Yankee Holding 10-Q 2012 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: September 29, 2012

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     o      No   x

Yankee Holding Corp. Yes     o      No   x

YCC Holdings LLC and Yankee Holding Corp. are voluntary filers of reports required of companies with public securities under Section 13 or 15(d) of the Securities Exchange Act of 1934, and they will have filed all reports which would have been required of them during the past 12 months had they 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 2, 2012, 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 September 29, 2012 and December 31, 2011	4
		Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended September 29, 2012 and October 1, 2011	5
		Condensed Consolidated Statements of Comprehensive Income for the Thirteen Weeks Ended September 29, 2012 and October 1, 2011	6
		Condensed Consolidated Statements of Operations for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	7
		Condensed Consolidated Statements of Comprehensive Loss for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	8
		Condensed Consolidated Statements of Changes in Member’s Deficit for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	9
		Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	10
	Yankee Holding Corp.
		Condensed Consolidated Balance Sheets as of September 29, 2012 and December 31, 2011	11
		Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended September 29, 2012 and October 1, 2011	12
		Condensed Consolidated Statements of Comprehensive Income for the Thirteen Weeks Ended September 29, 2012 and October 1, 2011	13
		Condensed Consolidated Statements of Operations for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	14
		Condensed Consolidated Statements of Comprehensive Loss for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	15
		Condensed Consolidated Statements of Changes in Stockholder’s Equity for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	16

		Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended September 29, 2012 and October 1, 2011	17
	YCC Holdings LLC and Yankee Holding Corp. Notes to Condensed Consolidated Financial Statements		18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		56
Item 4.	Controls and Procedures		56
PART II. Other Information
Item 1.	Legal Proceedings		58
Item 1A.	Risk Factors		58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		61
Item 3.	Defaults Upon Senior Securities		61
Item 4.	Mine Safety Disclosures		61
Item 5.	Other Information		61
Item 6.	Exhibits		62
Signatures			63

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)

	September 29,			December 31,
	2012			2011
ASSETS
CURRENT ASSETS:
Cash	$	9,620		$	50,833
Accounts receivable, net		81,072			57,013
Inventory		126,521			75,563
Prepaid expenses and other current assets		26,516			4,924
Deferred tax assets		8,948			8,724
TOTAL CURRENT ASSETS		252,677			197,057
PROPERTY AND EQUIPMENT, NET		123,649			118,402
MARKETABLE SECURITIES		2,185			1,670
GOODWILL		643,570			643,570
INTANGIBLE ASSETS		268,116			269,405
DEFERRED FINANCING COSTS		20,839			19,624
OTHER ASSETS		377			394
TOTAL ASSETS	$	1,311,413		$	1,250,122
LIABILITIES AND MEMBER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	27,379		$	21,109
Accrued payroll		10,446			6,910
Accrued interest		6,644			29,485
Accrued income taxes		-			7,269
Accrued purchases of property and equipment		3,385			2,606
Current portion of long-term debt		7,250			12,042
Current portion of capital leases		1,583			975
Other accrued liabilities		36,365			38,689
TOTAL CURRENT LIABILITIES		93,052			119,085
DEFERRED TAX LIABILITIES		114,035			107,123
LONG-TERM DEBT, NET OF CURRENT PORTION		1,296,954			1,198,659
DEFERRED RENT		13,052			12,833
CAPITAL LEASES, NET OF CURRENT PORTION		4,131			2,597
OTHER LONG-TERM LIABILITIES		5,279			3,980
COMMITMENTS AND CONTINGENCIES
MEMBER'S DEFICIT
Common Units		120,271			122,038
Accumulated deficit		(334,030	)		(313,009	)
Accumulated other comprehensive loss		(1,331	)		(3,184	)
Total member's deficit		(215,090	)		(194,155	)
TOTAL LIABILITIES AND MEMBER'S DEFICIT	$	1,311,413		$	1,250,122

See notes to condensed consolidated financial statements

4

 YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirteen			Thirteen
	Weeks Ended			Weeks Ended
	September 29, 2012			October 1, 2011
Sales	$	201,661		$	195,109
Cost of sales		92,305			87,958
Gross profit		109,356			107,151
Selling expenses		56,643			57,865
General and administrative expenses		16,875			15,486
Operating income		35,838			33,800
Interest expense		27,010			26,665
Other income		(2,097	)		(2,372	)
Income from continuing operations before provison for income taxes		10,925			9,507
Provision for income taxes		4,226			3,090
Income from continuing operations		6,699			6,417
Loss from discontinued operations, net of income taxes		(31	)		(42	)
Net income	$	6,668		$	6,375

See notes to condensed consolidated financial statements

5

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Thirteen		Thirteen
	Weeks Ended		Weeks Ended
	September 29, 2012		October 1, 2011
Net income	$	6,668	$	6,375
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		1,450		(966	)
Other comprehensive income (loss), net of tax		1,450		(966	)
Comprehensive income	$	8,118	$	5,409

See notes to condensed consolidated financial statements

6

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirty-Nine			Thirty-Nine
	Weeks Ended			Weeks Ended
	September 29, 2012			October 1, 2011
Sales	$	502,055		$	469,136
Cost of sales		227,488			211,112
Gross profit		274,567			258,024
Selling expenses		165,357			163,055
General and administrative expenses		51,771			48,308
Restructuring charges		1,725			-
Operating income		55,714			46,661
Interest expense		80,274			75,719
Loss on extinguishment of debt		13,376			-
Other income		(4,923	)		(5,332	)
Loss from continuing operations before benefit from income taxes		(33,013	)		(23,726	)
Benefit from income taxes		(12,097	)		(9,105	)
Loss from continuing operations		(20,916	)		(14,621	)
Loss from discontinued operations, net of income taxes		(105	)		(227	)
Net loss	$	(21,021	)	$	(14,848	)

See notes to condensed consolidated financial statements

7

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Thirty-Nine			Thirty-Nine
	Weeks Ended			Weeks Ended
	September 29, 2012			October 1, 2011
Net loss	$	(21,021	)	$	(14,848	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		1,853			(776	)
Unrealized gain on interest rate swaps		-			712
Other comprehensive income (loss), net of tax		1,853			(64	)
Comprehensive loss	$	(19,168	)	$	(14,912	)

See notes to condensed consolidated financial statements

8

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S DEFICIT

(in thousands, except units)

(Unaudited)

																								Total A, B
	Common Units					Class A						Class B						Class C						and C									Total
	Units		Amount			Common Units			Amount			Common  Units			Amount			Common Units			Amount			Common Units			Accumulated  Deficit			Accumulated  Other Loss			Member's Deficit
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 common units		-		-			-			3			-			-			-			-			3			-			-			3
Repurchase of Class 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 expense		-		547			-			-			-			58			-			28			86			-			-			633
Net loss		-		-			-			-			-			-			-			-			-			(14,848	)		-			(14,848	)
Other comprehensive loss, net of  tax		-		-			-			-			-			-			-			-			-			-			(64	)		(64	)
BALANCE, OCTOBER 1, 2011		1,000	$	121,902			-		$	-			-		$	-			-		$	-		$	-		$	(361,364	)	$	(3,425	)	$	(242,887	)
BALANCE, DECEMBER 31, 2011		1,000	$	122,038			-		$	-			-		$	-			-		$	-		$	-		$	(313,009	)	$	(3,184	)	$	(194,155	)
Issuance of Common Units		-		30			-			-			-			-			-			-			-			-			-			30
Repurchase of Common Units		-		(2,369	)		-			-			-			-			-			-			-			-			-			(2,369	)
Equity-based compensation expense		-		572			-			-			-			-			-			-			-			-			-			572
Net loss		-		-			-			-			-			-			-			-			-			(21,021	)		-			(21,021	)
Other comprehensive income, net of tax		-		-			-			-			-			-			-			-			-			-			1,853			1,853
BALANCE, SEPTEMBER 29, 2012		1,000	$	120,271			-		$	-			-		$	-			-		$	-		$	-		$	(334,030	)	$	(1,331	)	$	(215,090	)

See notes to condensed consolidated financial statements

9

YCC HOLDINGS LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Thirty-Nine Weeks Ended September 29, 2012			Thirty-Nine Weeks Ended October 1, 2011
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(21,021	)	$	(14,848	)
Adjustments to reconcile net loss to net cash used in operating activities:
Realized gain on derivative contracts		(5,830	)		(4,333	)
Depreciation and amortization		25,988			32,181
Unrealized (gain) loss on marketable securities		(184	)		122
Equity-based compensation expense		572			633
Deferred taxes		6,162			2,325
Loss on extinguishment of debt		13,376			-
Loss on disposal and impairment of property and equipment		382			782
Restructuring charges		1,070			-
Changes in assets and liabilities:
Accounts receivable		(23,184	)		(33,795	)
Inventory		(49,869	)		(62,950	)
Prepaid expenses and other assets		(2,453	)		(2,260	)
Accounts payable		6,148			14,061
Income taxes		(25,954	)		(31,392	)
Accrued expenses and other liabilities		(15,825	)		(7,761	)
NET CASH USED IN OPERATING ACTIVITIES		(90,622	)		(107,235	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		(20,976	)		(17,267	)
Proceeds from sale of property and equipment		-			38
NET CASH USED IN INVESTING ACTIVITIES		(20,976	)		(17,229	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Senior Secured Credit Facility		15,000			137,000
Borrowings under Senior Secured Asset-Based Credit Facility		81,000			-
Borrowings under Term Loan Facility		717,750			-
Repayments under Senior Secured Credit Facility		(718,125	)		(20,000	)
Payments of call premiums and fees for extinguishment of debt		(6,763	)		-
Repayments under Term Loan Facility		(3,625	)		-
Borrowings under Senior PIK Notes		-			308,700
Financing costs		(11,579	)		(10,478	)
Return of capital		-			(297,825	)
Proceeds from issuance of Class A common units		-			3
Proceeds from issuance of Common Units		30			17
Repurchase of Class B and C common units		-			(86	)
Repurchase of Common Units		(2,369	)		(725	)
Principal payments on capital lease obligations		(1,052	)		(567	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		70,267			116,039
EFFECT OF EXCHANGE RATE CHANGES ON CASH		118			6
NET DECREASE IN CASH		(41,213	)		(8,419	)
CASH, BEGINNING OF PERIOD		50,833			12,713
CASH, END OF PERIOD	$	9,620		$	4,294
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	97,753		$	78,409
Income taxes	$	7,657		$	19,790
Net change in accrued purchases of property and equipment	$	(779	)	$	(3,115	)
Noncash Financing Activities:
Conversion of Class A, B and C common units to Common Units	$	-		$	419,888
Capital lease obligations related to equipment purchase	$	3,190		$	1,452

See notes to condensed consolidated financial statements

10

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

(Unaudited)

