on an unsecured senior basis and obligations under the senior subordinated notes are guaranteed on an unsecured senior subordinated basis by Holding Corp. and 100% of Yankee Candle’s existing and future domestic subsidiaries. The senior notes are fully and unconditionally guaranteed by all of Yankee Candle’s 100% owned U.S. subsidiaries (the “Guarantor Subsidiaries” and collectively with the Holding Corp., the “Guarantors”) on a senior unsecured basis. These guarantees are joint and several obligations of the Guarantors. Yankee Candle’s foreign subsidiary does not guarantee these notes.

The following tables present condensed consolidating supplementary financial information for Yankee Candle, as the issuer of the senior and senior subordinated notes, Holding Corp., Yankee Candle’s domestic guarantor subsidiaries and the non guarantor subsidiaries together with eliminations as of and for the periods indicated. Holding Corp. is also a guarantor of the notes. Separate complete financial statements of the respective Guarantors would not provide additional material information that would be useful in assessing the financial composition of the Guarantors.

24

Condensed consolidating financial information is as follows:

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

October 1, 2011

(in thousands)

ASSETS	Holding  Corp.		Yankee  Candle		Guarantor  Subsidiaries		Non  Guarantor  Subsidiary		Intercompany  Eliminations			Consolidated
CURRENT ASSETS:
Cash	$	-	$	2,071	$	1,156	$	1,067	$	-		$	4,294
Accounts receivable, net		-		60,798		65		19,933		-			80,796
Inventory		-		109,999		87		20,332		-			130,418
Prepaid expenses and other current assets		-		24,833		238		952		(620	)		25,403
Deferred tax assets		-		10,073		44		154		-			10,271
TOTAL CURRENT ASSETS		-		207,774		1,590		42,438		(620	)		251,182
PROPERTY, PLANT AND EQUIPMENT, NET		-		117,544		71		3,585		-			121,200
GOODWILL		-		643,570		-		-		-			643,570
INTANGIBLE ASSETS		-		272,329		-		203		-			272,532
DEFERRED FINANCING COSTS		-		11,959		-		-		-			11,959
OTHER ASSETS		-		1,944		-		5		-			1,949
INTERCOMPANY RECEIVABLES				38,815		590				(39,405	)		-
INVESTMENT IN SUBSIDIARIES		61,593		1,148		-		-		(62,741	)		-
TOTAL ASSETS	$	61,593	$	1,295,083	$	2,251	$	46,231	$	(102,766	)	$	1,302,392
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	-	$	38,908	$	41	$	1,408	$	-		$	40,357
Accrued payroll		-		8,359		161		317		-			8,837
Accrued interest		-		5,994		-		-		-			5,994
Accrued purchases of property and equipment		-		5,384		-		-		-			5,384
Current portion of capital leases		-		903		-		-		-			903
Other accrued liabilities		-		36,550		1,191		4,752		(620	)		41,873
TOTAL CURRENT LIABILITIES		-		96,098		1,393		6,477		(620	)		103,348
DEFERRED TAX LIAIBILITIES		-		100,985		-		-		-			100,985
LONG-TERM DEBT		-		1,018,125		-		-		-			1,018,125
DEFERRED RENT		-		12,932		-		59		-			12,991
CAPITAL LEASES, NET OF CURRENT PORTION		-		2,326		-		-		-			2,326
OTHER LONG-TERM LIABILITIES		-		3,024		-		-		-			3,024
INTERCOMPANY PAYABLES		-		-		-		39,405		(39,405	)		-
STOCKHOLDER'S EQUITY		61,593		61,593		858		290		(62,741	)		61,593
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	61,593	$	1,295,083	$	2,251	$	46,231	$	(102,766	)	$	1,302,392

25

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

January 1, 2011

(in thousands)

	Holding Corp.		Yankee Candle		Guarantor Subsidiaries		Non Guarantor  Subsidiary		Intercompany Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash	$	—	$	8,702	$	1,868	$	2,143	$	—		$	12,713
Accounts receivable, net		—		31,960		176		14,801		—			46,937
Inventory		—		57,427		87		9,873		—			67,387
Prepaid expenses and other current assets		—		10,032		195		586		—			10,813
Deferred tax assets		—		11,577		65		—		—			11,642
TOTAL CURRENT ASSETS		—		119,698		2,391		27,403		—			149,492
PROPERTY AND EQUIPMENT, NET		—		116,377		55		2,354		—			118,786
GOODWILL		—		643,570		—		—		—			643,570
INTANGIBLE ASSETS		—		281,465		—		284		—			281,749
DEFERRED FINANCING COSTS		—		14,271		—		—		—			14,271
OTHER ASSETS		—		1,832		—		—		—			1,832
INTERCOMPANY RECEIVABLES		—		23,214		430		—		(23,644	)		—
INVESTMENT IN SUBSIDIARIES		70,008		3,625		—		—		(73,633	)		—
TOTAL ASSETS	$	70,008	$	1,204,052	$	2,876	$	30,041	$	(97,277	)	$	1,209,700
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	—	$	25,025	$	46	$	1,220	$	—		$	26,291
Accrued payroll		—		12,317		31		321		—			12,669
Accrued interest		—		17,509		—		—		—			17,509
Accrued income taxes		—		18,639		—		201		—			18,840
Accrued purchases of property and equipment		—		2,269		—		—		—			2,269
Current portion of capital leases		—		667		—		—		—			667
Other accrued liabilities		—		41,679		1,960		1,869		—			45,508
TOTAL CURRENT LIABILITIES		—		118,105		2,037		3,611		—			123,753
DEFERRED TAX LIABILITIES		—		99,432		—		—		—			99,432
LONG-TERM DEBT		—		901,125		—		—		—			901,125
DEFERRED RENT		—		11,535		—		—		—			11,535
CAPITAL LEASES, NET OF CURRENT		—		1,677		—		—		—			1,677
PORTION
OTHER LONG-TERM LIABILITIES		—		2,170		—		—		—			2,170
INTERCOMPANY PAYABLES		—		—		—		23,644		(23,644	)		—
STOCKHOLDER'S EQUITY		70,008		70,008		839		2,786		(73,633	)		70,008
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	70,008	$	1,204,052	$	2,876	$	30,041	$	(97,277	)	$	1,209,700

26

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirteen Weeks Ended October 1, 2011

(in thousands)

	Holding  Corp.			Yankee  Candle			Guarantor  Subsidiaries			Non Guarantor  Subsidiary			Intercompany  Eliminations			Consolidated
Sales	$	-		$	180,198		$	619		$	26,625		$	(12,333	)	$	195,109
Cost of sales		-			79,176			204			21,920			(13,342	)		87,958
Gross profit		-			101,022			415			4,705			1,009			107,151
Selling expenses		-			51,682			496			5,747			(60	)		57,865
General and administrative expenses		-			15,246			-			(1	)		28			15,273
Operating income (loss)		-			34,094			(81	)		(1,041	)		1,041			34,013
Interest expense		-			17,847			-			-			-			17,847
Other income		-			(1,170	)		-			(1,202	)		-			(2,372	)
Income (loss) before provision for (benefit) from income taxes		-			17,417			(81	)		161			1,041			18,538
Provision for (benefit) from income taxes		-			5,698			(26	)		33			339			6,044
Income (loss) from continuing operations		-			11,719			(55	)		128			702			12,494
Loss from discontinued operations, net of income taxes		-			(42	)		-			-			-			(42	)
Income (loss) before equity in (earnings) losses of subsidiaries, net of tax		-			11,677			(55	)		128			702			12,452
Equity in (earnings) losses of subsidiaires, net of tax		(12,452	)		(73	)		-			-			12,525			-
Net income (loss)	$	12,452		$	11,750		$	(55	)	$	128		$	(11,823	)	$	12,452

27

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirteen Weeks Ended October 2, 2010

(in thousands)

	Holding Corp.			Yankee Candle			Guarantor  Subsidiaries			Non  Guarantor  Subsidiary			Intercompany  Eliminations			Consolidated
Sales	$	—		$	168,917		$	724		$	19,318		$	(13,209	)	$	175,750
Cost of sales		—			69,005			211			16,769			(11,882	)		74,103
Gross profit		—			99,912			513			2,549			(1,327	)		101,647
Selling expenses		—			47,306			555			4,042			(61	)		51,842
General and administrative expenses		—			15,638			—			—			38			15,676
Restructuring charges		—			—			—			—			—			-
Operating income (loss)		—			36,968			(42	)		(1,493	)		(1,304	)		34,129
Interest expense		—			20,525			—			—			—			20,525
Other (income) expense		—			(21	)		1			504			—			484
Income (loss) from continuing operations before provision for (benefit) from income taxes		—			16,464			(43	)		(1,997	)		(1,304	)		13,120
Provision for (benefit) from income taxes		—			5,242			(15	)		(560	)		(420	)		4,247
Income (loss) from continuing operations		—			11,222			(28	)		(1,437	)		(884	)		8,873
Loss from discontinued operations, net of income taxes		—			(49	)		—			—			—			(49	)
Income (loss) before equity in (earnings) losses of subsidiaries, net of tax		—			11,173			(28	)		(1,437	)		(884	)		8,824
Equity in (earnings) losses of subsidiaries, net of tax		(8,824	)		1,465			—			—			7,359			—
Net income (loss)	$	8,824		$	9,708		$	(28	)	$	(1,437	)	$	(8,243	)	$	8,824

28

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirty-Nine Weeks Ended October 1, 2011

(in thousands)

	Holding  Corp.			Yankee  Candle			Guarantor  Subsidiaries			Non  Guarantor  Subsidiary			Intercompany  Eliminations			Consolidated
Sales	$	-		$	443,408		$	1,703		$	65,808		$	(41,783	)	$	469,136
Cost of sales		-			194,853			532			53,845			(38,118	)		211,112
Gross profit		-			248,555			1,171			11,963			(3,665	)		258,024
Selling expenses		-			146,278			1,475			15,482			(180	)		163,055
General and administrative expenses		-			47,778			-			-			113			47,891
Restructuring charges		-			-			-			-			-			-
Operating income (loss)		-			54,499			(304	)		(3,519	)		(3,598	)		47,078
Interest expense		-			53,303			-			-			-			53,303
Other income		-			(625	)		-			(4,707	)		-			(5,332	)
Income (loss) before provision for (benefit) from income taxes		-			1,821			(304	)		1,188			(3,598	)		(893	)
Provision for (benefit) from income taxes		-			2,720			(454	)		303			(3,417	)		(848	)
(Loss) income from continuing operations		-			(899	)		150			885			(181	)		(45	)
Loss from discontinued operations, net of income taxes		-			(227	)		-			-			-			(227	)
(Loss) income before equity in (earnings) losses of subsidiaries, net of tax		-			(1,126	)		150			885			(181	)		(272	)
Equity in (earnings) losses of subsidiaires, net of tax		272			(1,035	)		-			-			763			-
Net (loss) income	$	(272	)	$	(91	)	$	150		$	885		$	(944	)	$	(272	)

29

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirty-Nine Weeks Ended October 2, 2010

(in thousands)

	Holding Corp.			Yankee Candle			Guarantor  Subsidiaries			Non  Guarantor  Subsidiary			Intercompany  Eliminations			Consolidated
Sales	$	—		$	424,946		$	1,800		$	47,483		$	(32,136	)	$	442,093
Cost of sales		—			179,330			536			40,892			(28,656	)		192,102
Gross profit		—			245,616			1,264			6,591			(3,480	)		249,991
Selling expenses		—			137,369			1,510			10,969			(180	)		149,668
General and administrative expenses		—			46,172			—			—			135			46,307
Restructuring charges		—			829			—			—			—			829
Operating income (loss)		—			61,246			(246	)		(4,378	)		(3,435	)		53,187
Interest expense		—			58,794			—			—			—			58,794
Other expense		—			9,032			1			935			—			9,968
Loss from continuing operations before benefit from income taxes		—			(6,580	)		(247	)		(5,313	)		(3,435	)		(15,575	)
Benefit from income taxes		—			(3,113	)		(116	)		(1,488	)		(1,334	)		(6,051	)
Loss from continuing operations		—			(3,467	)		(131	)		(3,825	)		(2,101	)		(9,524	)
Loss from discontinued operations, net of income taxes		—			(342	)		—			—			—			(342	)
Loss before equity in losses of subsidiaries, net of tax		—			(3,809	)		(131	)		(3,825	)		(2,101	)		(9,866	)
Equity in losses of subsidiaries, net of tax		9,866			3,956			—			—			(13,822	)		—
Net loss	$	(9,866	)	$	(7,765	)	$	(131	)	$	(3,825	)	$	11,721		$	(9,866	)

30

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Thirty-Nine Weeks Ended October 1, 2011

(in thousands)