	September 29,		December 31,
	2012		2011
ASSETS
CURRENT ASSETS:
Cash	$	9,620	$	50,833
Accounts receivable, net		81,072		57,013
Inventory		126,521		75,563
Prepaid expenses and other current assets		26,516		4,924
Deferred tax assets		8,948		8,724
TOTAL CURRENT ASSETS		252,677		197,057
PROPERTY AND EQUIPMENT, NET		123,649		118,402
MARKETABLE SECURITIES		2,185		1,670
GOODWILL		643,570		643,570
INTANGIBLE ASSETS		268,116		269,405
DEFERRED FINANCING COSTS		13,501		11,006
OTHER ASSETS		377		394
TOTAL ASSETS	$	1,304,075	$	1,241,504
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	27,379	$	21,109
Accrued payroll		10,446		6,910
Accrued interest		2,696		17,377
Accrued income taxes		-		7,269
Accrued purchases of property and equipment		3,385		2,606
Current portion of long-term debt		7,250		12,042
Current portion of capital leases		1,583		975
Other accrued liabilities		36,365		38,689
TOTAL CURRENT LIABILITIES		89,104		106,977
DEFERRED TAX LIABILITIES		114,035		107,123
LONG-TERM DEBT, NET OF CURRENT PORTION		986,572		889,083
DEFERRED RENT		13,052		12,833
CAPITAL LEASES, NET OF CURRENT PORTION		4,131		2,597
OTHER LONG-TERM LIABILITIES		5,279		3,980
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock: $.01 par value; 500,000 issued and 497,981 outstanding at September 29, 2012 and December 31, 2011		415,042		417,411
Additional paid-in capital		28,369		17,718
Treasury stock: at cost, 2,019 shares at September 29, 2012 and December 31, 2011		(1,809)		(1,809)
Accumulated deficit		(348,369)		(311,225)
Accumulated other comprehensive loss		(1,331)		(3,184)
Total stockholder's equity		91,902		118,911
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	1,304,075	$	1,241,504

See notes to condensed consolidated financial statements

11

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirteen			Thirteen
	Weeks Ended			Weeks Ended
	September 29, 2012			October 1, 2011
Sales	$	201,661		$	195,109
Cost of sales		92,305			87,958
Gross profit		109,356			107,151
Selling expenses		56,643			57,865
General and administrative expenses		16,862			15,273
Operating income		35,851			34,013
Interest expense		18,266			17,847
Other income		(2,097	)		(2,372	)
Income from continuing operations before provision for income taxes		19,682			18,538
Provision for income taxes		7,389			6,044
Income from continuing operations		12,293			12,494
Loss from discontinued operations, net of income taxes		(31	)		(42	)
Net income	$	12,262		$	12,452

See notes to condensed consolidated financial statements

12

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Thirteen		Thirteen
	Weeks Ended		Weeks Ended
	September 29, 2012		October 1, 2011
Net income	$	12,262	$	12,452
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		1,450		(966	)
Other comprehensive income (loss), net of tax		1,450		(966	)
Comprehensive income	$	13,712	$	11,486

See notes to condensed consolidated financial statements

13

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirty-Nine			Thirty-Nine
	Weeks Ended			Weeks Ended
	September 29, 2012			October 1, 2011
Sales	$	502,055		$	469,136
Cost of sales		227,488			211,112
Gross profit		274,567			258,024
Selling expenses		165,357			163,055
General and administrative expenses		51,714			47,891
Restructuring charges		1,725			-
Operating income		55,771			47,078
Interest expense		54,053			53,303
Loss on extinguishment of debt		13,376			-
Other income		(4,923	)		(5,332	)
Loss from continuing operations before benefit from income taxes		(6,735	)		(893	)
Benefit from income taxes		(2,047	)		(848	)
Loss from continuing operations		(4,688	)		(45	)
Loss from discontinued operations, net of income taxes		(105	)		(227	)
Net loss	$	(4,793	)	$	(272	)

See notes to condensed consolidated financial statements

14

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	Thirty-Nine			Thirty-Nine
	Weeks Ended			Weeks Ended
	September 29, 2012			October 1, 2011
Net loss	$	(4,793	)	$	(272	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		1,853			(776	)
Unrealized gain on interest rate swaps		-			712
Other comprehensive income (loss), net of tax		1,853			(64	)
Comprehensive loss	$	(2,940	)	$	(336	)

See notes to condensed consolidated financial statements

15

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

(in thousands, except treasury shares)

(Unaudited)

																Accumulated
						Additional										Other
	Common Stock					Paid in		Treasury Stock								Comprehensive
	Shares		Amount			Capital		Shares		Amount			Deficit			Loss			Total
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	)
Net loss		-		-			-		-		-			(272	)		-			(272	)
Other comprehensive income, net of tax		-		-			-		-		-			-			(64	)		(64	)
BALANCE, OCTOBER 1, 2011		500	$	417,462		$	15,331		2,019	$	(1,809	)	$	(365,966	)	$	(3,425	)	$	61,593
BALANCE, DECEMBER 31, 2011		500	$	417,411		$	17,718		2,019	$	(1,809	)	$	(311,225	)	$	(3,184	)	$	118,911
Issuance of common stock		-		-			30		-		-			-			-			30
Repurchase of common stock		-		(2,369	)		-		-		-			-			-			(2,369	)
Equity-based compensation expense		-		-			572		-		-			-			-			572
Contributions by YCC Holdings LLC		-		-			10,049		-		-			-			-			10,049
Dividend to YCC Holdings LLC		-		-			-		-		-			(32,351	)		-			(32,351	)
Net loss		-		-			-		-		-			(4,793	)		-			(4,793	)
Other comprehensive income, net of tax		-		-			-		-		-			-			1,853			1,853
BALANCE, SEPTEMBER 29, 2012		500	$	415,042		$	28,369		2,019	$	(1,809	)	$	(348,369	)	$	(1,331	)	$	91,902

See notes to condensed consolidated financial statements

16

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Thirty-Nine Weeks Ended September 29, 2012			Thirty-Nine Weeks Ended October 1, 2011
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(4,793	)	$	(272	)
Adjustments to reconcile net loss to net cash used in operating activities:
Realized gain on derivative contracts		(5,830	)		(4,333	)
Depreciation and amortization		23,902			30,570
Unrealized (gain) loss on marketable securities		(184	)		122
Equity-based compensation expense		572			633
Deferred taxes		6,162			2,325
Loss on extinguishment of debt		13,376			-
Loss on disposal and impairment of property and equipment		382			782
Restructuring charges		1,070			-
Changes in assets and liabilities:
Accounts receivable		(23,184	)		(33,795	)
Inventory		(49,869	)		(62,950	)
Prepaid expenses and other assets		(2,453	)		(2,260	)
Accounts payable		6,148			14,061
Income taxes		(15,905	)		(23,135	)
Accrued expenses and other liabilities		(7,665	)		(11,940	)
NET CASH USED IN OPERATING ACTIVITIES		(58,271	)		(90,192	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		(20,976	)		(17,267	)
Proceeds from sale of property and equipment		-			38
NET CASH USED IN INVESTING ACTIVITIES		(20,976	)		(17,229	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Senior Secured Credit Facility		15,000			137,000
Borrowings under Senior Secured Asset-Based Credit Facility		81,000			-
Borrowings under Term Loan Facility		717,750			-
Repayments under Senior Secured Credit Facility		(718,125	)		(20,000	)
Payments of call premiums and fees for extinguishment of debt		(6,763	)		-
Repayments under Term Loan Facility		(3,625	)		-
Financing costs		(11,579	)		(468	)
Contributions by YCC Holdings LLC		-			3,000
Dividend to YCC Holdings LLC		(32,351	)		(19,178	)
Proceeds from issuance of common stock		30			20
Repurchase of common stock		(2,369	)		(811	)
Principal payments on capital lease obligations		(1,052	)		(567	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		37,916			98,996
EFFECT OF EXCHANGE RATE CHANGES ON CASH		118			6
NET DECREASE IN CASH		(41,213	)		(8,419	)
CASH, BEGINNING OF YEAR		50,833			12,713
CASH, END OF PERIOD	$	9,620		$	4,294
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	65,466		$	61,727
Income taxes	$	7,657		$	19,790
Net change in accrued purchases of property and equipment	$	(779	)	$	(3,115	)
Noncash Financing Activities:
Noncash contribution by YCC Holdings LLC	$	10,049		$	8,257
Capital lease obligations related to equipment purchase	$	3,190		$	1,452

See notes to condensed consolidated financial statements

17

YCC HOLDINGS LLC AND SUBSIDIARIES

YANKEE HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION, ORGANIZATION AND CURRENT EVENTS

Basis of Presentation

The unaudited interim condensed consolidated financial statements of YCC Holdings LLC (“YCC Holdings”) and Yankee Holding Corp. (“Holding Corp.” together with YCC Holdings and its direct and indirect subsidiaries, 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 consolidated financial statements of YCC Holdings and Holding Corp. should be read in conjunction with the audited consolidated financial statements of YCC Holdings and Holding Corp. for the year ended December 31, 2011 included in their Annual Report on Form 10-K.

Organization

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:

2. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the FASB issued ASU No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2011-12”). This ASU permits an entity the option to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. The results of the qualitative assessment would be used as a basis in determining whether it is necessary to perform the two-step quantitative impairment test. If the qualitative assessment supports the conclusion that it is more-likely-than-not that the fair value of the asset exceeds its carrying amount, the entity would not need to perform the two-step quantitative impairment test. The focus of the guidance is to reduce the cost and complexity of performing impairment tests for indefinite-lived intangible assets other than goodwill, and to improve consistency in impairment testing among long-lived asset categories.

This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed prior to the issuance of the final ASU, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. We have not early-adopted this ASU and do not believe adoption will have a material effect on our financial statements.

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3. INVENTORY

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

	September 29, 2012		December 31, 2011
Finished goods	$	114,273	$	64,195
Work-in-process		969		319
Raw materials and packaging		11,279		11,049
Total inventory	$	126,521	$	75,563

4. 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 September 29, 2012 and October 1, 2011.

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
September 29, 2012
Indefinite life:
Tradenames		N/A	$	267,700	$	-		$	267,700
Finite-lived intangible assets:
Customer lists		5		63,791		(63,622	)		169
Favorable lease agreements		5		2,330		(2,083	)		247
Other		3		36		(36	)		-
Total finite-lived intangible assets				66,157		(65,741	)		416
Total intangible assets			$	333,857	$	(65,741	)	$	268,116
December 31, 2011
Indefinite life:
Tradenames		N/A	$	267,700	$	-		$	267,700
Finite-lived intangible assets:
Customer lists		5		63,650		(62,324	)		1,326
Favorable lease agreements		5		2,330		(1,952	)		378
Other		3		36		(35	)		1
Total finite-lived intangible assets				66,016		(64,311	)		1,705
Total intangible assets			$	333,716	$	(64,311	)	$	269,405

Total amortization expense from finite–lived intangible assets was $0.1 million and $3.1 million for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively.  Total amortization expense from finite–lived intangible assets was $1.4 million and $9.2 million for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, 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.

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5. LONG-TERM DEBT

Long-term debt consisted of the following at September 29, 2012 and December 31, 2011 (in thousands):

	September 29,			December 31,
	2012			2011
Holding Corp.
Senior secured term loan facility	$	-		$	388,125
Senior secured asset-based credit facility		81,000			-
Senior secured term loan facility, net of unamortized discount of $6,553 at September 29, 2012		714,822			-
Senior notes due 2015		10,000			325,000
Senior subordinated notes due 2017		188,000			188,000
Less current portion		(7,250	)		(12,042	)
Total Holding Corp.		986,572			889,083
Senior PIK notes due 2016, net of unamortized discount of $4,618 at September 29, 2012 and $5,424 at December 31, 2011		310,382			309,576
Total YCC Holdings	$	1,296,954		$	1,198,659

Senior Secured Credit Facility

As of December 31, 2011, Yankee Candle’s senior secured credit facility (the “Senior Secured Credit Facility”) consisted of a $650.0 million senior secured term loan facility (the “Prior Term Facility”) with outstanding borrowings of $388.1 million and a senior secured revolving credit facility (“Prior Revolving Facility”) of $140.0 million with no outstanding borrowings.

Refinancing of the Senior Secured Credit Facility and Repurchase of $315 million of Yankee Candle’s 8 ½% Senior Notes Due 2015

On April 2, 2012, Yankee Candle refinanced its old Senior Secured Credit Facility and $315.0 million of its Senior Notes due 2015 by entering into a senior secured term loan facility (the “Term Loan Facility”) and by entering into a senior secured asset-based credit facility (the “ABL Facility”).

Under the Term Loan Facility, Yankee Candle borrowed $725.0 million resulting in proceeds of $717.8 million, net of original issue discount.  At closing, on April 2, 2012, a portion of the proceeds from the Term Loan Facility were used to (i) redeem $180.0 million of Yankee Candle’s Senior Notes due 2015 at a call premium of 2.125%, (ii) repay $403.1 million of outstanding debt on the Company’s old Senior Secured Credit Facility (consisting of $388.1 million outstanding under the Prior Term Facility and $15.0 outstanding under the Prior Revolving Facility), and (iii) pay fees and expenses of $11.5 million related to the foregoing.  On April 13, 2012, the Company used the remaining proceeds and borrowings under the ABL Facility to redeem an additional $135.0 million of the Senior Notes due 2015 at a call premium of 2.125%.  As a result of the refinancing the Company recorded a loss on extinguishment of debt of $13.4 million comprised of the write-off of unamortized deferred financing fees of $6.7 million and call premiums of $6.7 million.  The Company also recorded total deferred financing costs of $11.6 million, $9.0 million related to the Term Loan Facility and $2.6 million related to the ABL Facility.  The costs associated with the Term Loan Facility are being amortized using the interest method through the expiration date of the Term Loan Facility and the costs associated with the ABL Facility are being amortized on a straight line basis through the expiration date of the ABL Facility. Amortization of the discount is recorded as interest expense using the interest method.

Term Loan Facility

The Term Loan Facility will mature on April 2, 2019; however, the maturity date of the Term Loan Facility will accelerate if the Senior Subordinated Notes and the Senior PIK Notes are not defeased, repurchased, refinanced or redeemed 91 days prior to their respective maturity dates.  The Company is required to make quarterly payments of $1.8 million, with the balance payable at final maturity.  Accordingly, $7.2 million is classified as short-term debt on the accompanying condensed consolidated balance sheet at September 29, 2012.  Amounts repaid under the Term Loan Facility cannot be reborrowed.  As of September 29, 2012, Yankee Candle’s Term Loan Facility had outstanding borrowings of $721.4 million.

Interest is payable on the Term Loan Facility at either (i) the Eurodollar Rate (subject to a 1.25% floor) plus 4.00% or (ii) the ABR (subject to a 2.25% floor) plus 3.00%. The default rate of interest will accrue (i) on the overdue principal amount of any loan at a rate of 2% in excess of the rate otherwise applicable to such loan and (ii) on any overdue interest or any other outstanding overdue amount at a rate of 2% in excess of the non-default interest rate then applicable to ABR loans. As of September 29, 2012, the interest rate applicable to the Term Loan Facility was 5.25%.

20

Yankee Candle's Term Loan Facility contains a financial covenant which requires that Yankee Candle maintain at the end of each fiscal quarter, commencing with the quarter ended June 30, 2012 through the quarter ending September 29, 2012, a consolidated net debt (net of cash and cash equivalents not to exceed $75.0 million) to Consolidated EBITDA ratio of no more than 7.25 to 1.00. As of September 29, 2012, Yankee Candle's actualnet total leverage ratio was 5.13 to 1.00, as defined. As of September 29, 2012, total debt (including Yankee Candle's capital lease obligations of $5.7 million and net of $9.6 million in cash) was approximately $996.5 million. Under Yankee Candle's Term Loan Facility, Consolidated 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.

In addition, the Term Loan Facility contains customary covenants and restrictions on Holding Corp. and its subsidiaries’ activities, including but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates and the ability to change the nature of its business or its fiscal year.  All obligations under the Term Loan Facility are guaranteed by Holding Corp.’s and Yankee Candle’s domestic subsidiaries and secured by a lien on substantially all of the assets of Holding Corp. and its domestic subsidiaries.

Asset-Based Credit Facility

On April 2, 2012, Yankee Candle, together with certain of its foreign subsidiaries, also entered into the ABL Facility with BofA, as agent, the other lenders party thereto.

The ABL Facility is scheduled to expire on April 2, 2017; however, the expiration date of the ABL Facility will accelerate if the Senior Subordinated Notes and the Senior PIK Notes are not defeased, repurchased, refinanced or redeemed 91 days prior to their respective maturity dates.  The ABL Facility permits revolving borrowings of up to $175.0 million subject to eligible inventory and eligible accounts receivable balances.  The ABL Facility is inclusive of sub-facilities for up to $25.0 million in swing line advances, up to $25.0 million for letters of credit, up to $10.0 million for borrowings by Yankee Candle’s Canadian subsidiary, up to $10.0 million for borrowings by Yankee Candle’s German subsidiary and up to $75.0 million for borrowing by Yankee Candle’s United Kingdom subsidiary.  Borrowings under the ABL Facility bear interest at a rate equal to either (i) LIBOR or the BofA rate plus the applicable margin or (ii) the prime rate plus the applicable margin. The applicable margin ranges from 0.50% to 2.00%, dependent on the currency of the borrowing.  For purposes of determining interest rates, the applicable margin is subject to a variable grid, dependent on average daily excess availability calculated as of the immediately preceding fiscal quarter.  As of September 29, 2012 the interest rate applicable to the ABL Facility was 2.0%.

The unused line fee payable under the ABL Facility is equal to (i) 0.50% per annum if less than 50% of the ABL Facility has been used on average during the immediately preceding fiscal quarter or (ii) 0.375% per annum if 50% or more of the ABL Facility has been utilized on average during the immediately preceding fiscal quarter.

The ABL Facility requires Yankee Candle and its subsidiaries to maintain a consolidated fixed charge coverage ratio of at least 1.0: 1.0 during a covenant compliance event, which occurs if unused borrowing availability is less than the greater of (x) 10% of the maximum amount that can be borrowed under the ABL Facility, which amount is the lesser of $175.0 million and a borrowing formula based on eligible receivables and inventory (the “ABL Loan Cap”) and (y) $15.0 million and continues until excess availability has exceeded the amounts set forth herein for 30 consecutive days.   As of September 29, 2012, the ABL Loan Cap was $142.5 million.  As of September 29, 2012 Yankee Candle had outstanding letters of credit of $2.2 million and $81.0 million outstanding under the ABL Facility or $83.2 million utilized resulting in unused borrowings of $59.3 million.  As such, Yankee Candle was not subject to the fixed charge coverage ratio.

In addition, the ABL Facility contains customary covenants and restrictions on Yankee Candle and its subsidiaries’ activities, including but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates, the ability to change the nature of its business or its fiscal year, enter into certain hedging agreements and enter into certain burdensome agreements.  All obligations under the ABL Facility are guaranteed by Yankee Candle’s domestic subsidiaries and secured by a lien on substantially all of the assets of Yankee Candle and its domestic subsidiaries. Certain of the obligations under the ABL Facility are guaranteed by Yankee Candle’s foreign subsidiaries and are secured by a lien on substantially all of the assets of such foreign subsidiaries, which consist primarily of inventory and receivables.

Senior Notes and Senior Subordinated Notes

Yankee Candle's senior notes due 2015 (the “Senior Notes”) bear interest at a per annum rate equal to 8.50%. Interest is paid every six months on February 15 and August 15. Yankee Candle’s senior subordinated notes due 2017 (the “Senior Subordinated Notes”) bear interest at a per annum rate equal to 9.75%. Interest is paid every six months on February 15 and August 15. The Senior Notes mature on February 15, 2015 and the Senior Subordinated Notes mature on February 15, 2017. In April 2012, $315.0 million of the Senior Notes were redeemed in connection with the refinancing of the Senior Secured Credit Facility detailed above.  As of September 29, 2012, the Company had $10.0 million outstanding under the Senior Notes and $188.0 million outstanding under the Senior Subordinated Notes.

21

The indentures governing the Senior notes and Senior Subordinated Notes restrict the ability of Holding Corp., Yankee Candle and most or all of Yankee Candle’s subsidiaries to: incur additional debt; pay dividends or make other distributions on the Company's capital stock or repurchase capital stock or subordinated indebtedness; make investments or other specified restricted payments; create liens; sell assets and subsidiary stock; enter into transactions with affiliates; and enter into mergers, consolidations and sales of substantially all assets.

Obligations under the Senior Notes 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 Yankee Candle's existing and future domestic subsidiaries. If Yankee Candle cannot make any payment on either or both series of notes, the guarantors must make the payment instead.

In the event of certain change in control events specified in the indentures governing these notes, Yankee Candle must offer to repurchase all or a portion of such notes at 101% of the principal amount of such notes on the date of purchase, plus any accrued and unpaid interest to the date of repurchase.

Senior PIK Notes - 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 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. Yankee Candle’s ability to pay dividends to Holding Corp. to permit Holding Corp. to pay dividends to YCC Holdings was restricted at September 29, 2012 by A) Yankee Candle’s Term Loan Facility, B) Yankee Candle’s ABL Facility and C) the indentures governing the Senior Notes and Senior Subordinated Notes.  Because the Term Loan Facility, ABL Facility and the indentures governing Yankee Candle’s senior notes and senior subordinated notes each contain limitations on dividends, Yankee Candle is permitted to make dividends only to the extent it is permitted to do so at the time the dividend is made under each of these agreements.