	Holding  Corp.			Yankee  Candle			Guarantor  Subsidiaries			Non  Guarantor  Subsidiary			Intercompany  Eliminations			Consolidated
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net (loss) income	$	(272	)	$	(91	)	$	150		$	885		$	(944	)	$	(272	)
Adjustments to reconcile net (loss) income to net cash in operating activities:
Depreciation and amortization		-			29,923			14			633			-			30,570
Gain on derivatives		-			(4,333	)		-			-			-			(4,333	)
Unrealized gain on marketable securities		-			122			-			-			-			122
Equity-based compensation expense		-			633			-			-			-			633
Deferred taxes		-			2,458			21			(154	)		-			2,325
Loss on disposal of property and equipment		-			782			-			-			-			782
Equity in losses (earnings) of subsidiaries		272			(1,035	)		-			(181	)		944			-
Changes in assets and liabilities:
Accounts receivable, net		-			(28,838	)		111			(5,068	)		-			(33,795	)
Inventory		-			(52,570	)		-			(10,380	)		-			(62,950	)
Prepaid expenses and other assets		-			(1,845	)		(43	)		(372	)		-			(2,260	)
Accounts payable		-			13,883			(5	)		183			-			14,061
Income taxes payable		-			(23,554	)		-			419			-			(23,135	)
Accrued expenses and other current liabilities		-			(12,431	)		(639	)		1,130			-			(11,940	)
NET CASH USED IN OPERATING ACTIVITIES		-			(76,896	)		(391	)		(12,905	)		-			(90,192	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		-			(15,458	)		(32	)		(1,777	)		-			(17,267	)
Proceeds from the sale of property and equipment		-			38			-			-			-			38
Intercompany payables/receivables					(12,951	)								12,951			-
NET CASH USED IN INVESTING ACTIVITIES		-			(28,371	)		(32	)		(1,777	)		12,951			(17,229	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Borrowings on credit facility		-			137,000			-			-			-			137,000
Repayments under credit facility					(20,000	)											(20,000	)
Contribution by YCC Holdings LLC		-			3,000			-			-			-			3,000
Investment in subsidiary		-			(360	)		-			-			360			-
Contribution by Yankee Holding Corp.		-			-			-			360			(360	)		-
Dividends paid to YCC Holdings LLC		-			(19,178	)		-			-			-			(19,178	)
Proceeds from issuance of common stock		-			20			-			-			-			20
Repurchase of common stock		-			(811	)		-			-			-			(811	)
Principal payments on capital lease obligations		-			(567	)		-			-			-			(567	)
Financing costs		-			(468	)		-			-			-			(468	)
Intercompany payables/receivables		-			-			(289	)		13,240			(12,951	)		-
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		-			98,636			(289	)		13,600			(12,951	)		98,996
EFFECT OF EXCHANGE RATE CHANGES ON CASH		-			-			-			6			-			6
NET DECREASE IN CASH		-			(6,631	)		(712	)		(1,076	)		-			(8,419	)
CASH, BEGINNING  OF PERIOD		-			8,702			1,868			2,143			-			12,713
CASH, END  OF PERIOD	$	-		$	2,071		$	1,156		$	1,067		$	-		$	4,294

31

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Thirty-Nine Weeks Ended October 2, 2010

(in thousands)

	Holding Corp.			Yankee Candle			Guarantor  Subsidiaries			Non  Guarantor  Subsidiary			Intercompany  Eliminations			Consolidated
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(9,866	)	$	(7,765	)	$	(131	)	$	(3,825	)	$	11,721		$	(9,866	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		—			31,212			12			384			—			31,608
Realized loss on derivative contracts		—			11,109			—			—			—			11,109
Unrealized gain on marketable securities		—			(41	)		—			—			—			(41	)
Share-based compensation expense		—			716			—			—			—			716
Deferred taxes		—			492			138			—			—			630
Loss on disposal of property and equipment		—			64			—			—			—			64
Non-cash adjustments related to restructuring		—			10			—			—			—			10
Equity in losses (earnings) of subsidiaries		9,866			3,956			—			(2,101	)		(11,721	)		—
Changes in assets and liabilities
Accounts receivable, net		—			(26,659	)		149			(5,315	)		—			(31,825	)
Inventory		—			(36,880	)		(3	)		(3,777	)		—			(40,660	)
Prepaid expenses and other assets		—			(2,129	)		18			(534	)		—			(2,645	)
Accounts payable		—			17,866			(52	)		1,090			—			18,904
Income taxes		—			(8,250	)		—			—			—			(8,250	)
Accrued expenses and other liabilities		—			(18,636	)		(653	)		997			—			(18,292	)
NET CASH USED IN OPERATING ACTIVITIES		—			(34,935	)		(522	)		(13,081	)		—			(48,538	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		—			(13,242	)		(21	)		(180	)		—			(13,443	)
Proceeds from the sale of property and equipment		—			197			—			—			—			197
Intercompany payables/receivables		—			(12,118	)		—			—			12,118			-
NET CASH USED IN INVESTING ACTIVITIES		—			(25,163	)		(21	)		(180	)		12,118			(13,246	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Credit Facility		—			76,000			—			—			—			76,000
Repayments under Credit Facility		—			(20,174	)		—			—			—			(20,174	)
Proceeds from issuance of common stock		—			30			—			—			—			30
Repurchase of common stock		—			(887	)		—			—			—			(887	)
Principal payments on capital lease obligations		—			(234	)		—			—			—			(234	)
Intercompany payables/receivables		—			—			163			11,955			(12,118	)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		—			54,735			163			11,955			(12,118	)		54,735
EFFECT EXCHANGE RATE CHANGES ON CASH		—			—			—			(43	)		—			(43	)
NET DECREASE IN CASH		—			(5,363	)		(380	)		(1,349	)		—			(7,092	)
CASH, BEGINNING OF PERIOD		—			4,588			2,151			2,356			—			9,095
CASH, END OF PERIOD	$	—		$	(775	)	$	1,771		$	1,007		$	—		$	2,003

32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ORGANIZATION AND CURRENT EVENTS

YCC Holdings LLC (“YCC Holdings”) and Yankee Holding Corp. (“Holding Corp.”) are holding companies with no direct operations. Their principal assets are the indirect equity interests in The Yankee Candle Company, Inc. (“Yankee Candle”), and all of their operations are conducted through Yankee Candle, the wholly owned operating subsidiary of Holding Corp. Holding Corp. is a wholly owned subsidiary of YCC Holdings. YCC Holdings is a wholly owned subsidiary of Yankee Candle Investments LLC (“Yankee Investments”), which is in turn a wholly owned subsidiary of Yankee Candle Group LLC (“Yankee Group”).

February 2011 Senior Note Issuance.    In February 2011, Yankee Investments and Yankee Finance, Inc. (“Yankee Finance”) were formed in connection with the co-issuance of $315.0 million Senior PIK Notes (as defined below) by YCC Holdings and Yankee Finance.  In connection with the issuance of the Senior PIK Notes, the equity interests in YCC Holdings were exchanged for new equity interests in its newly formed parent, Yankee Investments.  Pursuant to this exchange, holders of Class A, Class B and Class C common units in YCC Holdings exchanged such units on a one for one basis for an identical interest in Class A, Class B, and Class C common units of Yankee Investments.  After the exchange, each unit holder had the same ownership interest with the same rights and features in Yankee Investments that it previously had in YCC Holdings.  Subsequent to the exchange, all outstanding Class A, B and C common units in YCC Holdings were converted to 1,000 Common Units in YCC Holdings, all of which are now held by its parent and sole member, Yankee Investments.

In February 2011, YCC Holdings and Yankee Finance co-issued $315.0 million of 10.25%/11.00% Senior Notes due 2016 (the “Senior PIK Notes”) pursuant to an Indenture at a discount of $6.3 million for net proceeds of $308.7 million.  Issuance costs related to the Senior PIK Notes were $9.7 million, of which $7.8 million were paid for by YCC Holdings and $1.9 million were paid for by Holding Corp.  The costs paid for by Holding Corp. have been reflected as a dividend to YCC Holdings in the accompanying condensed consolidated statement of stockholder’s equity.   The Senior PIK Notes were issued in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”); however, the issuers have filed a registration statement with the Securities and Exchange Commission (the “SEC”) relating to an offer to exchange the notes for identical notes that have been registered under the Securities Act. The registration statement was declared effective on August 4, 2011 and all notes were subsequently exchanged.

The proceeds from the Senior PIK Notes were used to pay transaction costs (exclusive of the amounts paid by Holding Corp.) and make a payment of $300.8 million to Yankee Investments which in turn made payments of $297.8 million to holders of Yankee Investments’ Class A common units and payments of $3.0 million to holders of Yankee Investments’ Class B and Class C common units.   The payments to the Class A common unit holders represent a partial return of their original investment and are reflected as an equity transaction by Yankee Investments.  The payments to the Class B and Class C common unit holders who are members of management and directors of Holding Corp. did not affect the liquidation amounts for such units and accordingly are reflected as general and administrative expense in the accompanying condensed consolidated statements of operations of both YCC Holdings and Holding Corp. and as a contribution by YCC Holdings in Holding Corp.’s accompanying condensed consolidated statement of stockholder’s equity for the thirty-nine weeks ended October 1, 2011.

Cash interest on the Senior PIK Notes accrues at a rate of 10.25% per annum, and PIK Interest (defined below) accrues at the cash interest rate plus 0.75%. YCC Holdings is required to pay interest on the Senior PIK Notes (1) for the first interest payment date, entirely in cash and (2) for all subsequent interest payment dates, entirely in cash interest, unless the conditions described in the indenture are satisfied with respect to the related interest period, in which case, YCC Holdings may pay interest on the Senior PIK Notes for such interest period by increasing the principal amount of the Senior PIK Notes or by issuing new PIK Notes for up to the entire amount of the interest payment (in each case, “PIK Interest”) to the extent described in the indenture.

YCC Holdings is indirectly dependent upon dividends from Yankee Candle to generate the funds necessary to meet its outstanding debt service obligations. Neither Yankee Candle nor Holding Corp. guaranteed the Senior PIK Notes. Yankee Candle is not obligated to pay dividends to Holding Corp. and Holding Corp. is not obligated to pay dividends to YCC Holdings. Holding Corp. is allowed to make dividends to YCC Holdings (from dividends made by Yankee Candle to Holding Corp.) based upon the lower of (a) available excess cash flow based on provisions determined in Yankee Candle’s Credit Facility agreement, together with certain equity and debt issuances which, to date, have not occurred and (b) amounts available for restricted payments based on provisions included in the indentures governing Yankee Candle's senior notes and senior subordinated notes. See “- Liquidity and Capital Resources” below for a description of these restrictions.

Subsequent Exchange.  In the fiscal second quarter of 2011, we formed Yankee Group, a Delaware limited liability company.  Yankee Group is the parent of Yankee Investments. The members of Yankee Group include certain funds affiliated with Madison Dearborn Partners, LLC (“Madison Dearborn”), as well as certain management and directors of Yankee Holdings.  In connection with the formation of Yankee Group, a second exchange of equity interests occurred, whereby holders of Class A, Class B and Class C common units in Yankee Investments exchanged such units on a one for one basis for an identical interest in Class A, Class B, and Class C common units of Yankee Group.  After the exchange, each unit holder had the same ownership interest with the same rights and features in Yankee Group that it previously had in Yankee Investments. All outstanding interests in Yankee Investments were exchanged pursuant to this transaction with the exception of 1,600 common units held by former employees of Yankee Candle whose employment had been terminated since the February 2011 transaction described above.  During the thirteen weeks ended October 1, 2011, 470 common units were repurchased leaving 1,130 common units in Yankee Investments.  Following the planned repurchase of these remaining units, all outstanding common units of Yankee Investments will be owned by Yankee Group.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our condensed consolidated financial statements for both YCC Holdings and Holding Corp. and their subsidiaries, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about operating results and 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. There have been no significant changes to our critical accounting policies as discussed in Holding Corp.’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011 and in Amendment No. 5 to YCC Holdings’ Registration Statement on form S-4 filed with the SEC on August 2, 2011 and declared effective on August 4, 2011.

Except where otherwise indicated, this discussion relates to the consolidated financial statements for both YCC Holdings and Holding Corp. (together, the “Companies”).

33

OVERVIEW

General Business Information

We are the largest specialty branded premium scented candle company in the United States based on our annual sales and profitability. The strong brand equity of the Yankee Candle ®  brand, coupled with our vertically integrated multi-channel business model, have enabled us to be the market leader in the premium scented candle market for many years. We design, develop, manufacture, and distribute the majority of the products we sell which allows us to offer distinctive, trend-appropriate products for every season, every customer, and every room in the home. We have a 41-year history of category leadership and growth by marketing Yankee Candle products as affordable luxuries, consumable products, and valued gifts. We offer the broadest assortment of highly scented candles, innovative home fragrance products, and candle related home décor accessories in a variety of compelling fragrances, colors, styles, and price points.

Candle products are the foundation of our business, and are available in a wide range of fragrances and colors across a variety of jar candles, Samplers ®  votive candles, Tarts ®  wax potpourri, pillars and other candle products, the vast majority of which are marketed under the Yankee Candle ® brand. Our candles are moderately-priced ranging from $1.99 for a Samplers ® votive candle to $25.99 for a large 22 ounce jar candle. This variety ensures each customer can find Yankee Candle products appropriate for the consumer’s lifestyle and budget. In addition to our core candle business, we successfully have extended the Yankee Candle brand into the growing home fragrance market with a portfolio of innovative fragrance products for your home. Our assortment includes electric plug home fragrancers, decorative reed diffusers, room sprays, potpourri, and scented oils. Additionally, we offer products such as the Yankee Candle Car Jars ® auto air fresheners to fragrance cars and small spaces. We also offer a wide array of coordinated candle related and home decor accessories in dozens of exclusive patterns, colors and styles, and numerous giftsets. In addition to our “everyday” product offerings, we also offer seasonally-appropriate fragrances, products, home décor accessories, and giftsets on a limited edition, seasonal basis. These themed temporary programs occur four times a year: Spring, Summer, Fall, and the Christmas/Holiday season.

In the prior fiscal year we had two reportable segments, retail and wholesale. Wholesale had been an aggregation of the wholesale and international operating segments. Because of the increased importance of the international segment to our operations, as evidenced by higher sales volumes and the appointment of a full time international president, we have now disaggregated the international operations from the domestic wholesale operations.  We have restated the prior year information to conform to the current period presentation.

Retail Segment.  We are the largest specialty retailer of premium scented candles in the U.S. We operate 548 specialty retail stores under the Yankee Candle® name as of October 1, 2011. Our retail stores, excluding our two flagship stores, average approximately 1,629 gross square feet and are primarily located in high traffic shopping malls and lifestyle centers. We operate two flagship stores, a 90,000-square-foot store in South Deerfield, Massachusetts, which is a major tourist destination in Massachusetts, and a second 42,000-square-foot store in Williamsburg, Virginia. These stores promote our brand image and culture and allow us to test new product and fragrance introductions. In addition to our retail stores, we also sell our products directly to consumers through the Consumer Direct business and the Fundraising business. We believe these two businesses will continue to serve as important sources of revenue growth and profitability, while also helping to build brand awareness, introduce our products to new customers and drive traffic to our retail stores.