A) The ability of Yankee Candle to declare dividends to Holding Corp. is limited under the Term Loan Facility.  Under the Term Loan Facility, Yankee Candle is permitted to make dividends to YCC Holdings, provided there is no default or event of default and the dividend payment would not cause the applicable Consolidated Net Interest Coverage Ratio (as defined in the agreement governing the Term Loan Facility) to be less than 2.0 to 1.0, in an amount equal to the sum of (a) $10.0 million and (b) the available excess cash flow based on provisions determined in Yankee Candle’s Term Loan Facility, together with certain equity and debt issuances which, to date, have not occurred and together with the receipt of certain cash and cash equivalents and certain investments.  Available excess cash flow for Yankee Candle’s Term Loan Facility is defined as the aggregate cumulative amount of excess cash flow for all fiscal years commencing with the fiscal year ending December 31, 2012 and for all fiscal years ending after December 31, 2012 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 Net Total Leverage Ratio (as defined in the Term Loan Facility) is not greater than 4.0 to 1.0.  Yankee Candle is not required to make a payment if the consolidated net total leverage ratio is not greater than 3.0 to 1.0.  Excess cash flow is defined in the Term Loan Facility as consolidated net income of Holding Corp. and its restricted subsidiaries plus all non-cash charges (including depreciation, amortization, and 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 the Company’s equity sponsor, increases in working capital and the net decrease in deferred tax liabilities or net increase in deferred tax assets, call premiums in connection with cancellation of indebtedness, and certain amounts paid in connection with an asset sale or recovery event.

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Additionally, as of April 2, 2012, a basket of $137.1 million consisting of the cumulative retained (and not yet applied) available excess amount from the former Senior Secured Credit Facility was available for dividends from Yankee Candle to YCC Holdings to be applied to cash interest payments on the Senior PIK Notes.

For the fifty-two weeks ended December 31, 2011, Yankee Candle’s required excess cash flow payment was $12.0 million. This amount was classified as short-term debt on the accompanying condensed consolidated balance sheet at December 31, 2011 and subsequently refinanced on a long term basis in April 2012.

B) Under the ABL Facility, Yankee Candle is permitted to make dividends to Holding Corp. (1) on an unlimited basis if certain tests are met and (2) also solely to fund interest payments on the Senior PIK notes subject to the restrictions described below.

(1) Yankee Candle is permitted to make dividends to Holding Corp. in an unlimited amount so long as (a) unused borrowing availability is greater than or equal to 15% of the ABL Loan Cap at the time of the making of such dividend and projected on a pro forma basis for the immediately succeeding six months following such dividend, except that, to the extent that the dividend is made during the “August Period”, or the August Period is included in such six month projections, then unused borrowing availability shall only be required to be greater than or equal to 10% of the ABL Loan Cap and (b) to the extent unused borrowing availability is less than 25% of the ABL Loan Cap and is projected to be less than 25% of the ABL Loan Cap for the immediately succeeding six months following such dividend (or 10%, in the case that the dividend is made in the August Period or  the August Period is included in such six month projections), the consolidated fixed charge coverage ratio for the most recently ended period of twelve fiscal months preceding such dividend on a pro forma basis is greater than or equal to 1.1 to 1.0.

“August Period”, as used herein, means August 1st through the earlier of the date that the borrowing base certificate is filed for the month of August and the fifteenth business day after the end of the August fiscal month.

(2) Yankee Candle is permitted to make dividends to Holding Corp. and Holding Corp. is permitted to make dividends to YCC Holdings solely for the purpose of funding interest payments due on the Senior PIK Notes if (a) except for payments to be made during the August Period as to which there is no minimum unused borrowing availability requirement, unused borrowing availability is greater than or equal to 15% of the ABL Loan Cap at the time of the making of such dividend and projected on a pro forma basis for the immediately succeeding six months following such dividend and (b) to the extent unused borrowing availability is less than 25% of the ABL Loan Cap and is projected to be less than 25% of the ABL Loan Cap for the immediately succeeding six months following such dividend (or 10%, in the case that the August Period is included in such projected six month period), the consolidated fixed charge coverage ratio for the most recently ended period of twelve fiscal months preceding such dividend on a pro forma basis is greater than or equal to 1.1 to 1.0; provided that for purposes of satisfying the test in this clause (b), no dividend made during the month of August for the purpose of funding, in whole or in part, an interest payment on the Senior PIK Notes shall be included in the calculation of consolidated fixed charge coverage ratio.

C) 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 $35.0 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 as 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.

During the thirty-nine weeks ended September 29, 2012, Holding Corp. declared and paid a dividend of $32.4 million to YCC Holdings to fund interest payments for the Senior PIK Notes, which decreased the amount available for future dividends.  At September 29, 2012, the amount available for dividends from Yankee Candle to YCC Holdings was approximately $130.9 million.

Holding Corp. receives the tax benefit of the interest expense for YCC Holdings’ Senior PIK Notes.  As such, for the thirty-nine weeks ended September 29, 2012 Holding Corp. recorded a non-cash contribution of $10.0 million from YCC Holdings. The $10.0 million contribution is shownas a contribution by YCC Holdings LLC in Holding Corp.’s consolidated statement of changes in stockholder’s equity and in Holding Corp.’s non-cash financing section of the consolidated statements of cash flows.

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6. MEMBER’S DEFICIT, STOCKHOLDER’S EQUITY AND EQUITY-BASED COMPENSATION

Class C Common Units - Performance Based

In March 2012, the Board of Managers approved the issuance of 13,650 Class C common units to Vice Presidents and above. Typically, the Company’s Class C units vest daily over five years. However, these March 2012 Class C common units (“Class C performance units”) are partially performance based and generally vest as follows, subject to the terms of the applicable agreements:  (i) 25% of the units granted shall vest on a daily basis over five years, (ii) 25% of the units granted shall vest in the event that the Company’s Adjusted EBITDA performance in fiscal 2012 meets or exceeds a pre-approved target established by the Compensation Committee of the Board of Managers (the “2012 units”) and (iii) 50% of the units granted shall vest following the end of any fiscal year during which the Company attains an additional Adjusted EBITDA target established by the Compensation Committee of the Board of Managers.  In the event the Company fails to achieve the 2012 Adjusted EBITDA target referenced in clause (ii) above, such 2012 units remain eligible for vesting under clause (iii) above in the event the Company subsequently achieves the applicable Adjusted EBITDA target. References to “Class C common units” herein shall include these Class C performance units unless otherwise indicated.

A summary of Class A, B and C nonvested units as of September 29, 2012 and October 1, 2011, and the activity for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 is presented below:

	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 December 31, 2011		-			-		4,577		$	9.39		54,614		$	24.99
Granted		327			-		-			-		87,259		$	26.70
Forfeited		-			-		(13	)	$	9.39		(22,000	)	$	33.80
Vested		(327	)		-		(4,564	)	$	9.39		(20,433	)	$	21.94
Nonvested stock at September 29, 2012		-			-		-			-		99,440		$	25.17

	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

During the thirty-nine weeks ended September 29, 2012, 662 Class A common units, 34,243 vested Class B common units and 12,297 vested Class C common units were repurchased for $2.4 million. 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. Yankee Group anticipates that all of its nonvested common units will vest with the exception of performance shares for which an estimated forfeiture rate has been applied.

The total estimated fair value of equity awards vested during the thirty-nine weeks ended September 29, 2012 and October 1, 2011 was $0.5 million and $0.6 million, respectively. Equity-based compensation expense for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 was $0.6 million and $3.7 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. The $3.0 million payment was recorded as additional paid in capital and is shown as a contribution by YCC Holdings LLC in Holding Corp.’s condensed consolidated statement of changes in stockholder’s equity and in Holding Corp.’s condensed consolidated statements of cash flows.

As of September 29, 2012, there was approximately $2.2 million of total unrecognized compensation cost related to Yankee Group’s Class C common unit equity awards and there was no unrecognized expense related to Yankee Group’s Class A and Class B common unit equity awards. This cost is expected to be recognized over the remaining vesting period, of approximately 5 years (October 2012 to September 2017).

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Presented below is a summary of assumptions for the indicated periods. During the thirty-nine weeks ended September 29, 2012, there were 87,259 Class C grants. There were 11,650 Class C grants for the thirty-nine weeks ended October 1, 2011.

Assumptions	Thirty-Nine Weeks Ended September 29, 2012 Option Pricing Method Black-Scholes			Thirty-Nine Weeks Ended October 1, 2011 Option Pricing Method Black-Scholes
Weighted average calculated value of awards granted	$	26.70		$	28.97
Weighted average volatility		77.7	%		76.1	%
Weighted average expected term (in years)		5.0			5.0
Dividend yield		-			-
Weighted average risk-free interest rate		0.9	%		2.2	%

With respect to the 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 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.

7. RESTRUCTURING CHARGES

During the first quarter of 2012, the Company restructured its Wholesale and Retail operations.  The Company also initiated a change in reporting structure and changes of roles and responsibilities within the organization that resulted in workforce reductions.  These changes included changes to the executive committee, changes to the reporting structure and operational focus within the retail segment, alignment of the brand innovation and merchandising teams across all channels of the business, and other administrative changes.  As a result of these changes the Company incurred restructuring charges of $0.7 million during the first quarter of 2012 for employee related severance costs.

During the second quarter of 2012, the Company’s wholly-owned subsidiary Yankee Candle (Europe), LTD (“YCE”), relocated its corporate headquarters and distribution center in England.  As a result of these changes the Company incurred restructuring charges of $1.1 million during the thirteen weeks ended June 30, 2012 related to exiting the old facility and non-cash writeoffs for the impairment of equipment and deferred rent.  Total restructuring costs recorded for the thirty-nine weeks ended September 29, 2012 were $1.7 million.

The Company made restructuring related payments of $0.3 million and $0.8 million during the thirteen and thirty-nine weeks ended September 29, 2012, respectively.  As of September 29, 2012, the balance of $1.9 million in the restructuring accrual was related to (i) continuing operations employee related expenses of $0.3 million as a result of the first quarter of 2012 organization changes detailed above, (ii) continuing operations occupancy related expenses of $0.9 million related to YCE exiting the old facility prior to the termination of the lease agreement and (iii) discontinued operations of $0.7 million primarily related to lease agreements for one Illuminations retail store and a lease related the former Illuminations corporate headquarters in Petaluma, California.  The lease at the old YCE facility expires in May of 2014.  Lease payments will be paid through the lease termination date unless the Company is able to structure a buyout with the landlord or is able to find a replacement tenant.  The lease for the Illuminations retail store expires in January 2017 and the lease for the property in Petaluma California expires in March 2013. These Illuminations leases will be paid through the lease termination date unless the Company is able to structure a buyout agreement with the landlord.

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The following is a summary of restructuring charge activity for the thirteen and thirty-nine weeks ended September 29, 2012 (in thousands):

			Thirteen Weeks Ended
			September 29, 2012
	Accrued as of				Costs			Non-Cash		Accrued as of
	June 30, 2012		Expense		Paid			Charges		September 29, 2012
Continuing Operations
Employee related	$	350	$	-	$	(109	)	$	-	$	241
Occupancy related		999		-		(123	)		32		908
Total Continuing Operations		1,349		-		(232	)		32		1,149
Discontinued Operations
Occupancy related		743		-		(19	)		-		724
Total Discontinued Operations		743		-		(19	)		-		724
Total Restructuring Charges	$	2,092	$	-	$	(251	)	$	32	$	1,873

			Thirty-Nine Weeks Ended
			September 29, 2012
	Accrued as of				Costs			Non-Cash		Accrued as of
	December 31, 2011		Expense		Paid			Charges		September 29, 2012
Continuing Operations
Employee related	$	-	$	655	$	(414	)	$	-	$	241
Occupancy related		-		1,070		(217	)		55		908
Total Continuing Operations		-		1,725		(631	)		55		1,149
Discontinued Operations
Occupancy related		866		-		(142	)		-		724
Total Discontinued Operations		866		-		(142	)		-		724
Total Restructuring Charges	$	866	$	1,725	$	(773	)	$	55	$	1,873

8. 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 equity or member’s deficit as accumulated other comprehensive income (loss) (“OCI”) or net income (loss) depending on whether the derivative instrument qualifies and has been designated 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.  Yankee Candle’s interest rate swaps are not designated as cash flow hedges and the swaps are measured at fair value with changes in fair value recognized as other (income) expense.

The fair values of the Companies’ derivative instruments as of September 29, 2012 and December 31, 2011, were as follows (in thousands):

	Fair Value of Derivative Instruments
	Liability Derivatives
	Balance Sheet Location	September 29,		December 31,
		2012		2011
Derivatives not designated as hedging instruments
Interest rate swap agreements	Other accrued liabilities	$	3,579		$	9,409
Total Derivative Liabilities		$	3,579		$	9,409

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The effect of derivative instruments on the condensed consolidated statements of operations for the thirteen and thirty-nine weeks ended September 29, 2012 and October 1, 2011, was as follows (in thousands):

		Amount of Realized Gain Recognized on Derivatives
	Location of Realized Gain Recognized on Derivatives	Thirteen Weeks Ended September 29, 2012			Thirteen Weeks Ended October 1, 2011
Derivatives not designated as hedging instruments
Interest rate swap agreements	Other income	$	(2,090	)	$	(2,200	)
Total		$	(2,090	)	$	(2,200	)

		Amount of Realized Gain Recognized on Derivatives
	Location of Realized Gain/Loss Recognized on Derivatives	Thirty-Nine Weeks Ended September 29, 2012			Thirty-Nine Weeks Ended October 1, 2011
Derivatives not designated as hedging instruments
Interest rate swap agreements	Other income	$	(5,830	)	$	(4,333	)
Total		$	(5,830	)	$	(4,333	)

		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 September 29, 2012		Thirty-Nine Weeks Ended October 1, 2011
Cash Flow Hedges
Interest rate swap agreements	Other expense	$	-	$	1,169
Total		$	-	$	1,169

9. 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.

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The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of September 29, 2012 and December 31, 2011 (in thousands):

	Fair Value Measurements on a Recurring Basis
	as of September 29, 2012
	Level 1		Level 2		Level 3		Total
Assets
Marketable securities	$	2,185	$	-	$	-	$	2,185
Total Assets	$	2,185	$	-	$	-	$	2,185
Liabilities
Interest rate swap agreements	$	-	$	3,579	$		$	3,579
Total Liabilities	$	-	$	3,579	$	-	$	3,579

	Fair Value Measurements on a Recurring Basis
	as of December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Marketable securities	$	1,670	$	-	$	-	$	1,670
Total Assets	$	1,670	$	-	$	-	$	1,670
Liabilities
Interest rate swap agreements	$	-	$	9,409	$	-	$	9,409
Total Liabilities	$	-	$	9,409	$	-	$	9,409

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.

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 (Level 1 in the fair value hierarchy). The following table represents the carrying value and fair value of Yankee Candle’s senior notes, senior subordinated notes and Term Loan Facility and YCC Holdings’ Senior PIK Notes as of September 29, 2012 and December 31, 2011 (in thousands):  The fair value of the Companies’ ABL Facility approximates the carrying value.

	September 29, 2012
Holding Corp.:	Carrying Value		Fair Value
Term loan facility, net of unamortized discount of $6,553	$	714,822	$	726,930
Senior notes due 2015		10,000		10,188
Senior subordinated notes due 2017		188,000		196,695
YCC Holdings:
Senior PIK notes due 2016, net of unamortized discount of $4,618		310,382		324,844

	December 31, 2011
Holding Corp.:	Carrying Value		Fair Value
Senior secured term loan facility	$	388,125	$	381,605
Senior notes due 2015		325,000		327,031
Senior subordinated notes due 2017		188,000		182,125
YCC Holdings:
Senior PIK notes due 2016, net of unamortized discount of $5,424		309,576		274,444

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10. 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. 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, loss on extinguishment of debt, and other costs not allocated to specific operating segments. 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 September 29, 2012 and October 1, 2011 (in thousands):

YCC Holdings
Thirteen Weeks Ended September 29, 2012	Retail		Wholesale		International		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statement of Operations
Sales	$	93,050	$	83,574	$	25,037	$	-		$	201,661
Gross profit		61,563		39,990		8,038		(235	)		109,356
Selling expenses		46,287		3,068		6,842		446			56,643
Operating income		15,276		36,922		1,196		(17,556	)		35,838
Interest and other expense, net		-		-		-		(24,913	)		(24,913	)
Income from continuing operations before provision for income taxes										$	10,925

										Balance per
										Condensed
							Unallocated/			Consolidated
							Corporate/			Statement of
Thirteen Weeks Ended October 1, 2011	Retail		Wholesale		International		Other			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

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Holding Corp.
										Balance per
										Condensed
							Unallocated/			Consolidated
							Corporate/			Statement of
Thirteen Weeks Ended September 29, 2012	Retail		Wholesale		International		Other			Operations
Sales	$	93,050	$	83,574	$	25,037	$	-		$	201,661
Gross profit		61,563		39,990		8,038		(235	)		109,356
Selling expenses		46,287		3,068		6,842		446			56,643
Operating income		15,276		36,922		1,196		(17,543	)		35,851
Interest and other expense, net		-		-		-		(16,169	)		(16,169	)
Income from continuing operations before provision for income taxes										$	19,682

										Balance per
										Condensed
							Unallocated/			Consolidated
							Corporate/			Statement of
Thirteen Weeks Ended October 1, 2011	Retail		Wholesale		International		Other			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

YCC Holdings
Thirty-Nine Ended Weeks September 29, 2012	Retail		Wholesale		International		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statement of Operations
Sales	$	255,827	$	174,276	$	71,952	$	-		$	502,055
Gross profit		165,036		83,197		27,297		(963	)		274,567
Selling expenses		133,998		9,003		19,880		2,476			165,357
Operating income		31,038		74,194		7,417		(56,935	)		55,714
Interest and other expense, net		-		-		-		(88,727	)		(88,727	)
Loss from continuing operations before benefit from income taxes										$	(33,013	)

										Balance per
										Condensed
							Unallocated/			Consolidated
							Corporate/			Statement of
Thirty-Nine Weeks Ended October 1, 2011	Retail		Wholesale		International		Other			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	)

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Holding Corp.
Thirty-Nine Weeks Ended September 29, 2012	Retail		Wholesale		International		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statement of Operations
Sales	$	255,827	$	174,276	$	71,952	$	-		$	502,055
Gross profit		165,036		83,197		27,297		(963	)		274,567
Selling expenses		133,998		9,003		19,880		2,476			165,357
Operating income		31,038		74,194		7,417		(56,878	)		55,771
Interest and other expense, net		-		-		-		(62,506	)		(62,506	)
Loss from continuing operations before benefit from income taxes										$	(6,735	)

										Balance per
										Condensed
							Unallocated/			Consolidated
							Corporate/			Statement of
Thirty-Nine Weeks Ended October 1, 2011	Retail		Wholesale		International		Other			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	)

Long lived assets of the Companies’ foreign operations were approximately $9.3 million and $3.9 million as of September 29, 2012 and December 31, 2011, respectively.

11. COMMITMENTS AND CONTINGENCIES

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.

12. 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 subsidiaries do 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.

31

Condensed consolidating financial information is as follows:

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

September 29, 2012

(in thousands)

							Non
	Holding				Guarantor		Guarantor		Intercompany
	Corp.		Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash	$	-	$	5,171	$	1,028	$	3,421	$	-		$	9,620
Accounts receivable, net		-		61,805		36		19,231		-			81,072
Inventory		-		101,730		88		24,703		-			126,521
Prepaid expenses and other current assets		-		26,597		64		1,293		(1,438	)		26,516
Deferred tax assets		-		8,620		31		297		-			8,948
TOTAL CURRENT ASSETS		-		203,923		1,247		48,945		(1,438	)		252,677
PROPERTY AND EQUIPMENT, NET		-		114,126		138		9,385		-			123,649
MARKETABLE SECURITIES		-		2,185		-		-		-			2,185
GOODWILL		-		643,570		-		-		-			643,570
INTANGIBLE ASSETS		-		268,020		-		96		-			268,116
DEFERRED FINANCING COSTS		-		13,501		-		-		-			13,501
OTHER ASSETS		-		371		-		6		-			377
INTERCOMPANY RECEIVABLES		-		43,418		-		-		(43,418	)		-
INVESTMENT IN SUBSIDIARIES		91,902		912		-		-		(92,814	)		-
TOTAL ASSETS	$	91,902	$	1,290,026	$	1,385	$	58,432	$	(137,670	)	$	1,304,075
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	-	$	24,320	$	23	$	3,036	$	-		$	27,379
Accrued payroll		-		9,663		152		631		-			10,446
Accrued interest		-		2,696		-		-		-			2,696
Accrued income taxes		-		-		-		1,438		(1,438	)		-
Accrued purchases of property and equipment		-		3,312		-		73		-			3,385
Current portion of long-term debt		-		7,250		-		-		-			7,250
Current portion of capital leases		-		1,170		-		413		-			1,583
Other accrued liabilities		-		28,518		1,086		6,761		-			36,365
TOTAL CURRENT LIABILITIES		-		76,929		1,261		12,352		(1,438	)		89,104
DEFERRED TAX LIABILITIES		-		114,035		-		-		-			114,035
LONG-TERM DEBT, NET OF CURRENT PORTION		-		986,572		-		-		-			986,572
DEFERRED RENT		-		12,922		-		130		-			13,052
CAPITAL LEASES, NET OF CURRENT PORTION		-		2,387		-		1,744		-			4,131
OTHER LONG-TERM LIABILITIES		-		5,279		-		-		-			5,279
INTERCOMPANY PAYABLES		-		-		112		43,306		(43,418	)		-
STOCKHOLDER'S EQUITY		91,902		91,902		12		900		(92,814	)		91,902
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	91,902	$	1,290,026	$	1,385	$	58,432	$	(137,670	)	$	1,304,075