Wholesale Segment.  We have an attractive and growing wholesale segment with a diverse customer base. As of October 1, 2011, we had approximately 28,500 wholesale locations in North America, including independent gift stores, leading national gift retailers such as Hallmark, leading home specialty retailers such as Bed, Bath & Beyond, national department stores such as Kohl’s, regional department stores, “premium mass” retailers such as Target, home improvement retailers such as Home Depot, selected club stores and other national accounts. We believe that as a result of our strong brand name, the popularity, quality and profitability of our products, our emphasis on customer service, and our successful in-store merchandising and display system, our domestic wholesale customers are extremely loyal, with approximately 80% of our U.S. wholesale accounts having been customers for over five years.

International Segment. Outside of North America, we sell our products primarily through our subsidiary, Yankee Candle (Europe), LTD (“YCE”), which has an international wholesale customer network of approximately 5,600 store locations and distributors covering 49 countries as of October 1, 2011. We also sell our products in Japan, Korea, China and other Asian countries through our Asian distributors.

Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. Our revenue and earnings are typically greater during our fiscal fourth quarter, which includes the majority of the holiday selling season.

Discontinued Operations

During 2009, we discontinued the operations of our Illuminations and Aroma Naturals businesses. Accordingly, we have classified the results of operations of the Illuminations and Aroma Naturals businesses as discontinued operations for all periods presented.

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RESULTS OF OPERATIONS

The following table sets forth the various components of our condensed consolidated statements of operations, expressed as a percentage of sales, for the periods indicated that are used in connection with the discussion herein.

	Thirteen Weeks Ended October 1, 2011			Thirteen Weeks Ended October 2, 2010			Thirty-Nine Weeks Ended October 1, 2011			Thirty-Nine Weeks Ended October 2, 2010
YCC Holdings LLC Statements of Operations Data:
Sales:
Retail		43.5	%		45.3	%		49.6	%		50.9	%
Wholesale		42.7			43.4			36.0			38.0
International		13.8			11.3			14.4			11.1
Total net sales		100.0			100.0			100.0			100.0
Cost of sales		45.1			42.2			45.0			43.5
Gross profit		54.9			57.8			55.0			56.5
Selling expenses		29.7			29.5			34.8			33.9
General and administrative expenses		7.9			8.9			10.3			10.4
Restructuring charges		-			-			-			0.2
Operating income		17.3			19.4			9.9			12.0
Other expense, net		12.5			11.9			15.0			15.5
Income (loss) from continuing operations before provision for (benefit from) income taxes		4.9			7.5			(5.1	)		(3.5	)
Provsion for (benefit from) income taxes		1.6			2.5			(1.9	)		(1.4	)
Income (loss) from continuing operations		3.3			5.0			(3.1	)		(2.1	)
Loss from discontinued operations, net of taxes		(0.0	)		-			(0.1	)		(0.1	)
Net income (loss)		3.3	%		5.0	%		(3.2	) %		(2.2	) %

	Thirteen Weeks Ended October 1, 2011			Thirteen Weeks Ended October 2, 2010			Thirty-Nine Weeks Ended October 1, 2011			Thirty-Nine Weeks Ended October 2, 2010
Yankee Holding Corp. Statements of Operations Data:
Sales:
Retail		43.5	%		45.3	%		49.6	%		50.9	%
Wholesale		42.7			43.4			36.0			38.0
International		13.8			11.3			14.4			11.1
Total net sales		100.0			100.0			100.0			100.0
Cost of sales		45.1			42.2			45.0			43.5
Gross profit		54.9			57.8			55.0			56.5
Selling expenses		29.7			29.5			34.8			33.9
General and administrative expenses		7.8			8.9			10.2			10.4
Restructuring charges		-			-			-			0.2
Operating income		17.4			19.4			10.0			12.0
Other expense, net		7.9			11.9			10.2			15.5
Income (loss) from continuing operations before provision for (benefit from) income taxes		9.5			7.5			(0.2	)		(3.5	)
Provsion for (benefit from) income taxes		3.1			2.5			(0.1	)		(1.4	)
Income (loss) from continuing operations		6.4			5.0			(0.1	)		(2.1	)
Loss from discontinued operations, net of taxes		(0.0	)		-			(0.0	)		(0.1	)
Net income (loss)		6.4	%		5.0	%		(0.1	) %		(2.2	) %

The results of operations discussion that follows for the thirteen and thirty-nine weeks ended October 1, 2011 versus the thirteen and thirty-nine weeks ended October 2, 2010, is for continuing operations only. The results of operations of the Aroma Naturals and the Illuminations divisions have been treated as discontinued operations for all periods presented and are not included in the discussion below.

Thirteen weeks ended October 1, 2011 versus the Thirteen weeks ended October 2, 2010

SALES

Sales increased 11.0% to $195.1 million for the thirteen weeks ended October 1, 2011 from $175.8 million for the thirteen weeks ended October 2, 2010.

Retail Sales

Retail sales increased 6.6% to $84.9 million for the thirteen weeks ended October 1, 2011, from $79.6 million for the thirteen weeks ended October 2, 2010.  The increase in retail sales was primarily due to (i) the addition of 36 new Yankee Candle stores during 2011 which contributed $2.5 million, (ii) increased sales in our catalog and internet business of approximately $1.5 million, (iii) increased comparable store sales of approximately $1.0 million and (iv) sales attributable to stores opened in 2010 that have not yet entered the comparable store base (which in 2010 were open for less than a full year) of approximately $0.6 million, partially offset by a decrease in sales from our Yankee Candle Fundraising division of approximately $0.3 million.

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Comparable store and catalog and Internet sales for our Yankee Candle Retail business increased 3.3% for the thirteen weeks ended October 1, 2011 compared to the thirteen weeks ended October 2, 2010. Yankee Candle comparable store sales for the thirteen weeks ended October 1, 2011 increased 1.5% compared to the thirteen weeks ended October 2, 2010. Comparable store sales represent a comparison of sales during the corresponding fiscal periods on stores in our comparable stores sales base. A store first enters our comparable store sales base in the fourteenth fiscal month of operation. Permanently closed stores are excluded from the comparable store calculation beginning in the month in which the store closes. The increase in comparable store sales was driven by increased traffic of 0.7% coupled with an increase in average ticket price of 0.8%. There were 499 stores included in the Yankee Candle comparable store base as of October 1, 2011 as compared to 486 stores included in the Yankee Candle comparable store base as of October 2, 2010. There were 548 total retail stores open as of October 1, 2011, compared to 513 total retail stores open as of October 2, 2010.

Wholesale Sales

Wholesale sales increased 9.2% to $83.2 million for the thirteen weeks ended October 1, 2011 from $76.3 million for the thirteen weeks ended October 2, 2010.

The increase in wholesale sales was primarily due to increased sales to domestic premium mass and department store channels of approximately $9.4 million partially offset by (i) decreased sales in our domestic gift store account channel of approximately $1.8 million coupled with (ii) decreased sales from co-packing and licensing activities of approximately $0.5 million.

International Sales

International sales increased 35.6% to $27.0 million for the thirteen weeks ended October 1, 2011 from $19.9 million for the thirteen weeks ended October 2, 2010.

The increase in international sales was primarily due to (i) increased sales in our United Kingdom wholesale business of $3.2 million driven primarily by new locations opened in the last 12 months and increased volume to existing customers, (ii) increased sales in our export direct channel of $1.4 million, (iii) increased sales in our concession channel of $1.0 million and (iv) an increase of $0.8 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound.

GROSS PROFIT

Gross profit is sales less cost of sales. Included within cost of sales are the cost of the merchandise we sell through our retail, wholesale and international segments, inbound and outbound freight costs, the operational costs of our distribution facilities, which include receiving costs, inspection and warehousing costs, and salaries and expenses incurred by our buying and merchandising operations.

Gross profit increased 5.4% to $107.2 million for the thirteen weeks ended October 1, 2011 from $101.6 million for the thirteen weeks ended October 2, 2010. As a percentage of sales, gross profit decreased to 54.9% for the thirteen weeks ended October 1, 2011 from 57.8% for the thirteen weeks ended October 2, 2010.

Retail Gross Profit

Retail gross profit dollars increased to $56.5 million for the thirteen weeks ended October 1, 2011 compared to $55.1 million for the thirteen weeks ended October 2, 2010.  The increase in gross profit dollars over the prior year quarter was primarily due to (i) increased sales volume which increased gross profit by approximately $6.6 million, (ii) price increases taken during the second quarter of 2011, which assuming no elasticity contributed $1.6 million, offset by increased promotional and marketing activity of approximately $5.4 million, and increased costs in our supply chain operations of approximately $1.2 million driven largely by inflation in wax and transportation costs.

As a percentage of sales, retail gross profit decreased to 66.6% for the thirteen weeks ended October 1, 2011 from 69.2% for the thirteen weeks ended October 2, 2010.  The decrease in gross profit rate was primarily the result of (i) increased promotional activity which decreased gross profit by approximately 2.0% and (ii) increased costs in our supply chain activities of approximately 1.3%, partially offset by price increases taken during the second quarter of 2011, which assuming no elasticity increased gross profit by approximately 0.7%.

Wholesale Gross Profit

Wholesale gross profit dollars increased 1.9% to $39.9 million for the thirteen weeks ended October 1, 2011 from $39.1 million for the thirteen weeks ended October 2, 2010. The increase in wholesale gross profit dollars was primarily attributable to (i) increased sales volume which increased gross profit by approximately $2.5 million, (ii) price increases taken during the second quarter of 2011, which assuming no elasticity increased gross profit by approximately $1.6 million and (iii) decreased allowances and promotional and marketing activity which increased gross profit by approximately $0.9 million, partially offset by increased costs in our supply chain operations of approximately $4.2 million driven largely by inflation in wax and transportation costs.

As a percentage of sales, wholesale gross profit decreased to 47.9% for the thirteen weeks ended October 1, 2011 from 51.3% for the thirteen weeks ended October 2, 2010.   The decrease in gross profit rate was primarily attributable to increased costs in our supply chain operations of 5.3% driven by inflationary pressure on  wax and transportation costs partially offset by (i) price increases taken during the second quarter of 2011, which assuming no elasticity contributed approximately 1.0%, (ii) decreased allowances and promotional and marketing activity which increased gross profit rate by 0.6% and (iii) decreased sales volume within our co-packing and licensing activities, which has a lower profit margin and which has become a smaller portion of the wholesale business, resulting in favorable margin rate of approximately 0.3% relative to the prior year.

International Gross Profit

International gross profit dollars increased 45.4% to $10.9 million for the thirteen weeks ended October 1, 2011 from $7.5 million for the thirteen weeks ended October 2, 2010. The increase in international gross profit dollars was primarily attributable to (i) increased sales volume of $2.7 million, (ii) favorable product cost and channel mix of $1.3 million and (iii) an increase of $0.3 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound. These increases in gross profit dollars were partially offset by increased allowances and promotional and marketing activity which decreased gross profit by approximately $1.0 million.

As a percentage of sales, international gross profit increased to 40.4% for the thirteen weeks ended October 1, 2011 from 37.7% for the thirteen weeks ended October 2, 2010.   The increase in gross profit rate was primarily attributable to favorable product and channel mix of approximately 4.6% driven primarily by increased sales of our candle products and increased sales within our concessions channel, which both have higher margins, partially offset by increased allowances and promotional and marketing activity which decreased gross profit rate by 2.2%.

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SELLING EXPENSES

Selling expenses increased 11.6% to $57.9 million for the thirteen weeks ended October 1, 2011 from $51.8 million for the thirteen weeks ended October 2, 2010. These expenses are related to our wholesale, retail and international operations and consist of payroll, occupancy, advertising and other operating costs, as well as store pre-opening costs, which are expensed as incurred. As a percentage of sales, selling expenses were 29.7% and 29.5% for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively. Included in selling expenses for the thirteen weeks ended October 1, 2011 and October 2, 2010 are purchase accounting costs of $3.4 million and $3.5 million respectively, consisting primarily of the amortization of intangible assets. These costs were not allocated to our segments.

Retail Selling Expenses

Retail selling expenses increased 10.3% to $45.5 million for the thirteen weeks ended October 1, 2011 from $41.2 million for the thirteen weeks ended October 2, 2010. As a percentage of retail sales, retail selling expenses were 53.6% and 51.8% for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively. The increase in retail selling expenses in dollars was primarily related to selling expenses incurred in the new Yankee Candle retail stores opened in 2011 and 2010, which together represented an increase of approximately $2.9 million.

The increase in retail selling expenses as a percentage of sales was primarily related to selling expenses incurred in the new Yankee Candle retail stores opened in 2011 and 2010 which had a negative impact of 1.1%.  New stores typically generate higher selling expenses as a percentage of sales than mature stores since fixed costs, as a percent of sales, are higher in the early period of a store’s operation.

Wholesale Selling Expenses

Wholesale selling expenses increased 17.5% to $3.5 million for the thirteen weeks ended October 1, 2011 from $3.0 million for the thirteen weeks ended October 2, 2010. These expenses relate to payroll, advertising and other operating costs. As a percentage of wholesale sales, wholesale selling expenses were 4.2% and 3.9% for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively. The increase in selling expenses and as a percentage of sales was attributable to increased marketing costs of approximately $0.5 million.

International Selling Expenses

International selling expenses increased 32.5% to $5.4 million for the thirteen weeks ended October 1, 2011 from $4.1 million for the thirteen weeks ended October 2, 2010. These expenses relate to payroll, advertising and other operating costs. As a percentage of international sales, international selling expenses were 20.2% and 20.6% for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively. The increase in selling expense dollars was attributable to increased commissions, labor and other related selling costs of approximately $1.1 million related to the revenue growth in this business as well as an increase of $0.2 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound.  The decrease in selling expenses as a percentage of sales was primarily related to leveraging of labor and occupancy costs against an increased sales base, somewhat offset by increased commissions related to revenue growth in our concession channel.

General and Administrative Expenses

General and administrative expenses, which are shown in our unallocated/corporate/other column of the Companies’ segment footnote, consist primarily of personnel–related costs including senior management, accounting, information systems, human resources, legal, marketing, management incentive programs and bonus and other costs that are not readily allocable to either the retail, wholesale or international operations. General and administrative expenses remained flat at $15.5 million for the thirteen weeks ended October 1, 2011 compared to $15.7 million for the thirteen weeks ended October 2, 2010.  As a percentage of sales, general and administrative expenses were approximately 7.9% and 8.9% for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively.

Interest and Other Expense, Net

YCC Holdings’ interest and other (income)expense, net, which is shown in YCC Holdings’ unallocated/corporate/other column of YCC Holdings’ segment footnote was $24.3 million for the thirteen weeks ended October 1, 2011 compared to $21.0 million for the thirteen weeks ended October 2, 2010.  The primary component of this expense is interest expense, which was $26.7 million and $20.5 million for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively. The increase in interest expense primarily relates to $8.8 million of interest expense related to the Senior PIK Notes, partially offset by adecrease in interest expense related to lower average borrowings on our credit facility in the third quarter of fiscal 2011 versus the prior year quarter.

Holding Corp.’s interest and other expense, net, which is shown in Holding Corp.’s unallocated/corporate/other column of Holding Corp.’s segment footnote was $15.5 million for the thirteen weeks ended October 1, 2011 compared to $21.0 million for the thirteen weeks ended October 2, 2010. The primary component of this expense is interest expense, which was $17.8 million and $20.5 million for the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively. The decrease in interest expense is primarily related to lower average borrowings on our credit facility in the third quarter of fiscal 2011 versus the prior year quarter.

Changes in the fair value of Yankee Candle’s derivative contracts are recognized in the condensed consolidated statement of operations. During the thirteen weeks ended October 1, 2011, Yankee Candle recognized a gain of $2.2 million related to derivative contracts. During the thirteen weeks ended October 2, 2010, Yankee Candle recognized $2.1 million in expense related to derivative contracts.

Provision for Income Taxes

The provision for income taxes for YCC Holdings for the thirteen weeks ended October 1, 2011 and October 2, 2010 was approximately $3.1 million and $4.2 million, respectively. The effective tax rates for the thirteen weeks ended October 1, 2011 and October 2, 2010 were 32.5% and 32.4%, respectively.

The provision for income taxes for Holding Corp. for the thirteen weeks ended October 1, 2011 was $6.0 million compared to $4.2 million for the thirteen weeks ended October 2, 2010. The effective tax rates for the thirteen weeks ended October 1, 2011 and October 2, 2010 were 32.6% and 32.4%, respectively.

Loss from Discontinued Operations, Net of Tax

During 2009, we discontinued the operations of our Illuminations and Aroma Naturals businesses. Accordingly, the Companies have classified the results of operations of the Illuminations and Aroma Naturals businesses as discontinued operations for all periods presented. The loss from discontinued operations was minimal for both the thirteen weeks ended October 1, 2011 and October 2, 2010, respectively.

Thirty-nine weeks ended October 1, 2011 versus the Thirty-Nine weeks ended October 2, 2010

SALES

Sales increased 6.1% to $469.1 million for the thirty-nine weeks ended October 1, 2011 from $442.1 million for the thirty-nine weeks ended October 2, 2010.

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Retail Sales

Retail sales increased 3.4% to $232.7 million for the thirty-nine weeks ended October 1, 2011, from $225.0 million for the thirty-nine weeks ended October 2, 2010. The increase in retail sales was primarily due to (i) sales attributable to stores opened in 2010 that have not yet entered the comparable store base (which in 2010 were open for less than a full year) of approximately $3.9 million, (ii) the addition of 36 new Yankee Candle retail stores opened in 2011 which increased sales by approximately $3.5 million and, (iii) increased sales in our Consumer Direct division of approximately $3.3 million, partially offset by (i) decreased comparable store sales of $2.7 million and (ii) a decrease in sales from our Yankee Candle Fundraising division of approximately $0.3 million.

Comparable store and catalog and Internet sales for our Yankee Candle Retail business remained relatively flat at 0.3% for the thirty-nine weeks ended October 1, 2011 compared to the thirty-nine weeks ended October 2, 2010. Yankee Candle comparable store sales for the thirty-nine weeks ended October 1, 2011 decreased 1.4% compared to the thirty-nine weeks ended October 2, 2010. Comparable store sales represent a comparison of sales during the corresponding fiscal periods on stores in our comparable stores sales base. A store first enters our comparable store sales base in the fourteenth fiscal month of operation. Permanently closed stores are excluded from the comparable store calculation beginning in the month in which the store closes. The decrease in comparable store sales was driven by decreased transactions at our retail stores of 3.7%, partially offset by a 2.3% increase in average ticket. There were 499 stores included in the Yankee Candle comparable store base as of October 1, 2011 as compared to 486 stores included in the Yankee Candle comparable store base as of October 2, 2010. There were 548 total retail stores open as of October 1, 2011, compared to 513 total retail stores open as of October 2, 2010.

Wholesale Sales

Wholesale sales increased 0.6% to $168.8 million for the thirty-nine weeks ended October 1, 2011 from $167.8 million for the thirty-nine weeks ended October 2, 2010.

The increase in wholesale sales was primarily due to increased sales in our domestic premium mass channel accounts of approximately $7.7 million and increased sales in our domestic specialty and department store channel of $4.6 million partially offset by (i) decreased sales in our domestic gift store account channel of approximately $6.3 million, (ii) decreased sales in our co-packing and licensing activities of approximately $2.6 million and (iii) decreased sales in our off-price channel of approximately $2.4 million.

International Sales

International sales increased 37.1% to $67.6 million for the thirty-nine weeks ended October 1, 2011 from $49.3 million for the thirty-nine weeks ended October 2, 2010.  The increase in international sales was primarily due to (i) increased sales in our United Kingdom wholesale business of $7.4 million driven by new locations opened in the last 12 months and increased sales to existing customers, (ii) increased sales in our concession channel of $3.6 million driven by new locations opened during the last 12 months, (iii) an increase of $3.1 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound, (iv) increased sales in our export direct channel of $2.6 million as well as (iv) increased sales in most of our distribution channels.

GROSS PROFIT

Gross profit is sales less cost of sales. Included within cost of sales are the cost of the merchandise we sell through our retail and wholesale segments, inbound and outbound freight costs, the operational costs of our distribution facilities, which include receiving costs, inspection and warehousing costs, and salaries and expenses incurred by the Company’s buying and merchandising operations.

Gross profit increased 3.2% to $258.0 million for the thirty-nine weeks ended October 1, 2011 from $250.0 million for the thirty-nine weeks ended October 2, 2010. As a percentage of sales, gross profit decreased to 55.0% for the thirty-nine weeks ended October 1, 2011 from 56.5% for the thirty-nine weeks ended October 2, 2010.  Included in the calculation of gross profit for both the thirty-nine weeks ended October 1, 2011 and October 2, 2010 are purchase accounting costs of approximately $0.3 million and $0.2 million respectively. These costs were not allocated to our segments.

Retail Gross Profit

Retail gross profit dollars increased 1.2% to $150.5 million for the thirty-nine weeks ended October 1, 2011 from $148.6 million for the thirty-nine weeks ended October 2, 2010. The increase in gross profit dollars was primarily due to increased sales volume which increased gross profit by approximately $7.0 million and price increases taken during the second quarter of 2011, which assuming no elasticity contributed approximately $2.8 million, partially offset by (i) increased marketing and promotional activity of approximately $5.2 million in response to the highly promotional retail environment, (ii) increased costs in our supply chain operations of approximately $2.4 million driven by inflation in wax and transportation costs and (iii) decreased profitability in our Yankee Candle Fundraising division of approximately $0.4 million.

As a percentage of sales, retail gross profit decreased to 64.7% for the thirty-nine weeks ended October 1, 2011 from 66.1% for the thirty-nine weeks ended October 2, 2010. The decrease in retail gross profit rate was driven primarily by increased costs in our supply chain operations which decreased gross profit rate by approximately 1.0% coupled with increased marketing and promotional activity which decreased gross profit rate by approximately 0.8%, partially offset by price increases taken during the second quarter of 2011 which increased gross profit rate by approximately 0.4%.

Wholesale Gross Profit

Wholesale gross profit dollars decreased 2.9% to $80.3 million for the thirty-nine weeks ended October 1, 2011 from $82.7 million for the thirty-nine weeks ended October 2, 2010. The decrease in wholesale gross profit dollars was attributable to (i) unfavorable results in our supply chain operations of approximately $3.5 million driven by inflation in wax and transportation costs, (ii) increased allowances and marketing and promotional activity of approximately $2.4 million and (iii) decreased sales within our co-packing and licensing activities which decreased gross profit by $0.4 million. These decreases to gross profit dollars were partially offset by price increases taken during the second quarter of 2011, which assuming no elasticity contributed approximately $2.4 million and an increase in sales volume which increased gross profit by approximately $1.5 million.

As a percentage of sales, wholesale gross profit decreased to 47.5% for the thirty-nine weeks ended October 1, 2011 from 49.3% for the thirty-nine weeks ended October 2, 2010. The decrease in wholesale gross profit rate was the result of increased costs in our supply chain operations of 2.2% driven by inflationary pressure on transportation costs, coupled with increased allowances and promotional and marketing activity which caused a decrease in gross profit of 0.7% partially offset by (i) price increases taken during the second quarter of 2011, which increased gross profit rate by approximately 0.8% and (ii) decreased sales volume within our co-packing and licensing activities, which has a lower profit margin, and which has become a smaller portion of the wholesale business resulting in favorable margin rate of approximately 0.4% relative to the prior year.

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International Gross Profit

International gross profit dollars increased 46.4% to $27.6 million for the thirty-nine weeks ended October 1, 2011 from $18.9 million for the thirty-nine weeks ended October 2, 2010. The increase in international gross profit dollars was primarily attributable to (i) increased sales volume of $6.1 million, (ii) favorable product cost and mix of $2.9 million and (iii) an increase of $1.3 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound.  This increase in gross profit was partially offset by increased allowances and promotional and marketing activity which decreased gross profit by approximately $0.9 million coupled with unfavorable results in our supply chain operations of approximately $0.6 million.

As a percentage of sales, international gross profit increased to 40.9% for the thirty-nine weeks ended October 1, 2011 from 38.3% for the thirty-nine weeks ended October 2, 2010.  The increase in gross profit rate was primarily attributable to favorable product and channel mix of approximately 4.3% driven primarily by increased sales of our wax products and increased sales within our concessions channel which both have higher margins, partially offset by increased supply chain costs of 1.0% driven by inflationary pressure on transportation costs and increased allowances and promotional and marketing activity which caused a decrease in gross profit of 0.7%.

SELLING EXPENSES

Selling expenses increased 8.9% to $163.1 million for the thirty-nine weeks ended October 1, 2011 from $149.7 million for the thirty-nine weeks ended October 2, 2010. These expenses are related to our wholesale, retail and international operations and consist of payroll, occupancy, advertising and other operating costs, as well as store pre-opening costs, which are expensed as incurred. As a percentage of sales, selling expenses were 34.8% and 33.9% for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively.  Included in selling expenses for the thirty-nine weeks ended October 1, 2011and October 2, 2010 are purchase accounting costs of $10.3 million and $10.7 million respectively, consisting primarily of the amortization of intangible assets. These costs were not allocated to our segments.

Retail Selling Expenses

Retail selling expenses increased 7.0% to $127.5 million for the thirty-nine weeks ended October 1, 2011 from $119.2 million for the thirty-nine weeks ended October 2, 2010.  As a percentage of retail sales, retail selling expenses were 54.8% and 53.0% for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively.  The increase in retail selling expenses in dollars was primarily related to selling expenses incurred in the new Yankee Candle retail stores opened in 2011 and 2010, which together represented and increase of approximately $5.9 million.  The increase in retail selling expenses as a percentage of sales was primarily related to the de-leveraging of selling expenses as a result of decreased comparable store sales which increased selling expense as a rate of sales by approximately 0.6% and selling expenses incurred in the new Yankee Candle retail stores opened in 2011 and 2010 which had a negative impact of 0.6%.  New stores typically generate higher selling expenses as a percentage of sales than mature stores since fixed costs, as a percent of sales, are higher in the early period of a store’s operation.

Wholesale Selling Expenses

Wholesale selling expenses increased 14.1% to $9.8 million for the thirty-nine weeks ended October 1, 2011 from $8.6 million for the thirty-nine weeks ended October 2, 2010.  These expenses relate to payroll, advertising and other operating costs.  As a percentage of wholesale sales, wholesale selling expenses were 5.8% and 5.1% for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively.  The increase in selling expenses and as a percentage of sales was primarily attributable to increased marketing and other related selling expenses of approximately $0.9 million and increased labor costs of approximately $0.2 million.

International Selling Expenses

International selling expenses increased 37.9% to $15.4 million for the thirty-nine weeks ended October 1, 2011 from $11.1 million for the thirty-nine weeks ended October 2, 2010. These expenses relate to payroll, advertising and other operating costs. As a percentage of international sales, international selling expenses were 22.7% and 22.6% for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively. The increase in selling expenses was attributable to increased commissions, labor and other related selling costs related to the revenue growth in this business, as well an increase of $0.7 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound.  The increase in selling expenses as a percentage of sales was primarily attributable to  increased commissions driven by growth in our concession channel, somewhat offset by leveraging of labor and other selling expenses against a higher sales base.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which are shown in our unallocated/corporate/other column of the Companies’ segment footnote, consist primarily of personnel–related costs including senior management, accounting, information systems, human resources, legal, marketing, management incentive programs and bonus and other costs that are not readily allocable to either the retail, wholesale or international operations. General and administrative expenses increased 4.3% to $48.3 million for the thirty-nine weeks ended October 1, 2011 from $46.3 million for the thirty-nine weeks ended October 2, 2010. As a percentage of sales, general and administrative expenses were 10.3% and 10.4% for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively.

The general and administrative expenses of $48.3 million for the thirty-nine weeks ended October 1, 2011 includes the $3.0 million paid to Yankee Investments’ Class B and Class C common unit holders in February 2011 in connection with the issuance of the Senior PIK Notes by YCC Holdings and Yankee Finance.  Excluding such expenses, general and administrative costs were favorable by $1.0 million and as a percentage of sales were 9.7% and 10.4% for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively.