32

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

December 31, 2011

(in thousands)

							Non
	Holding				Guarantor		Guarantor		Intercompany
	Corp.		Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash	$	-	$	45,777	$	1,830	$	3,226	$	-		$	50,833
Accounts receivable, net		-		34,641		79		22,293		-			57,013
Inventory		-		63,710		94		11,759		-			75,563
Prepaid expenses and other current assets		-		4,037		69		818		-			4,924
Deferred tax assets		-		8,585		40		99		-			8,724
TOTAL CURRENT ASSETS		-		156,750		2,112		38,195		-			197,057
PROPERTY AND EQUIPMENT, NET		-		114,447		78		3,877		-			118,402
MARKETABLE SECURITIES		-		1,670		-		-		-			1,670
GOODWILL		-		643,570		-		-		-			643,570
INTANGIBLE ASSETS		-		269,230		-		175		-			269,405
DEFERRED FINANCING COSTS		-		11,006		-		-		-			11,006
OTHER ASSETS		-		390		-		4		-			394
INTERCOMPANY RECEIVABLES		-		31,160		164		-		(31,324	)		-
INVESTMENT IN SUBSIDIARIES		118,911		3,886		-		-		(122,797	)		-
TOTAL ASSETS	$	118,911	$	1,232,109	$	2,354	$	42,251	$	(154,121	)	$	1,241,504
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	-	$	18,259	$	104	$	2,746	$	-		$	21,109
Accrued payroll		-		6,523		25		362		-			6,910
Accrued interest		-		17,377		-		-		-			17,377
Accrued income taxes		-		6,727		-		542		-			7,269
Accrued purchases of property and equipment		-		2,310		-		296		-			2,606
Current portion of long-term debt		-		12,042		-		-		-			12,042
Current portion of capital leases		-		975		-		-		-			975
Other accrued liabilities		-		33,433		1,856		3,400		-			38,689
TOTAL CURRENT LIABILITIES		-		97,646		1,985		7,346		-			106,977
DEFERRED TAX LIABILITIES		-		107,123		-		-		-			107,123
LONG-TERM DEBT, NET OF CURRENT PORTION		-		889,083		-		-		-			889,083
DEFERRED RENT		-		12,769		-		64		-			12,833
CAPITAL LEASES, NET OF CURRENT PORTION		-		2,597		-		-		-			2,597
OTHER LONG-TERM LIABILITIES		-		3,980		-		-		-			3,980
INTERCOMPANY PAYABLES		-		-		-		31,324		(31,324	)		-
STOCKHOLDER'S EQUITY		118,911		118,911		369		3,517		(122,797	)		118,911
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	118,911	$	1,232,109	$	2,354	$	42,251	$	(154,121	)	$	1,241,504

33

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirteen Weeks Ended September 29, 2012

										Non
	Holding						Guarantor			Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	-		$	188,558		$	610		$	24,820		$	(12,327	)	$	201,661
Cost of sales		-			82,101			196			22,255			(12,247	)		92,305
Gross profit		-			106,457			414			2,565			(80	)		109,356
Selling expenses		-			49,038			507			7,158			(60	)		56,643
General and administrative expenses		-			16,799			-			32			31			16,862
Operating income (loss)		-			40,620			(93	)		(4,625	)		(51	)		35,851
Interest expense		-			18,239			-			27			-			18,266
Other (income) expense		-			2,934			-			(5,031	)		-			(2,097	)
Income (loss) from continuing operations before provision for income taxes		-			19,447			(93	)		379			(51	)		19,682
Provision for income taxes		-			6,928			22			121			318			7,389
Income (loss) from continuing operations		-			12,519			(115	)		258			(369	)		12,293
Loss from discontinued operations, net of income taxes		-			(31	)		-			-			-			(31	)
Income (loss) before equity in (earnings) losses of subsidiaries, net of tax		-			12,488			(115	)		258			(369	)		12,262
Equity in earnings of subsidiaries, net of tax		(12,262	)		(143	)		-			-			12,405			-
Net income (loss)	$	12,262		$	12,631		$	(115	)	$	258		$	(12,774	)	$	12,262

34

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirteen Weeks Ended October 1, 2011

(in thousands)

										Non
	Holding						Guarantor			Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries			Subsidiaries			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) from continuing operations 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 of subsidiaries, net of tax		-			11,677			(55	)		128			702			12,452
Equity in earnings of subsidiaries, net of tax		(12,452	)		(73	)		-			-			12,525			-
Net income (loss)	$	12,452		$	11,750		$	(55	)	$	128		$	(11,823	)	$	12,452

35

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Thirteen Weeks Ended September 29, 2012

(in thousands)

								Non
	Holding				Guarantor			Guarantor		Intercompany
	Corp.		Issuer		Subsidiaries			Subsidiaries		Eliminations			Consolidated
Net income (loss)	$	12,262	$	12,631	$	(115	)	$	258	$	(12,774	)	$	12,262
Other comprehensive income, net of tax:
Foreign currency translation adjustments		-		-		-			1,450		-			1,450
Other comprehensive income, net of tax		-		-		-			1,450		-			1,450
Equity in other comprehensive income of subsidiaries, net of tax		1,450		-		-			-		(1,450	)		-
Comprehensive income (loss)	$	13,712	$	12,631	$	(115	)	$	1,708	$	(14,224	)	$	13,712

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Thirteen Weeks Ended October 1, 2011

(in thousands)

									Non
	Holding					Guarantor			Guarantor			Intercompany
	Corp.			Issuer		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	12,452		$	11,750	$	(55	)	$	128		$	(11,823	)	$	12,452
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		-			-		-			(966	)		-			(966	)
Other comprehensive loss, net of tax		-			-		-			(966	)		-			(966	)
Equity in other comprehensive loss of subsidiaries, net of tax		(966	)		-		-			-			966			-
Comprehensive income (loss)	$	11,486		$	11,750	$	(55	)	$	(838	)	$	(10,857	)	$	11,486

36

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirty-nine Weeks Ended September 29, 2012

										Non
	Holding						Guarantor			Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	-		$	479,753		$	1,658		$	70,596		$	(49,952	)	$	502,055
Cost of sales		-			210,749			531			59,735			(43,527	)		227,488
Gross profit		-			269,004			1,127			10,861	��		(6,425	)		274,567
Selling expenses		-			143,083			1,465			20,989			(180	)		165,357
General and administrative expenses		-			51,497			-			104			113			51,714
Restructuring charges		-			655			-			1,070			-			1,725
Operating income (loss)		-			73,769			(338	)		(11,302	)		(6,358	)		55,771
Interest expense		-			53,992			-			61			-			54,053
Loss on extinguishment of debt		-			13,376			-			-			-			13,376
Other expense (income)		-			5,112			-			(10,035	)		-			(4,923	)
Income (loss) from continuing operations before provision for (benefit from) income taxes		-			1,289			(338	)		(1,328	)		(6,358	)		(6,735	)
Provision for (benefit from) income taxes		-			258			(68	)		(305	)		(1,932	)		(2,047	)
Income (loss) from continuing operations		-			1,031			(270	)		(1,023	)		(4,426	)		(4,688	)
Loss from discontinued operations, net of income taxes		-			(105	)		-			-			-			(105	)
Income (loss) before equity in earnings of subsidiaries, net of tax		-			926			(270	)		(1,023	)		(4,426	)		(4,793	)
Equity in earnings of subsidiaries, net of tax		4,793			1,293			-			-			(6,086	)		-
Net loss	$	(4,793	)	$	(367	)	$	(270	)	$	(1,023	)	$	1,660		$	(4,793	)

37

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirty-nine Weeks Ended October 1, 2011

(in thousands)

										Non
	Holding						Guarantor			Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries			Subsidiaries			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
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) from continuing operations 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 losses (earnings) of subsidiaries, net of tax		-			(1,126	)		150			885			(181	)		(272	)
Equity in losses (earnings) of subsidiaries, net of tax		272			(1,035	)		-			-			763			-
Net (loss) income	$	(272	)	$	(91	)	$	150		$	885		$	(944	)	$	(272	)

38

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the Thirty-nine Weeks Ended September 29, 2012

(in thousands)

										Non
	Holding						Guarantor			Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(4,793	)	$	(367	)	$	(270	)	$	(1,023	)	$	1,660		$	(4,793	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments		-			-			-			1,853			-			1,853
Other comprehensive income, net of tax		-			-			-			1,853			-			1,853
Equity in other comprehensive income of subsidiaries, net of tax		1,853			-			-			-			(1,853	)		-
Comprehensive (loss) income	$	(2,940	)	$	(367	)	$	(270	)	$	830		$	(193	)	$	(2,940	)

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the Thirty-nine Weeks Ended October 1, 2011

(in thousands)

									Non
	Holding						Guarantor		Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net (loss) income	$	(272	)	$	(91	)	$	150	$	885		$	(944	)	$	(272	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments		-			-			-		(776	)		-			(776	)
Unrealized gain on interest rate swaps		-			712			-		-			-			712
Other comprehensive income, net of tax		-			712			-		(776	)		-			(64	)
Equity in other comprehensive loss of subsidiaries, net of tax		(64	)		-			-		-			64			-
Comprehensive (loss) income	$	(336	)	$	621		$	150	$	109		$	(880	)	$	(336	)

39

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Thirty-nine Weeks Ended September 29, 2012

(in thousands)