Interest and Other Expense, Net

YCC Holdings’ interest and other expense, net, which is shown in YCC Holdings’ unallocated/corporate/other column of YCC Holdings’ segment footnote was $70.4 million for the thirty-nine weeks ended October 1, 2011 compared to $68.8 million for the thirty-nine weeks ended October 2, 2010.  The primary component of this expense is interest expense, which was $75.7 million and $58.8 million for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively. The increase in interest expense primarily relates to $22.4 million of interest expense related to the Senior PIK Notes, partially offset by adecrease in interest expense related to lower average borrowings on our credit facility in the first nine months of fiscal 2011 versus the same period in the prior year.

Holding Corp.’s interest and other expense, net, which is shown in Holding Corp.’s unallocated/corporate/other column of Holding Corp.’s segment footnote was $48.0 million for the thirty-nine weeks ended October 1, 2011 compared to $68.8 million for the thirty-nine weeks ended October 2, 2010. The primary component of this expense is interest expense, which was $53.3 million and $58.8 million for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively. The decrease in interest expense is primarily related to lower average borrowings on our credit facility in the first nine months of fiscal 2011 versus the same period in the prior year.

Changes in the fair value of Yankee Candle’s derivative contracts are recognized in the condensed consolidated statement of operations. During the thirty-nine weeks ended October 1, 2011, Yankee Candle recognized a gain of $4.3 million related to derivative contracts. During the thirty-nine weeks ended October 2, 2010, Yankee Candle recognized $11.1 million in expense related to derivative contracts.

Benefit from Income Taxes

The benefit from income taxes for YCC Holdings for the thirty-nine weeks ended October 1, 2011 and October 2, 2010 was approximately $9.1 million and $6.1 million, respectively. The effective tax rates for the thirty-nine weeks ended October 1, 2011 and October 2, 2010 were 38.4% and 38.9%, respectively.

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The benefit from income taxes for Holding Corp. for the thirty-nine weeks ended October 1, 2011 was $0.8 million compared to $6.1 million for the thirty-nine weeks ended October 2, 2010. The effective tax rates for the thirty-nine weeks ended October 1, 2011 and October 2, 2010 were 95.0% and 38.9% respectively. The increase in the effective tax rate primarily relates to the release of uncertain tax positions for which the statute of limitations has passed.

Loss from Discontinued Operations, Net of Tax

During 2009, we discontinued the operations of our Illuminations and Aroma Naturals businesses. Accordingly, the Company has classified the results of operations of the Illuminations and Aroma Naturals businesses as discontinued operations for all periods presented. The loss from discontinued operations, net of income taxes was $0.2 million and $0.3 million for the thirty-nine weeks ended October 1, 2011 and October 2, 2010, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Senior Secured Credit Facility

Yankee Candle’s senior secured credit facility (the “Credit Facility”) consists of a 7 year $650.0 million senior term loan facility (“Term Facility”) and a 6 year $125.0 million senior secured revolving credit facility (the “Revolving Facility”).    In April 2011, the Company entered into a Joinder Agreement to the Revolving Facility which provided a total of $15.0 million in new revolving loan commitments increasing Yankee Candle’s total revolving loan capacity under the Revolving Facility from $125.0 million to $140.0 million. All borrowings under Yankee Candle’s Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at Yankee Candle’s option, (i) the higher of (x) the prime rate (as set forth on the British Banking Association Telerate Page 5) and (y) the federal funds effective rate, plus one-half percent (0.50%) per annum or (ii) the Eurodollar rate, and resets periodically. In addition to paying interest on outstanding principal under the Credit Facility, Yankee Candle is required to pay a commitment fee to the lenders in respect of unutilized loan commitments at a rate of 0.50% per annum. The Term Facility matures on February 6, 2014 and the Revolving Facility matures on February 6, 2013.

As of October 1, 2011, Yankee Candle had outstanding letters of credit of $2.2 million and $117.0 million outstanding under the Revolving Facility, leaving $20.8 million in availability under the Revolving Facility. As of October 1, 2011, Yankee Candle was in compliance with all covenants under the Credit Facility. Yankee Candle believes that based on their current projections for fiscal 2011 that they will continue to be in compliance with their financial covenants during 2011.

The Companies use interest rate swaps to eliminate the variability of a portion of cash flows associated with the forecasted interest payments on Yankee Candle’s Term Facility. This is achieved through converting a portion of the floating rate Term Facility to a fixed rate by entering into pay-fixed interest rate swaps. During the second quarter of 2009 Yankee Candle changed the interest rate election on its Term Facility from the three-month LIBOR rate to the one-month LIBOR rate. As a result, its existing interest rate swaps were de-designated as cash flow hedges and we no longer account for these instruments using hedge accounting with changes in fair value recognized in the condensed consolidated statement of operations. The unrealized loss included in other comprehensive income “OCI” on the date Yankee Candle changed its interest rate election was amortized to other expense over the remaining terms of the two interest rate swap agreements. One of the swap agreements expired in March of 2010 and the other expired in March of 2011.  The unrealized loss was fully amortized during the thirty-nine weeks ended October 1, 2011.

Simultaneous with the de-designations, Yankee Candle entered into new interest rate swap agreements to further reduce the variability of cash flows associated with the forecasted interest payments on its Term Facility. These swaps were not designated as cash flow hedges and, were measured at fair value with changes in fair value recognized in the condensed consolidated statement of operations as a component of other (income).  One of the swap agreements expired in March of 2010 and the other expired in March of 2011.

During the second and third quarters of 2009, Yankee Candle also entered into forward starting amortizing interest rate swaps in the aggregate notional amount of $320.7 million or 82.6% of its term debt with a blended fixed rate of 3.49% to eliminate the variability in future interest payments by having Yankee Candle pay fixed-rate amounts in exchange for receipt of floating-rate interest payments. The effective date of the forward starting swaps was March 31, 2011, of which there are no settlements required until after that date. The new swaps are not designated as cash flow hedges and, are measured at fair value with changes in fair value recognized in the condensed consolidated statements of operations as a component of other (income) expense. The new swap agreements terminate in March 2013.

All obligations under the Credit Facility are guaranteed by Yankee Candle and each of Yankee Candle’s existing and future domestic subsidiaries. In addition, the senior secured credit facility is secured by first priority perfected liens on all of Yankee Candle’s capital stock and substantially all of Yankee Candle’s existing and future material assets and the existing and future material assets of Yankee Candle’s guarantors, except that only up to 66% of the voting capital stock of the first tier foreign subsidiaries and 100% of the non–voting capital stock of such foreign subsidiaries will be pledged in favor of the senior secured credit facility and each of the guarantor’s assets.

The Credit Facility permits all or any portion of the loans outstanding to be prepaid at any time and commitments to be terminated in whole or in part at Yankee Candle’s option without premium or penalty. Yankee Candle is required to repay amounts borrowed under the Term Facility in equal quarterly installments in an aggregate annual amount equal to one percent (1.0%) of the original principal amount of the Term Facility with the balance being payable on the maturity date of the Term Facility.

Subject to certain exceptions, the Credit Facility requires that 100% of the net proceeds from certain asset sales, casualty insurance, condemnations and debt issuances, and 50% (subject to step downs) from excess cash flow, as defined, for each fiscal year must be used to pay down outstanding borrowings. The calculation to determine if Yankee Candle has excess cash flow per the Credit Facility is on an annual basis at the end of each fiscal year.

Senior PIK Notes of YCC Holdings

In February 2011 YCC Holdings formed a wholly-owned subsidiary, Yankee Finance, Inc., for the purpose of co-issuing in conjunction with YCC Holdings $315.0 million Senior PIK Notes pursuant to an Indenture, dated February 9, 2011.  Cash interest accrues at a rate of 10.25% per annum, and PIK Interest (defined below) accrues at the cash interest rate plus 0.75%. YCC Holdings is required to pay interest on the Senior PIK Notes (1) for the first interest payment date, entirely in cash and (2) for all subsequent interest payment dates, entirely in cash interest, unless the conditions described in the indenture are satisfied with respect to the related interest period, in which case, YCC Holdings may pay interest on the Senior PIK Notes for such interest period by increasing the principal amount of the Senior PIK Notes or by issuing new PIK Notes for up to the entire amount of the interest payment (in each case, “PIK Interest”); to the extent described in the related indenture. The amount of cash interest required to be paid for an interest period is determined prior to the beginning of an interest period and is calculated based upon the amount that would be permitted to be paid as a dividend as of such determination date to YCC Holdings by its subsidiaries for the purpose of paying cash interest on the Senior PIK Notes (based upon restrictions imposed by applicable law and such subsidiaries’ debt agreements) plus the amount of cash on hand at YCC Holdings on the determination date (subject to certain exceptions set forth in the indenture).  If the amount that would be available is less than the amount of interest due for that interest period, then YCC Holdings is permitted to pay all or a specified portion of such interest as PIK Interest rather than in cash on the interest payment date as provided in the indenture.As of October 1, 2011, the Senior PIK Notes are structurally subordinated to approximately $1,018.1 million of indebtedness of Holding Corp.

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The $315.0 million aggregate principal amount of Senior PIK Notes were issued at a discount of $6.3 million and YCC Holdings paid deferred financing fees of $7.8 million. YCC Holdings is amortizing the discount and the deferred financing fees using the effective interest rate method over the terms of the Senior PIK Notes. The proceeds from the Senior PIK Notes were used to pay transaction costs (exclusive of the amounts paid by Holding Corp.) and make a payment of $300.8 million to Yankee Investments which in turn made payments of $297.8 million to holders of Yankee Investments’ Class A common units and payments of $3.0 million to holders of Yankee Investments’ Class B and Class C common units.  

YCC Holdings is a holding company with no direct operations. Its principal asset is the indirect equity interests it holds in Yankee Candle, and all of its operations are conducted through Yankee Candle. As a result, YCC Holdings is indirectly dependent upon dividends from Yankee Candle to generate the funds necessary to meet its outstanding debt service obligations. Neither Yankee Candle nor Holding Corp. guaranteed the Senior PIK Notes. Yankee Candle is not obligated to pay dividends to Holding Corp. and Holding Corp. is not obligated to pay dividends to YCC Holdings. Holding Corp. is allowed to make dividends to YCC Holdings (from dividends made by Yankee Candle to Holding Corp.) based upon the lower of (a) available excess cash flow based on provisions determined in Yankee Candle’s Credit Facility agreement, together with certain equity and debt issuances which, to date, have not occurred and (b) amounts available for restricted payments based on provisions included in the indentures governing Yankee Candle's senior notes.

Available excess cash flow for Yankee Candle’s Credit Facility is defined as the aggregate cumulative amount of excess cash flow for all fiscal years subsequent to issuance (February 2007) that is not required to prepay the borrowings.  On an annual basis, Yankee Candle is required to prepay the borrowings by 50% of excess cash flow, which percentage is reduced to 25% if the consolidated total leverage ratio (as defined in the Credit Facility) is greater than 4.0 to 1.0 and not greater than 5.0 to 1.0.  Yankee Candle is not required to make a payment if the consolidated total leverage ratio is not greater than 4.0 to 1.0.  Excess cash flow is defined in the Credit Facility agreement as consolidated net income of Holding Corp. and its restricted subsidiaries plus all non cash charges including depreciation, amortization, deferred tax expense, non-cash losses on disposition of certain property, decreases in working capital and the net increase in deferred tax liabilities or net decrease in deferred tax assets , decreased by non-cash gains including gains or credits, cash paid for capital expenditures, acquisitions, certain other investments, regularly scheduled principal payments,  voluntary prepayments and certain mandatory prepayments of principal on debt, transaction costs for certain debt, equity, recapitalization, acquisition and investment transactions, purchase price adjustments in connection with acquisitions and certain payments to Madison Dearborn,  increases in working capital and the net decrease in deferred tax liabilities or net increase in deferred tax assets.

The indentures governing Yankee Candle's notes permit Yankee Candle to pay dividends to Holding Corp. if: (i) there is no default or event of default under the indentures governing Yankee Candle’s notes; (ii) Yankee Candle would have a fixed charge coverage ratio of at least 2.0 to 1.0; and (iii) such dividend, together with the aggregate amount of all other “restricted payments” (as defined in such indentures) made by Yankee Candle and its restricted subsidiaries after February 6, 2007 (excluding certain restricted payments), is less than the sum of (a) 50% of the Consolidated Net Income (as defined in such indentures) of Yankee Candle for the period (taken as one accounting period) from December 31, 2006 to the end of Yankee Candle’s most recently ended fiscal quarter for which internal financial statements are available at the time of such dividend (or, in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit), plus (b) the proceeds from specified equity contributions or issuances of equity.

In addition to the capacity described above, Yankee Candle has a “basket” of $35 million under the indentures from which it may make dividends in amount not to exceed $35 million (since the date of the issuance of Yankee Candle’s notes), so long there is no default or event of default under the indentures.

As of January 1, 2011, the amount available for dividends from Yankee Candle to YCC Holdings was approximately $138 million. During the thirty-nine weeks ended October 1, 2011 Holding Corp. made a dividend of $19.2 million to YCC Holdings to fund interest payments and transactional costs for the Senior PIK notes, which decreased the amount available for future dividends.

Yankee Candle’s Credit Facility contains a financial covenant which requires that Yankee Candle maintain at the end of each fiscal quarter, commencing with the quarter ended January 2, 2010 through the quarter ending October 1, 2011, a consolidated total secured debt (net of cash and cash equivalents not to exceed $30.0 million) to Consolidated Adjusted EBITDA ratio of no more than 3.25 to 1.00. The consolidated total secured debt to Consolidated Adjusted EBITDA ratio will step down to no more than 2.75 to 1.00 for the fourth quarter ending December 31, 2011. As of October 1, 2011, Yankee Candle’s actual secured leverage ratio was 2.65 to 1.00, as defined. As of October 1, 2011, total secured debt (including the Company’s capital lease obligations of $3.2 million) was approximately $504.1 million (net of $4.3 million in cash). Under Yankee Candle’s Credit Facility, Consolidated Adjusted EBITDA is defined as net income plus, interest, taxes, depreciation and amortization, further adjusted to add back extraordinary, unusual or non-recurring losses, non-cash stock option expense, fees and expenses related to the Merger, fees and expenses under the Management Agreement with our equity sponsor, restructuring charges or reserves, as well as other non-cash charges, expenses or losses, and further adjusted to subtract extraordinary, unusual or non-recurring gains, other non-cash income or gains, and certain cash contributions to our common equity. Set forth below is a reconciliation of the Company’s Consolidated Adjusted EBITDA, as calculated under Yankee Candle’s Credit Facility, to EBITDA and net income for the four quarters ended October 1, 2011 (in thousands):

Net income	$	51,503
Income tax expense		28,891
Interest expense, net (excluding amortization of deferred financing fees)		61,050
Depreciation and amortization		41,933
EBITDA		183,377
Equity-based compensation expense		3,979
Fees paid pursuant to management agreement		1,500
Other non-cash expenses		1,048
Consolidated Adjusted EBITDA under the Credit Facility	$	189,904

Yankee Candle’s Credit Facility also contains certain other limitations on Yankee Candle’s and certain of Yankee Candle’s restricted subsidiaries’, as defined in Yankee Candle’s credit agreement related to its Credit Facility, ability to incur additional debt, guarantee other obligations, grant liens on assets, make investments or acquisitions, dispose of assets, make optional payments or modifications of other debt instruments, pay dividends or other payments on capital stock, engage in mergers or consolidations, enter into sale and leaseback transactions, enter into arrangements that restrict the Company’s ability to pay dividends or grant liens and engage in transactions with affiliates.

Yankee Candle’s Consolidated Adjusted EBITDA ratio is a material component of Yankee Candle’s Credit Facility. Non-compliance with the maximum Consolidated Adjusted EBITDA ratio could prevent Yankee Candle from borrowing under its Revolving Facility and would result in a default under the credit agreement related to Yankee Candle’s Credit Facility. If there were an event of default under the credit agreement related to Yankee Candle’s Credit Facility that was not cured or waived, the lenders under Yankee Candle’s Credit Facility could cause all amounts outstanding under Yankee Candle’s Credit Facility to be due and payable immediately, which would have a material adverse effect on the Companies, financial position and cash flows.

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Cash Flows and Funding of our Operations

Our cash includes interest-bearing and non-interest bearing accounts. We maintain cash balances at several financial institutions. Cash as of October 1, 2011, was $4.3 million compared to $12.7 million as of January 1, 2011. Cash used in operating activities for YCC Holdings for the thirty-nine weeks ended October 1, 2011 was $107.2 million as compared to cash used in operations of $48.5 million for the thirty-nine weeks ended October 2, 2010. Cash used in operating activities during the thirty-nine weeks ended October 1, 2011 includes total payments of $19.8 million for taxes primarily related to fiscal 2010 and cash paid for interest of $78.1 million. Cash used in operating activities during the thirty-nine weeks ended October 2, 2010 includes total payments of $1.3 million for taxes primarily related to fiscal 2009 and cash paid for interest of $65.3 million. Cash used for inventory for the thirty-nine weeks ended October 1, 2011 was $63.0 million compared to $40.6 million for the thirty-nine weeks ended October 2, 2010. The increase primarily relates to higher inventory levels to protect against rising raw material costs. Cash used in operating activities for Holding Corp. for the thirty-nine weeks ended October 1, 2011 was $90.2 million. The difference in cash used for operations between YCC Holdings and Holding Corp. was primarily related to interest paid on the Senior PIK Notes.

Net cash used in investing activities was $17.2 million and $13.4 million for the thirty-nine weeks ended October 1, 2011 and October 2, 2010 respectively and was used for the purchase of property and equipment, primarily related to new stores, store renovations and supply chain initiatives.

Net cash provided by financing activities for YCC Holdings and Holding Corp. for the thirty-nine weeks ended October 1, 2011, was $116.0 million and $99.0 million, respectively, of which $117.0 million is related to net borrowings under Yankee Candle’s Revolving Facility. Net cash provided by financing activities was $54.7 million for the thirty-nine weeks ended October 2, 2010, of which $55.8 million was related to net borrowings under Yankee Candle’s Revolving Facility. In February 2011, YCC Holdings and Yankee Finance co-issued $315.0 million of 10.25%/11.00% Senior Notes due 2016 (the “Senior PIK Notes”) pursuant to an Indenture at a discount of $6.3 million for net proceeds of $308.7 million.   Issuance costs related to the Senior PIK Notes were $9.7 million, of which $7.8 million were paid for by YCC Holdings and $1.9 million were paid for by Holding Corp.  The net proceeds were used make a payment of $300.8 million to Yankee Investments which in turn made payments of $297.8 million to holders of Yankee Investments’ Class A common units and payments of $3.0 million to holders of Yankee Investments’ Class B and Class C common units. The difference in cash provided by financing activities between YCC Holdings and Holding Corp. for the thirty-nine weeks ended October 1, 2011 is primarily driven by $19.2 million in dividends paid to YCC Holdings to fund interest payments and transactional costs for the Senior PIK notes.  The fluctuation in financing activities year over year relates to increased borrowings in the second and third quarter of fiscal 2011 primarily related to the payment of income taxes and inventory build.

YCC Holdings is dependent upon dividends from Holding Corp., which are subject to restrictions under Yankee Candle’s Credit Facility and the indentures governing Yankee Cande’s senior notes and senior subordinated notes, to generate the funds necessary to meet its outstanding debt service obligations. Holding Corp. funds its operations through a combination of internally generated cash from operations and from borrowings under Yankee Candle’s Credit Facility. Our primary uses of cash are working capital requirements, new store expenditures, new store inventory purchases and debt service requirements. We anticipate that cash generated from operations together with amounts available under Yankee Candle’s Credit Facility will be sufficient to meet its future working capital requirements, new store expenditures, new store inventory purchases and debt service obligations as they become due over the next twelve months. However, our ability to fund future operating expenses and capital expenditures and our ability to make scheduled payments of interest on, to pay principal on or refinance indebtedness and to satisfy any other present or future debt obligations will depend on future operating performance which will be affected by general economic, financial and other factors beyond our control. While we do not yet have sufficient visibility to the 2011 retail environment, based upon current trends and our budget expectations we remain confident that for the foreseeable future we will have sufficient cash flow and liquidity to fund our working capital requirements and meet our debt service obligations. In addition, borrowings under Yankee Candle’s Credit Facility are dependent upon our continued compliance with the financial and other covenants contained therein.

Due to the seasonality of the business, we typically do not generate positive cash flow from operations through the first three quarters of our fiscal year. As such, we draw on the revolver portion of Yankee Candle’s Credit Facility during these times to fund operations. In the fourth quarter, these borrowings are typically repaid in full using cash generated from operations during the fourth quarter holiday season. We typically reach our peak borrowings during the latter part of the third quarter. In fiscal 2010 the Companies’ peak borrowing was $76.0 million as compared to a peak borrowing during the third quarter of fiscal 2011 of $137.0 million. We review and forecast our cash flow on a daily basis for the current year and on a quarterly basis for the upcoming year to ensure we have adequate liquidity to fund our business. We believe that we will, for the foreseeable future, be able to meet our debt service obligations, fund our working capital requirements, fund our capital expenditures and be in compliance with our covenants under Yankee Candle’s Credit Facility.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks relate primarily to changes in interest rates. At October 1, 2011, Yankee Candle had $505.1 million of floating rate debt and $513.0 million of fixed rate debt. At October 1, 2011, YCC Holdings had an additional $315 million of fixed rate debt. For fixed rate debt, interest rate changes affect the fair market value, but do not impact earnings or cash flows. Conversely for floating rate debt, interest rate changes do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant. The $505.1 million outstanding under Yankee Candle’s Credit Facility bears interest at variable rates. All borrowings under Yankee Candle’s Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at Yankee Candle’s option, (i) the higher of (a) the prime rate (as set forth on the British Banking Association Telerate Page 5) and (b) the federal funds effective rate, plus one-half percent (0.50%) per annum or (ii) the Eurodollar rate, and resets periodically. As of October 1, 2011, the weighted average combined interest rate on Yankee Candle’s Term Facility and Revolving Facility was 2.1%. Yankee Candle’s Credit Facility is intended to fund operating needs. Because Yankee Candle’s Credit Facility bears a variable interest rate based on market indices, our results of operations and cash flows will be exposed to changes in interest rates.

The variable nature of our obligations under Yankee Candle’s Credit Facility creates interest rate risk. In order to mitigate this risk we use interest rate swaps to manage the variability of a portion of cash flows associated with the forecasted interest payments on Yankee Candle’s Term Facility. This is achieved through converting a portion of the floating rate Term Facility to a fixed rate by entering into pay-fixed interest rate swaps. In essence, Yankee Candle converted a portion of  its Term Facility, which is floating-rate debt, to a fixed-rate up to the aggregate notional value of the swaps by paying fixed-rate amounts in exchange for the receipt of floating-rate interest payments. As of October 1, 2011, the aggregate notional value of the swaps was $320.7 million, or 82.6% of Yankee Candle’s Term Facility, resulting in a blended fixed rate of 3.49%. Based on Yankee Candle’s outstanding floating rate debt and the notional amount of our interest rate swaps, as of October 1, 2011, a 1.0% increase or decrease in current market interest rates would have the effect of causing an approximately $1.8 million additional annual pre–tax charge or benefit to our results of operations.

We buy a variety of raw materials for inclusion in our products. The only raw material that is considered to be of a commodity nature is wax. Wax is a petroleum based product. Its market price has not historically fluctuated with the movement of oil prices and has instead generally moved with inflation. However, in the past several years the price of wax has increased at a rate significantly above the rate of inflation. Future increases in wax prices could have an adverse affect on our cost of goods sold and could lower our margins.

A portion of our sales and a portion of our costs are denominated in currencies other than the U.S. dollar. These currencies could appreciate or depreciate relative to the U.S. dollar. Any movement of these currencies may materially and adversely affect our cash flows, revenues, operating results and financial position.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures for YCC Holdings LLC

YCC Holdings LLC’s management, with the participation of its chief executive officer and treasurer (principal financial and accounting officer), evaluated the effectiveness of our disclosure controls and procedures as of October 1, 2011. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of October 1, 2011, YCC Holdings LLC’s chief executive officer and treasurer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting for YCC Holdings LLC

No change in YCC Holdings LLC’s internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) occurred during the thirteen weeks ended October 1, 2011 that has materially affected, or is reasonably likely to materially affect, YCC Holdings LLC’s internal control over financial reporting.

Disclosure Controls and Procedures for Yankee Holding Corp.

Yankee Holding Corp.’s management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of October 1, 2011. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of October 1, 2011, Yankee Holding Corp.’s chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting for Yankee Holding Corp.

No change in  Yankee Holding Corp.’s internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) occurred during the thirteen weeks ended October 1, 2011 that has materially affected, or is reasonably likely to materially affect, Yankee Holding Corp.’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In August 2009, in connection with the Linens 'N Things bankruptcy proceedings, Linens Holding Co. and its affiliates ("Linens") filed a lawsuit against Yankee Candle in United States Bankruptcy Court in the District of Delaware alleging that pursuant to the United States Bankruptcy Code Linens is entitled to recover from the Company the certain amounts on the basis that they constitute "preferential transfers" under the Code. On April 4, 2011, the bankruptcy court approved a settlement of this matter, under which the Company paid $0.2 million.

We are also party to various other litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

This report on Form 10-Q contains forward-looking statements. Statements that are not historical or current facts, including statements about our expectations, anticipated financial results, projected capital expenditures, and future business prospects, are forward-looking statements. You can identify these statements by our use of words such as “may,” “will,” “expect,” “believe,” “should,” “plan,” “anticipate,” and other similar expressions. You can find examples of these statements throughout this report, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There are a number of factors that might cause our actual results to differ significantly from the results reflected by the forward-looking statements contained herein. You should review carefully the risk factors listed in “Item 1A. Risk Factors” in Holding Corp.’ 2010 Form 10-K and in Amendment No. 5 to YCC Holdings’ Registration Statement on form S-4 filed with the SEC on August 2, 2011 and declared effective on August 4, 2011, as well as those factors listed in other documents we file with the Securities and Exchange Commission. In addition, you should consider the following factors before investing in the Company. We do not assume an obligation to update any forward-looking statement.

Risks Relating to Our Business

The current economic conditions and uncertain future outlook, including the credit and liquidity crisis in the financial markets and the continued deterioration in consumer confidence and spending, may continue to negatively impact our business and results of operations.

As widely reported, since the latter part of 2008 financial and credit markets in the United States and globally have experienced significant volatility and disruption, which has resulted in, among other things, diminished liquidity and credit availability and a widespread reduction in business activity and consumer spending and confidence. Since 2008, these economic conditions have negatively impacted our business and our results of operations and continue to do so. Any continuation or deterioration in the current economic conditions, or any prolonged global, national or regional recession, may materially adversely affect our results of operations and financial condition.

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These economic developments affect businesses such as ours in a number of ways. The current adverse market conditions, including the tightening of credit in financial markets, negatively impacts the discretionary spending of our consumers and may result in a decrease in sales or demand for our products. Similarly, these conditions may negatively impact the financial and operating condition of our wholesale customer base, or their ability to obtain credit, either of which in turn could cause them to reduce or delay their purchases of our products and increase our exposure to losses from bad debts. These conditions could also increase the likelihood that one or more of our wholesale customers may file for bankruptcy or similar protection from creditors, which also may result in a loss of sales and increase our exposure to bad debt.

From a financing perspective, we believe that we currently have sufficient liquidity to support the ongoing activities of our business, service our existing debt and invest in future growth opportunities. While the existing conditions have therefore not currently impacted our ability to finance our operations, the continuation or further tightening of the credit markets may adversely affect our ability to access the credit market and to obtain any additional financing or refinancing on satisfactory terms or at all.

We are unable to predict the likely duration and severity of the ongoing economic downturn in the United States and the economies of other countries, nor are we able to predict the long-term impact of these conditions on our operations.

Our substantial level of indebtedness could adversely affect our financial condition and operations.

We have a substantial amount of debt.  At October 1, 2011, YCC Holdings and its subsidiaries had $1,327.4 million of total debt indebtedness, including $505.1 million of secured debt.