										Non
	Holding						Guarantor			Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(4,793	)	$	(367	)	$	(270	)	$	(1,023	)	$	1,660		$	(4,793	)
Adjustments to reconcile net loss to net cash used in operating activities:
Realized gain on derivative contracts		-			(5,830	)		-			-			-			(5,830	)
Depreciation and amortization		-			22,971			18			913			-			23,902
Unrealized gain on marketable securities		-			(184	)		-			-			-			(184	)
Equity-based compensation expense		-			572			-			-			-			572
Deferred taxes		-			6,351			9			(198	)		-			6,162
Loss on extinguishment of debt		-			13,376			-			-			-			13,376
Loss on disposal and impairment of property and equipment		-			380			-			2			-			382
Restructuring charges		-			-			-			1,070			-			1,070
Equity in losses (earnings) of subsidiaries		4,793			1,293			-			(4,426	)		(1,660	)		-
Changes in assets and liabilities:
Accounts receivable		-			(27,164	)		43			3,937			-			(23,184	)
Inventory		-			(38,019	)		6			(11,856	)		-			(49,869	)
Prepaid expenses and other assets		-			(2,020	)		5			(438	)		-			(2,453	)
Accounts payable		-			6,061			(81	)		168			-			6,148
Income taxes		-			(16,801	)		-			896			-			(15,905	)
Accrued expenses and other liabilities		-			(10,025	)		(643	)		3,003			-			(7,665	)
NET CASH USED IN OPERATING ACTIVITIES		-			(49,406	)		(913	)		(7,952	)		-			(58,271	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		-			(16,727	)		(85	)		(4,164	)		-			(20,976	)
Intercompany payables/receivables		-			(12,637	)		-			-			12,637			-
NET CASH USED IN INVESTING ACTIVITIES		-			(29,364	)		(85	)		(4,164	)		12,637			(20,976	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Senior Secured Credit Facility		-			15,000			-			-			-			15,000
Borrowings under Senior Secured Asset-Based Credit Facility		-			81,000			-			-			-			81,000
Borrowings under Term Loan Facility					717,750			-			-			-			717,750
Repayments under Senior Secured Credit Facility		-			(718,125	)		-			-			-			(718,125	)
Payments of call premiums and fees for extinguishment of debt					(6,763	)		-			-			-			(6,763	)
Repayments under Term Loan Facility		-			(3,625	)		-			-			-			(3,625	)
Financing costs		-			(11,579	)		-			-			-			(11,579	)
Dividend to YCC Holdings LLC		-			(32,351	)		-			-			-			(32,351	)
Proceeds from issuance of common stock		-			30			-			-			-			30
Repurchase of common stock		-			(2,369	)		-			-			-			(2,369	)
Principal payments on capital lease obligations		-			(804	)		-			(248	)		-			(1,052	)
Intercompany payables/receivables		-			-			196			12,441			(12,637	)		-
NET CASH PROVIDED BY FINANCING ACTIVITIES		-			38,164			196			12,193			(12,637	)		37,916
EFFECT OF EXCHANGE RATE CHANGES ON CASH		-			-			-			118			-			118
NET (DECREASE) INCREASE IN CASH		-			(40,606	)		(802	)		195			-			(41,213	)
CASH, BEGINNING OF PERIOD		-			45,777			1,830			3,226			-			50,833
CASH, END OF PERIOD	$	-		$	5,171		$	1,028		$	3,421		$	-		$	9,620

40

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Thirty-nine Weeks Ended October 1, 2011

(in thousands)

										Non
	Holding						Guarantor			Guarantor			Intercompany
	Corp.			Issuer			Subsidiaries			Subsidiaries			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 used 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 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 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

41

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ORGANIZATION

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”).

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 YCC Holdings’ and Holding Corp.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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

OVERVIEW

General Business Information

We are the largest specialty branded premium scented candle company in the United States based on our annual sales. We sell our products in multiple channels of distribution across many countries. Our customer touchpoints include our own company-operated retail stores, our Consumer Direct business, our Fundraising business, and a global network of both national account and independent specialty gift customers and channels. We have a 42-year history of category leadership and growth by marketing Yankee Candle products as affordable luxuries, consumable products, and valued gifts. We offer a wide 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. We also sell a wide range of other home fragrance products, including electric plug home fragrancers, decorative reed diffusers, room sprays, potpourri, scented oils and coordinated candle related and home decor accessories. Additionally, we offer products such as the Yankee Candle Car Jars® auto air freshener product line, travel sprays and other products to fragrance cars and small spaces.

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.  Our candle prices range from $1.99 for a Samplers® votive candle to $27.99 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 "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.

Retail Operations: We are the largest specialty retailer of premium scented candles in the U.S. Our retail operations include our retail stores, our Consumer Direct business, our Fundraising business, and Chandler's restaurant (located at our South Deerfield, Massachusetts flagship store). We operate 564 specialty retail stores under the Yankee Candle® name as of September 29, 2012. Our retail stores, excluding our two flagship stores, average approximately 1,626 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.

42

Wholesale Operations: We have an attractive and growing wholesale segment with a diverse customer base. As of September 29, 2012, we had approximately 27,800 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 and Meijer, home improvement retailers and selected club stores and other national accounts. We believe the Yankee Candle® brand name is the most recognized brand in the premium scented candle market. Our wholesale customers are also loyal, with approximately 79% of our U.S. wholesale accounts having been customers for more than five years. We believe that our ability to provide industry leading category management expertise to our wholesale customers regarding product knowledge, display suggestions, promotional ideas and geographical consumer preferences is a significant competitive advantage that we plan to continue to leverage.

International Operations: We sell our products in the United Kingdom and elsewhere in Europe primarily through international distributors and our wholly-owned subsidiary Yankee Candle (Europe), LTD (“YCE”), which has an international wholesale customer network of approximately 5,900 store locations and distributors covering 57 countries as of September 29, 2012. YCE sells our products through multiple channels, with the majority of its sales occurring in the United Kingdom and Ireland through independent gift stores, national accounts and also through its "store within a store" retail concessions business. YCE also sells directly to wholesale accounts in countries such as Germany, Italy and France, and to numerous other countries through distributors. We intend to continue to grow our business outside of North America by leveraging our wholesale distribution network and our new distribution center in Bristol, England, and by further expanding our international business, including further geographic expansion in Asia, primarily in Japan, China and Korea and in Latin America.

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.

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			Thirteen			Thirty-Nine			Thirty-Nine
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	September 29, 2012			Ocotber 1, 2011			September 29, 2012			Ocotber 1, 2011
YCC Holdings LLC Statements of Operations Data:
Sales:
Retail		46.1	%		43.5	%		51.0	%		49.6	%
Wholesale		41.4			42.7			34.7			36.0
International		12.4			13.8			14.3			14.4
Total sales		100.0			100.0			100.0			100.0
Cost of sales		45.8			45.1			45.3			45.0
Gross profit		54.2			54.9			54.7			55.0
Selling expenses		28.1			29.7			32.9			34.8
General and administrative expenses		8.4			7.9			10.3			10.3
Restructuring charges		-			-			0.3			-
Operating income		17.7			17.3			11.2			9.9
Other expense, net		12.4			12.5			17.7			15.0
Income (loss) from continuing operations before  provision for (benefit from) income taxes		5.3			4.9			(6.5	)		(5.1	)
Provision for (benefit from) income taxes		2.1			1.6			(2.4	)		(1.9	)
Income (loss) from continuing operations		3.2			3.3			(4.1	)		(3.1	)
Loss from discontinued operations, net of taxes		-			-			-			(0.1	)
Net income (loss)		3.2	%		3.3	%		(4.1	) %		(3.2	) %

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	Thirteen			Thirteen			Thirty-Nine			Thirty-Nine
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	September 29, 2012			October 1, 2011			September 29, 2012			October 1, 2011
Yankee Holding Corp. Statements of Operations Data:
Sales:
Retail		46.1	%		43.5	%		51.0	%		49.6	%
Wholesale		41.4			42.7			34.7			36.0
International		12.4			13.8			14.3			14.4
Total sales		100.0			100.0			100.0			100.0
Cost of sales		45.8			45.1			45.3			45.0
Gross profit		54.2			54.9			54.7			55.0
Selling expenses		28.1			29.7			32.9			34.8
General and administrative expenses		8.4			7.8			10.3			10.2
Restructuring charges		-			-			0.3			-
Operating income		17.7			17.4			11.2			10.0
Other expense, net		8.0			7.9			12.5			10.2
Income (loss) from continuing operations before provision for (benefit from) income taxes		9.7			9.5			(1.3	)		(0.2	)
Provision for (benefit from) income taxes		3.7			3.1			(0.4	)		(0.1	)
Income (loss) from continuing operations		6.0			6.4			(0.9	)		(0.1	)
Loss from discontinued operations, net of taxes		-			-			-			-
Net income (loss)		6.0	%		6.4	%		(0.9	) %		(0.1	) %

Thirteen weeks ended September 29, 2012 versus the Thirteen weeks ended October 1, 2011

SALES

Sales increased 3.4% to $201.7 million for the thirteen weeks ended September 29, 2012 from $195.1 million for the thirteen weeks ended October 1, 2011.

Retail Sales

Retail sales increased 9.7% to $93.1 million for the thirteen weeks ended September 29, 2012, from $84.9 million for the thirteen weeks ended October 1, 2011.  The increase in retail sales was primarily due to (i) increased comparable store sales of approximately $2.5 million, (ii) the addition of 22 new Yankee Candle stores during 2012 which contributed $2.5 million, (iii) increased sales in our catalog and internet business (“Consumer Direct”) of approximately $2.2 million, (iv) sales attributable to stores opened in 2011 that have not yet entered the comparable store base (which in 2011 were open for less than a full year) of approximately $0.5 million and (v) increased sales in our Yankee Candle Fundraising division of approximately $0.5 million.

Comparable sales for our Retail business, including Consumer Direct, increased 5.8% for the thirteen weeks ended September 29, 2012 compared to the thirteen weeks ended October 1, 2011. Yankee Candle comparable store sales for the thirteen weeks ended September 29, 2012 increased 3.4% compared to the thirteen weeks ended October 1, 2011. 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 an increase in the average ticket price of 10.6% offset by a decrease in transactions of 7.2%. There were 530 stores included in the Yankee Candle comparable store base as of September 29, 2012 as compared to 499 stores included in the Yankee Candle comparable store base as of October 1, 2011. There were 564 total retail stores open as of September 29, 2012, compared to 548 total retail stores open as of October 1, 2011.

Wholesale Sales

Wholesale sales increased 0.5% to $83.6 million for the thirteen weeks ended September 29, 2012 from $83.2 million for the thirteen weeks ended October 1, 2011.

The increase in wholesale sales was primarily due to (i) increased sales in our “all other” channel, consisting of various accounts outside of our premium mass, specialty, and gift channels, of approximately $5.0 million, (ii) increased sales to specialty and department store channels of approximately $2.4 million, partially offset by (i) decreased sales to premium mass channels of approximately $5.1 million and (ii) decreased sales in our gift store account channel of approximately $1.9 million.

44

International Sales

International sales decreased 7.3% to $25.0 million for the thirteen weeks ended September 29, 2012 from $27.0 million for the thirteen weeks ended October 1, 2011.