Our substantial level of indebtedness could have important consequences to you.  For example, it could:

• make it more difficult for us to satisfy our obligations;

• increase our vulnerability to adverse economic and industry conditions;

• limit our ability to obtain additional financing for future working capital, capital expenditures, raw materials, strategic acquisitions and other general corporate requirements;

• expose us to interest rate fluctuations because the interest on the debt under the Credit Facility is imposed at variable rates;

• require us to dedicate a substantial portion of our cash flow from operations to payments on our debt (including scheduled repayments on our outstanding term loan borrowings under Yankee Candle’s Credit Facility), thereby reducing the availability of our cash flow for operations and other purposes, including making cash available to the Issuers, by dividend, debt repayment or otherwise to enable us to make payments on the Senior PIK Notes;

• make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;

• limit our ability to refinance indebtedness or increase the associated costs;

• require us to sell assets to reduce debt or influence our decision about whether to do so;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or prevent us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins or our business; and

• place us at a competitive disadvantage compared to any competitors that have less debt or comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns.

If we do not generate sufficient cash flows, we may be unable to service all of our indebtedness.

To service our and our subsidiaries' indebtedness, we will require a significant amount of cash. Our ability to generate cash, make scheduled payments or to refinance our debt obligations depends on our successful financial and operating performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control.

If our subsidiaries' cash flow and capital resources are insufficient to fund our and our subsidiaries' debt service obligations and to repay amounts outstanding under the Revolving Facility when it matures in 2013, the Term Facility when it matures in 2014 and Yankee Candle's senior notes and senior subordinated notes when they mature, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets or operations, reducing or delaying capital investments, or seeking to raise additional capital. Any refinancing of our debt could be at higher interest rates and may require us to comply with more restrictive covenants which could further restrict our business operations and Yankee Candle's ability to make cash available to YCC Holdings, by dividend, debt repayment or otherwise to enable YCC Holdings to repay the amounts due under the Senior PIK Notes. Our ability to implement successfully any such alternative financing plans will be dependent on a range of factors, including general economic conditions, the level of activity in mergers and acquisitions and capital markets generally and the terms of our various debt instruments then in effect. In addition, Yankee Candle’s Credit Facility is secured by a lien on substantially all of Yankee Candle's and its subsidiaries’ assets, and any successor credit facility is likely to be secured on a similar basis. As such, our ability to refinance the Senior PIK Notes, seek additional financing or Yankee Candle’s ability to make cash available to YCC Holdings, by dividend, debt repayment or otherwise to enable YCC Holdings to repay the amounts due under the Senior PIK Notes could be impaired as a result of such security interest and the agreements governing such security interests.

Our inability to generate sufficient cash flow to satisfy our debt obligations or to refinance our obligations on commercially reasonable terms could have a material adverse effect on our business, including our financial condition and results of operations, as well as on Yankee Candle's ability to make cash available to YCC Holdings, by dividend, debt repayment or otherwise to enable YCC Holdings to satisfy its obligations on the Senior PIK Notes.

Many aspects of our manufacturing and distribution facilities are customized for our business; as a result, the loss of one of these facilities would materially disrupt our operations.

Approximately 74% and 75.1%  of our gross sales for the thirteen and thirty-nine weeks ended October 1, 2011 were generated by products we manufactured at our manufacturing facility in Whately, Massachusetts and we rely primarily on our distribution facilities in South Deerfield, Massachusetts to distribute our products. Because most of our machinery is designed or customized by us to manufacture our products, and because we have strict quality control standards for our products, the loss of our manufacturing facility, due to natural disaster or otherwise, would materially affect our operations. Similarly, our distribution facilities rely upon customized machinery, systems and operations, the loss of which would materially affect our operations. Although our manufacturing and distribution facilities are adequately insured, if our facilities were destroyed we believe it would take up to twelve months to resume operations at a level equivalent to current operations.

It will be difficult to maintain our historical growth rates. If we fail to grow our business as planned, our future operating results may suffer.

We intend to continue to pursue a long-term business strategy of increasing sales and earnings by expanding our retail and wholesale operations both in the United States and internationally. However, our ability to grow these operations in the short-term may be negatively impacted by the current economic conditions. Our ability to implement our long-term growth strategy successfully will also be dependent in part on several factors beyond our control, including economic conditions, consumer preferences, and the competitive environment in the markets in which we compete, and we may not be able to achieve our planned growth or sustain our financial performance. Our ability to anticipate changes in the candle, home fragrance and giftware industries, and identify industry trends, will be critical factors in our ability to remain competitive.

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We expect that it will become more difficult to maintain our historical growth rate, which could negatively impact our operating margins and results of operations. New stores typically generate lower operating margin contributions than mature stores because (i) fixed costs, as a percentage of sales, are higher and (ii) pre-opening costs are fully expensed in the year of opening. In addition, our retail sales generate lower segment margins than our wholesale sales. Over the past several years, our wholesale business has grown by increasing sales to existing customers and by adding new customers. If we are not able to continue this, our sales and profitability could be adversely affected. In addition, as we expand our wholesale business into new channels of trade that we believe to be appropriate, sales in some of these new channels may, for competitive reasons within the channels, generate lower margins than do our existing wholesale sales. Similarly, as we continue to broaden our product offerings in order to meet consumer demand, we may do so in part by adding products that have lower product margins than those of our core candle products.

Further increases in wax prices above the rate of inflation may negatively impact our cost of goods sold and margins. Any shortages in refined oil supplies could impact our wax supply.

In the past several years significant increases in the price of crude oil have adversely impacted our transportation and freight costs and have contributed to significant increases in the cost of various raw materials, including wax, which is a petroleum-based product. These price increases were significant in 2010 and we have already incurred additional wax price increases in 2011. This in turn negatively impacts our cost of goods sold and margins. In addition, we believe that rising oil prices and corresponding increases in raw materials and transportation costs negatively impact not only our business but consumer sentiment and the economy at large. Continued weakness in consumer confidence and the macro-economic environment could negatively impact our sales and earnings. Future significant increases in wax prices could have an adverse affect on our cost of goods sold and could lower our margins.

In addition to the impact of increased wax prices, any shortages in refined oil supplies may impact our wax supply. The closing or disruption of oil refineries could significantly limit our ability to source wax and negatively impact our operations. While we experienced no supply issues in 2010 or for the thirty-nine weeks ended October 1, 2011, any future prolonged interruption or reduction in wax supplies could negatively impact our operations, sales and earnings.

We face significant competition in the giftware industry. This competition could cause our revenues or margins to fall short of expectations which could adversely affect our future operating results, financial condition, liquidity and our ability to continue to grow our business.

We compete generally for the disposable income of consumers with other producers and retailers in the giftware industry. The giftware industry is highly competitive with a large number of both large and small participants and relatively low barriers to entry.

Our products compete with other scented and unscented candle, home fragrance and personal care products and with other gifts within a comparable price range, like boxes of candy, flowers, wine, fine soap and related merchandise. Our retail stores compete primarily with specialty candle retailers and a variety of other retailers including department stores, gift stores and national specialty retailers that carry candles along with personal care items, giftware and houseware. In addition, while we focus primarily on the premium scented candle segment, scented and unscented candles are also sold outside of that segment by a variety of retailers, including mass merchandisers. In our wholesale business, we compete with numerous manufacturers and importers of candles, home fragrance products and other home decor and gift items for the limited space available in our wholesale customer locations for the display and sale of such products to consumers. Some of our competitors are part of large, diversified companies which have greater financial resources and a wider range of product offerings than we do. Many of our competitors source their products from low cost manufacturers outside of the United States. This competitive environment could adversely affect our future revenues and profits, financial condition and liquidity and our ability to continue to grow our business.

A material decline in consumers’ discretionary income could cause our sales and income to decline.

Our results depend on consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in sales during periods of significant economic volatility and disruption such as the one we are currently experiencing, or during other economic downturns or periods of uncertainty like that which followed the September 11, 2001 terrorist attacks on the United States or which result from the threat of war or the possibility of further terrorist attacks. Any material decline in the amount of discretionary spending could have a material adverse effect on our sales and income.

Current environmental laws and regulations, or those enacted in the future, could result in additional liabilities and costs.

The manufacturing of our products may require the use of materials that are subject to a variety of environmental, health and safety laws and regulations. For example, various federal and state agencies regulate the petroleum used to produce our wax products and certain ingredients contained in our fragrance oils. Compliance with these laws and regulations could increase our costs and impact the availability of components required to manufacture our products. Violation of these laws and regulations may subject us to significant fines, penalties or disposal costs, which could negatively impact our results of operations, financial position or cash flows.

We may be unable to continue to open new stores successfully or renew leases for existing locations.

Our retail strategy depends in large part on our ability to successfully open new stores in both existing and new geographic markets. For our strategy to be successful, we must identify and lease favorable store sites on favorable economic terms, hire and train managers and associates and adapt management and operational systems to meet the needs of our expanded operations. These tasks may be difficult to accomplish successfully and any changes in the availability of suitable real estate locations on acceptable terms could adversely impact our retail growth. If we are unable to open new stores as quickly as planned or at all, then our future sales and profits could be materially adversely affected. Even if we succeed in opening new stores, these new stores may not achieve the same sales or profit levels as our existing stores. Also, our retail strategy includes opening new stores in markets where we already have a presence so we can take advantage of economies of scale in marketing, distribution and supervision costs, or the opening of new malls or lifestyle centers in the market. However, these new stores may result in the loss of sales in existing stores in nearby areas, thereby negatively impacting our comparable store sales. A decrease in our retail comparable store sales will have an adverse impact on our cash flows and earnings. This is due to the fact that a significant portion of our expenses are comprised of fixed costs, such as lease payments, and our ability to decrease expenses in response to negative comparable store sales is limited in the short term. Our retail strategy also depends upon our ability to successfully renew the expiring leases of our profitable existing stores. If we are unable to do so at planned levels and upon favorable economic terms, then our future sales and profits could be negatively affected.

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The loss or significant deterioration in the financial condition of a significant wholesale customer, or a bankruptcy filing and subsequent bankruptcy proceedings by such a customer, could negatively impact our sales and operating results.

The loss or significant deterioration in the financial condition of one of our major customers could have a material adverse effect on our sales, profitability and cash flow to the extent that we are unable to offset any revenue losses with additional revenue from existing customers or by opening new accounts. We continually monitor and evaluate the credit status of our customers and attempt to adjust trade and credit terms as appropriate. Given the current economic environment, there is an increased risk that wholesale customers could be forced to cease or significantly reduce their purchases from us. The loss of one or more significant wholesale customers, or a significant reduction in their operations, could materially adversely impact our results of operations and financial condition. In addition, in the event that one of our significant wholesale customers files for bankruptcy protection, there are various potential claims that may arise in connection therewith that, if filed and adversely decided, could potentially negatively impact our operating results and financial condition.

The failure or delay of a third party to supply goods to our customers could adversely impact our business.

For certain of our operations, we rely on third-party vendors to supply goods to our customers. The failure of such vendors to deliver our goods in a timely or appropriate manner could adversely impact our customer relationships, which would adversely impact our business. For example, we currently utilize a third party fulfillment provider for the Fundraising business and the Consumer Direct business. This party recently experienced difficulty in timely delivering goods to our Fundraising business and Consumer Direct business customers. Delays such as these or other problems encountered by our third-party vendors could have an adverse effect on our business, including our reputation and ability to grow our operations as planned.

Sustained interruptions in the supply of products from overseas may affect our operating results.

We source various accessories and other products from Asia. A sustained interruption of the operations of our suppliers, as a result of economic difficulties, the impact of global shipping capacity constraints, the impact of health epidemics, natural disasters or other factors, could have an adverse effect on our ability to receive timely shipments of certain of our products, which might in turn negatively impact our sales and operating results.

Restrictive covenants in the indenture governing the Senior PIK Notes, the indentures governing Yankee Candle’s senior notes and senior subordinated notes and Yankee Candle’s Credit Facility could restrict our operating flexibility.

The indenture governing the Senior PIK Notes currently contains covenants that limit YCC Holdings’ and its subsidiaries’ ability to take certain actions and the indentures governing Yankee Candle's senior notes and senior subordinated notes and Yankee Candle’s Credit Facility currently contain covenants that limit Holding Corp.’s and its restricted subsidiaries' ability to take certain actions. These restrictions and restrictions in YCC Holdings’ or Yankee Candle's future indebtedness may limit our ability to operate our businesses and may prohibit or limit our ability to enhance our operations or take advantage of potential business opportunities as they arise.

The indenture governing the Senior PIK Notes currently contains covenants that limit Holding Corp.’s and its subsidiaries’ ability to, and the indentures governing Yankee Candle's senior notes and senior subordinated notes and Yankee Candle’s Credit Facility currently contain covenants that limit Yankee Candle's and its restricted subsidiaries' ability to:

• incur additional indebtedness or issue preferred stock;

• pay dividends, redeem stock or make other distributions, including distributions to YCC Holdings and Yankee Finance to make payments in respect of their indebtedness, including the Senior PIK Notes;

• make other restricted payments or investments;

• create liens on assets;

• create restrictions on payment of dividends or other amounts by us to our restricted subsidiaries;

• transfer or sell assets;

• engage in mergers or consolidations;

• engage in certain transactions with affiliates; and

• designate subsidiaries as unrestricted subsidiaries.

Yankee Candle’s Credit Facility restricts, among other things and subject to certain exceptions, Yankee Candle's ability to:

• incur additional indebtedness;

• pay dividends or other payments on capital stock;

• guarantee other obligations;

• grant liens on assets;

• make loans, acquisitions or other investments;

• dispose of assets;

• make optional payments or modify certain debt instruments;

• engage in transactions with affiliates;

• amend organizations documents;

• engage in mergers or consolidations;

• enter into sale and leaseback transactions;

• enter into arrangements that restrict our and our restricted subsidiaries' ability to pay dividends;

• make acquisitions;

• change the nature of the business conducted by Yankee and its subsidiaries;

• change our fiscal quarter and fiscal year; and

• designate our subsidiaries as unrestricted subsidiaries.

In addition, Yankee Candle’s Credit Facility requires Yankee Candle to maintain specified financial ratios and satisfy other financial conditions, including a “consolidated total secured leverage ratio” and a “consolidated net interest coverage ratio” (each as defined in the credit agreement governing Yankee Candle’s Credit Facility).

Our ability to comply with the covenants and restrictions contained in the indenture governing the Senior PIK Notes, the indentures governing Yankee Candle's senior notes and senior subordinated notes and Yankee Candle’s Credit Facility may be affected by economic conditions and by financial, market and competitive factors, many of which are beyond our control. Our ability to comply with these covenants in future periods will also depend substantially on the pricing and sales volume of our products, our success at implementing cost reduction initiatives and our ability to successfully implement our overall business strategy. The breach of any of these covenants or restrictions could result in a default under the indenture governing the Senior PIK Notes, the indentures governing Yankee Candle's senior notes and senior subordinated notes and Yankee Candle’s Credit Facility that would permit the holders or applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest and any applicable redemption premium. In that case, Yankee Candle may be unable to make borrowings under its Credit Facility, may not be able to repay the amounts due under Yankee Candle's senior notes and senior subordinated notes and Yankee Candle’s Credit Facility and may not be able make cash available to YCC Holdings, by dividend, debt repayment or otherwise to enable YCC Holdings to make payments on the Senior PIK Notes. This could have serious consequences to our financial position, results of operations and/or cash flows and could cause us to become bankrupt or insolvent.

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YCC Holdings and Holding Corp. have no independent operations or assets. Their ability to repay their debt is dependent on cash flow generated by Yankee Candle and its subsidiaries. Restrictions in our subsidiaries' debt instruments and under applicable law limit their ability to provide funds to us.

YCC Holdings has no assets other than the stock of Yankee Finance, which has no assets, and the stock of Holding Corp., which has no assets other than the stock of Yankee Candle. Furthermore, YCC Holdings and Holding Corp. conduct no operations. Accordingly, repayment of their indebtedness is dependent, to a significant extent, on the generation of cash flow by Yankee Candle and its subsidiaries and their ability to make such cash available to YCC Holdings and Holding Corp., by dividend, debt repayment or otherwise. Yankee Candle and its subsidiaries are distinct legal entities and they do not have any obligation to pay amounts due on the notes or to make funds available for that purpose or other obligations in the form of loans, distributions or otherwise. Yankee Candle and its subsidiaries may not be able to, or may not be permitted to, make distributions to YCC Holdings and Holding Corp. in order to enable them to make payments in respect of their indebtedness. Yankee Candle’s Credit Facility and Yankee Candle's senior notes and senior subordinated notes significantly restrict the ability of Holding Corp. and its other subsidiaries to pay dividends or make distributions or any other payments with respect to the Senior PIK Notes. In addition, under certain circumstances, legal restrictions may limit the YCC Holdings’ and Holding Corp.’s ability to obtain cash from Yankee Candle. Under the Delaware General Corporation Law (the "DGCL"), Holding Corp.’s subsidiaries may only make dividends (i) out of their "surplus" as defined in the DGCL or (ii) if there is no such surplus, out of their net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

Under fraudulent transfer laws, our subsidiaries may not pay dividends if the relevant entity is insolvent or is rendered insolvent thereby. The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an entity would be considered insolvent if:

• the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

• the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

• it could not pay its debts as they became due.

While we believe that our relevant subsidiaries currently have surplus and are not insolvent, there can otherwise be no assurance that these subsidiaries will not become insolvent or will be permitted to make distributions in the future in compliance with these restrictions in amounts needed to service our indebtedness.

Counterparties to the Credit Facility and interest rate swaps may not be able to fulfill their obligations due to disruptions in the global financial and credit markets.

As a result of concerns about the stability of the financial and credit markets and the strength of counterparties during this challenging global macroeconomic environment, many financial institutions have reduced, and in some instances ceased to provide, funding to borrowers. Based upon information available to us, we have no indication that financial institutions syndicated under Yankee Candle’s Revolving Facility would be unable to fulfill their commitments to us. However, if certain counterparties were to become unable to fulfill those obligations, it may adversely affect our results of operations, financial condition and liquidity.

Additionally, we have entered into interest rate swap agreements to hedge the variability of interest payments associated with the Credit Facility. We may be exposed to losses in the event of nonperformance by counterparties on these instruments. Continued turbulence in the global credit markets and the U.S. economy may adversely affect our results of operations and financial condition.

The interests of our controlling stockholders may differ from the interests of the noteholders.

Private equity funds managed by Madison Dearborn Partners, LLC (“Madison Dearborn”) indirectly own substantially all of our common stock. As a result, Madison Dearborn exercises a controlling influence over matters requiring stockholder approval and our policies and affairs. The interests of Madison Dearborn may conflict with those of noteholders. The controlling stockholders may have an incentive to increase the value of their investment or cause us to distribute funds to the detriment of our financial condition and affect our ability to make payments on outstanding notes. In addition, these funds have the power to elect a majority of our Board of Directors and appoint new officers and management and, therefore, effectively control many other major decisions regarding our operations. Additionally, our controlling stockholders are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Our controlling stockholders may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Finally, the indenture governing the Senior PIK notes and Yankee Candle’s notes currently permit us to pay advisory fees and dividends or make other restricted payments under certain circumstances, and Madison Dearborn may have an interest in our doing so.

Because we are not a diversified company and are primarily dependent upon one industry, we have less flexibility in reacting to unfavorable consumer trends, adverse economic conditions or business cycles.

We rely primarily on the sale of premium scented candles and related products in the giftware industry. In the event that sales of these products decline or do not meet our expectations, we cannot rely on the sales of other products to offset such a shortfall. As a significant portion of our expenses is comprised of fixed costs, such as lease payments, our ability to decrease expenses in response to adverse business conditions is limited in the short term. As a result, unfavorable consumer trends, adverse economic conditions or changes in the business cycle could have a material and adverse impact on our earnings.

If we lose our senior executive officers, or are unable to attract and retain the talent required for our business, our business could be disrupted and our financial performance could suffer.

Our success is in part dependent upon the retention of our senior executive officers. Our senior management team has extensive consumer packaged goods, retail, wholesale and manufacturing experience with an average of over 25 years of relevant experience. If our senior executive officers become unable or unwilling to participate in our business, our future business and financial performance could be materially affected. In addition, as our business grows in size and complexity we must be able to continue to attract, develop and retain qualified personnel sufficient to allow us to adequately manage and grow our business. If we are unable to do so, our operating results could be negatively impacted. We cannot guarantee that we will be able to attract and retain personnel as and when necessary in the future.

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In the past we have been required to recognize a pre-tax, non-cash impairment charge related to goodwill and other intangible assets, and we may be required to recognize additional impairment charges against goodwill or intangible assets in the future.

At October 1, 2011, the net carrying value of our goodwill and intangible assets totaled approximately $643.6 million and $272.5 million, respectively. Our amortizing intangible assets are subject to impairment testing in accordance with the Accounting Standards Codification (the “ASC”) Topic 350 “Intangibles – Goodwill and Other,” and our non-amortizing goodwill and trade names are subject to impairment tests in accordance with the Intangibles, Goodwill and Other Topic of the ASC. We review the carrying value of our intangible assets and goodwill for impairment whenever events or circumstances indicate that their carrying value may not be recoverable, at least annually for our goodwill and trade names. Significant negative industry or economic trends, including disruptions to our business, unexpected significant changes or planned changes in the use of our intangible assets, and mergers and acquisitions could result in an impairment charge for any of our intangible assets, goodwill or other long-lived assets.

In the impairment analyses we used certain estimates and assumptions, including a combination of market-based and income-based approaches, each of which were weighted at 50% for the impairment test performed as of November 6, 2010. The market-based approach estimates fair value by applying multiples of potential earnings, such as EBITDA and revenue, of publicly traded comparable companies. We believe this approach is appropriate because it provides a fair value using multiples from companies with operations and economic characteristics similar to our reporting units. The income-based approach is based on projected future debt-free cash flow that is discounted to present value using factors that consider the timing and risk of the future cash flows. We believe this approach is appropriate because it provides a fair value estimate based upon the reporting units expected long-term operations and cash flow performance. The income-based approach is based on future projections of operating results and cash flows. These projections are discounted to present value using a weighted average cost of capital for market participants, who are generally thought to be industry participants. The future projections are based on both past performance and the projections and assumptions used in our current operating plan. Such assumptions are subject to change as a result of changing economic and competitive conditions and could result in additional impairment charges. Further, if the economic market conditions were to worsen and our estimated future discounted cash flows decrease further we may incur additional impairment charges. Additional impairment charges related to our goodwill, tradenames or other intangible assets could have a significant impact on our financial position and results of operations.

Our international operations subject us to a number of risks, including unfavorable regulatory, labor, tax and political conditions in foreign countries.

Sales from our international operations were $27.7 million and $68.8 million for the thirteen and thirty-nine weeks ended October 1, 2011, respectively, and were primarily generated in Europe. As a result, we are subject to the legal, political, social and regulatory requirements and economic conditions of many jurisdictions other than the United States. Risks inherent to maintaining international operations, include, but are not limited to, the following:

• withholding taxes or other taxes on our foreign income, tariffs or other restrictions on foreign trade and investment, including currency exchange controls imposed by or in other countries;

• the inability to obtain, maintain or enforce intellectual property rights in other jurisdictions, at a reasonable cost or at all;

• difficulty with staffing and managing widespread operations;

• trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make our product offering less competitive in some countries; and

• our establishing ourselves and becoming tax resident in foreign jurisdictions.

Our business in foreign markets requires us to respond to rapid changes in market conditions in these countries. Our overall success in these international markets depends, in part, on our ability to succeed under differing legal, regulatory, economic, social and political conditions. There can be no assurance that we will be able to develop, implement and maintain policies and strategies that will be effective in each location where we do business. As a result of any of the foregoing factors, our financial condition, results of operations, business and/or prospects could be materially adversely affected.

Seasonal, quarterly and other fluctuations in our business, and general industry and market conditions, could affect the market for our results of operations.

Our sales and operating results vary from quarter to quarter. We have historically realized higher sales and operating income in our fourth quarter, particularly in our retail business, which accounts for a larger portion of our sales. We believe that this has been due primarily to an increase in giftware industry sales during the holiday season of the fourth quarter. In addition, in anticipation of increased holiday sales activity, we incur certain significant incremental expenses, including the hiring of a substantial number of temporary employees to supplement our existing workforce. As a result of this seasonality, we believe that quarter to quarter comparisons of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. In addition, we may also experience quarterly fluctuations in our sales and income depending on various factors, including, among other things, the number of new retail stores we open in a particular quarter, changes in the ordering patterns of our wholesale customers during a particular quarter, pricing and promotional activities of our competitors, and the mix of products sold. Most of our operating expenses, such as rent expense, advertising and promotional expense and employee wages and salaries, do not vary directly with sales and are difficult to adjust in the short term. As a result, if sales for a particular quarter are below our expectations, we might not be able to proportionately reduce operating expenses for that quarter, and therefore a sales shortfall could have a disproportionate effect on our operating results for that quarter. Further, our comparable store sales from our retail business in a particular quarter could be adversely affected by competition, the opening nearby of new retail stores or wholesale locations, economic or other general conditions or our inability to execute a particular business strategy. As a result of these factors, we may report in the future sales, operating results or comparable store sales that do not match the expectations of analysts and investors. This could cause the price of the notes to decline.

Other factors may also cause our actual results to differ materially from our estimates and projections.

In addition to the foregoing, there are other factors which may cause our actual results to differ materially from our estimates and projections. Such factors include the following:

• changes in the general economic conditions in the United States including, but not limited to, consumer debt levels, financial market performance, interest rates, consumer sentiment, inflation, commodity prices, unemployment and other factors that impact consumer confidence and spending;

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• changes in levels of competition from our current competitors and potential new competition from both retail stores and alternative methods or channels of distribution;

• loss of a significant vendor or prolonged disruption of product supply;

• the successful introduction of new products and technologies in our product categories, including the frequency of such introductions, the level of consumer acceptance of new products and technologies, and their impact on demand for existing products and technologies;

• the impact of changes in pricing and profit margins associated with our sourced products or raw materials;

• changes in income tax laws or regulations, or in interpretations of existing income tax laws or regulations;

• adverse outcomes from significant litigation matters;

• changes in the interpretation or enforcement of laws and regulations regarding our business or the sale of our products, or the ingredients contained in our products; or the imposition of new or additional restrictions or regulations regarding the same;

• changes in our ability to attract, retain and develop highly-qualified employees or changes in the cost or availability of a sufficient labor force to manage and support our operations;

• changes in our ability to meet objectives with regard to business acquisitions or new business ventures;

• the occurrence of severe weather events prohibiting or discouraging consumers from traveling to retail or wholesale locations;

• the disruption of global, national or regional transportation systems;

• the occurrence of certain material events including natural disasters, acts of terrorism, the outbreak of war or other significant national or international events;

• an outbreak of certain public health issues, including contagious diseases;

• our ability to react in a timely manner and maintain our critical business processes and information systems capabilities in a disaster recovery situation; and

• changes in our ability to manage our existing computer systems and technology infrastructures, and our ability to implement successfully new computer systems and technology infrastructures.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not Applicable

Item 3. Defaults Upon Senior Securities.

Not Applicable

Item 5. Other Information.

Not Applicable

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Item 6. Exhibits

31.1	YCC Holdings Certification of Harlan M. Kent Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 11, 2011
31.2	YCC Holdings Certification of Gregory W. Hunt Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 11, 2011
31.3	Holding Corp. Certification of Harlan M. Kent Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 11, 2011
31.4	Holding Corp. Certification of Gregory W. Hunt Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 11, 2011
32.1	YCC Holdings Certification of Harlan M. Kent Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 11, 2011
32.2	YCC Holdings Certification of Gregory W. Hunt Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 11, 2011
32.3	Holding Corp. Certification of Harlan M. Kent Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 11, 2011
32.4	Holding Corp. Certification of Gregory W. Hunt Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 11, 2011
101	Interactive Data Files

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	YANKEE HOLDING CORP.
Date: November 11, 2011	By:	/s/    GREGORY W. HUNT
		Gregory W. Hunt
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	YCC HOLDINGS LLC
Date: November 11, 2011	By:	/s/    GREGORY W. HUNT
		Gregory W. Hunt
		Treasurer (Principal Financial and Accounting Officer)

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