The decrease in international sales was primarily due to (i) decreased sales in our United Kingdom wholesale business of $1.9 million and decreased sales in our European wholesale business (outside of the United Kingdom) of $0.5 million which were both attributable to order management and shipping issues and delays experienced in connection with the implementation of a new ERP system for YCE and (ii) a decrease of $0.4 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound.  These decreases were partially offset by (i) increased sales in our retail concession channel of $0.5 million, and (ii) increased sales in our international distributor channels of $0.3 million.

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 2.1% to $109.4 million for the thirteen weeks ended September 29, 2012 from $107.2 million for the thirteen weeks ended October 1, 2011. As a percentage of sales, gross profit decreased to 54.2% for the thirteen weeks ended September 29, 2012 from 54.9% for the thirteen weeks ended October 1, 2011. Included in gross profit for each of the thirteen weeks ended September 29, 2012 and October 1, 2011 are purchase accounting costs of $0.2 million. These costs were not allocated to our segments.

Retail Gross Profit

Retail gross profit dollars increased 9.0% to $61.6 million for the thirteen weeks ended September 29, 2012 compared to $56.5 million for the thirteen weeks ended October 1, 2011.  The increase in gross profit dollars over the prior year quarter was primarily due to (i) price increases taken during the first quarter of 2012, which assuming no elasticity contributed $4.7 million, (ii) increased sales volume which increased gross profit by approximately $4.3 million, (iii) increased gross profit of our Yankee Candle Fundraising division of $0.3 million and (iv) decreased costs in our supply chain operations of approximately $0.1 million partially offset by (i) increased promotional and marketing activity of approximately $3.3 million and (ii) combined unfavorable product cost and product mix of $1.0 million.

As a percentage of sales, retail gross profit decreased slightly to 66.2% for the thirteen weeks ended September 29, 2012 from 66.6% for the thirteen weeks ended October 1, 2011. The decrease in gross profit rate was primarily the result of unfavorable product cost and product mix of 1.2% and increased promotional activity which decreased gross profit by approximately 1.1%.  The decrease in gross profit rate was partially offset by (i) decreased costs in our supply chain operations resulting in an increase in gross profit rate of 0.1% and (ii) price increases taken during the first quarter of 2012, which assuming no elasticity increased the gross profit rate by approximately 1.8%.

Wholesale Gross Profit

Wholesale gross profit dollars remained relatively flat at $40.0 million for the thirteen weeks ended September 29, 2012 compared to $39.9 million for the thirteen weeks ended October 1, 2011. Price increases taken during the first quarter of 2012, which assuming no elasticity increased gross profit by approximately $4.1 million and were almost completely offset by (i) increased promotional and marketing activity of approximately $1.4 million, (ii) unfavorable product cost related to shift in channel mix of approximately $1.4 million and (iii) decreased sales volume which decreased gross profit by approximately $1.2 million.

As a percentage of sales, wholesale gross profit remained relatively flat at 47.8% for the thirteen weeks ended September 29, 2012 compared to 47.9% for the thirteen weeks ended October 1, 2011. The change in gross profit rate consists of unfavorable product cost related to a shift in channel mix of 1.9%, coupled with increased allowances and promotional and marketing activity which decreased gross profit rate by approximately 0.8% and were almost fully offset by price increases taken during the first quarter of 2012, which assuming no elasticity contributed approximately 2.6%.

International Gross Profit

International gross profit dollars decreased 26.6% to $8.0 million for the thirteen weeks ended September 29, 2012 from $10.9 million for the thirteen weeks ended October 1, 2011. The decrease in international gross profit dollars was primarily attributable to (i) increased allowances and promotional and marketing activity which decreased gross profit by approximately $0.9 million, (ii) increased supply chain and logistics costs which decreased gross profit by approximately $0.8 million which were primarily due to additional labor and processing costs to address the shipping issues associated with the implementation of the new ERP system for YCE., (iii) unfavorable product cost and channel mix of approximately $0.8 million and (iv) decreased sales volume of approximately $0.3 million.

45

As a percentage of sales, international gross profit decreased to 32.1% for the thirteen weeks ended September 29, 2012 from 40.4% for the thirteen weeks ended October 1, 2011. The decrease in gross profit rate was primarily attributable to (i) increased supply chain operations and logistics costs primarily related to the ERP implementation for YCE which decreased gross profit rate by approximately 3.1%, (ii) unfavorable product cost and channel mix of approximately 2.8% and (iii) increased allowances and promotional and marketing activity which decreased gross profit rate by approximately 2.4%.

SELLING EXPENSES

Selling expenses decreased 2.2% to $56.6 million for the thirteen weeks ended September 29, 2012 from $57.9 million for the thirteen weeks ended October 1, 2011. 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 28.1% and 29.7% for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively.

Included in selling expenses for the thirteen weeks ended September 29, 2012 and October 1, 2011 are purchase accounting costs of $0.4 million and $3.4 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 1.8% to $46.3 million for the thirteen weeks ended September 29, 2012 from $45.5 million for the thirteen weeks ended October 1, 2011.  As a percentage of retail sales, retail selling expenses were 49.7% and 53.6% for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively.  The increase in retail selling expenses in dollars was related to selling expenses incurred in the new Yankee Candle retail stores opened in 2012 and 2011, which together represented an increase of approximately $1.9 million, partially offset by decreased marketing related costs of approximately $0.8 million. The decrease in selling expense rate was primarily due to the leveraging of selling expenses by 1.3% as a result of increased comparable store sales coupled with the decrease in marketing related costs of approximately 0.9%.

Wholesale Selling Expenses

Wholesale selling expenses decreased 11.4% to $3.1 million for the thirteen weeks ended September 29, 2012 from $3.5 million for the thirteen weeks ended October 1, 2011. As a percentage of wholesale sales, wholesale selling expenses were 3.7% and 4.2% for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively. The decrease in selling expenses and as a percentage of sales was primarily attributable to decreased marketing costs and an increase in sales quarter over quarter.

International Selling Expenses

International selling expenses increased 25.9% to $6.8 million for the thirteen weeks ended September 29, 2012 from $5.4 million for the thirteen weeks ended October 1, 2011. As a percentage of international sales, international selling expenses were 27.3% and 20.2% for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively.  The increase in selling expenses and as a percentage of sales was primarily related to increased labor and commission costs of approximately $0.8 million or 4.0% related to the overall growth of the business and increased sales in our concession channel, and other increased operating expenses of approximately $0.6 million or 3.1% largely related to incremental facility and occupancy costs to support the overall year to date revenue growth.  The decreased sales in our European operations related to the ERP implementation during the thirteen weeks ended September 29, 2012 caused our selling expenses to deleverage against the sales base for the thirteen weeks ended September 29, 2012 relative to the prior year.

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 9.0% to $16.9 million for the thirteen weeks ended September 29, 2012 compared to $15.5 million for the thirteen weeks ended October 1, 2011.  As a percentage of sales, general and administrative expenses were approximately 8.4% and 7.9% for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively. The increase in general and administrative costs was primarily driven by increased incentive program expenses of $2.1 million driven by positive performance to plans, partially offset by decreased medical costs of $0.7 million.

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Restructuring Charges

During the first quarter of 2012, the Company restructured its Wholesale and Retail operations.  The Company also initiated a change in reporting structure and changes of roles and responsibilities within the organization that resulted in workforce reductions.  These changes included changes to the executive committee, changes to the reporting structure and operational focus within the retail segment, alignment of the brand innovation and merchandising teams across all channels of the business, and other administrative changes. In addition, during the second quarter of 2012, YCE relocated its corporate headquarters and distribution center in England. The Company did not incur any additional restructuring charges during the thirteen weeks ended September 29, 2012.

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 $24.9 million for the thirteen weeks ended September 29, 2012 compared to $24.3 million for the thirteen weeks ended October 1, 2011.  The primary component of this expense is interest expense, which was $27.0 million and $26.7 million for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively.

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 $16.2 million for the thirteen weeks ended September 29, 2012 compared to $15.5 million for the thirteen weeks ended October 1, 2011. The primary component of this expense is interest expense, which was $18.3 million and $17.8 million for the thirteen weeks ended September 29, 2012 and October 1, 2011, respectively.

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 September 29, 2012 and October 1, 2011, Yankee Candle recognized a gain related to its derivative contracts of $2.1 million and $2.2 million, respectively.

Provision for Income Taxes

The provision for income taxes for YCC Holdings for the thirteen weeks ended September 29, 2012 and October 1, 2011 was approximately $4.2 million and $3.1 million, respectively. The effective tax rates for the thirteen weeks ended September 29, 2012 and October 1, 2011 were 38.7% and 32.5%, respectively.

The provision for income taxes for Holding Corp. for the thirteen weeks ended September 29, 2012 was $7.4 million compared to $6.0 million for the thirteen weeks ended October 1, 2011. The effective tax rates for the thirteen weeks ended September 29, 2012 and October 1, 2011 were 37.5% and 32.6%, 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 September 29, 2012 and October 1, 2011, respectively.

Thirty-nine weeks ended September 29, 2012 versus the Thirty-nine weeks ended October 1, 2011

SALES

Sales increased 7.0% to $502.1 million for the thirty-nine weeks ended September 29, 2012 from $469.1 million for the thirty-nine weeks ended October 1, 2011.

Retail Sales

Retail sales increased 9.9% to $255.8 million for the thirty-nine weeks ended September 29, 2012, from $232.7 million for the thirty-nine weeks ended October 1, 2011.  The increase in retail sales was primarily due to (i) increased sales in Consumer Direct of approximately $7.0 million, (ii) sales attributable to stores opened in 2011 that have not yet entered the comparable store base (which in 2011 were open for less than a full year) of approximately $5.0 million, (iii) increased comparable store sales of approximately $5.2 million, (iv) the addition of 22 new Yankee Candle stores during 2012 which contributed $4.2 million and (v) an increase in sales from our Yankee Candle Fundraising division of approximately $1.8 million.

Comparable sales for our Retail business, including Consumer Direct, increased 5.6% for the thirty-nine weeks ended September 29, 2012 compared to the thirty-nine weeks ended October 1, 2011. Yankee Candle comparable store sales for the thirty-nine weeks ended September 29, 2012 increased 2.7% compared to the thirty-nine weeks ended October 1, 2011. 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 an increase in average ticket price of 5.1% offset by decreased transactions of 2.4%. There were 530 stores included in the Yankee Candle comparable store base as of September 29, 2012 as compared to 499 stores included in the Yankee Candle comparable store base as of October 1, 2011. There were 564 total retail stores open as of September 29, 2012, compared to 548 total retail stores open as of October 1, 2011.

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Wholesale Sales

Wholesale sales increased 3.3% to $174.3 million for the thirty-nine weeks ended September 29, 2012 from $168.8 million for the thirty-nine weeks ended October 1, 2011.

The increase in wholesale sales was primarily due to (i) increased sales in our “all other” channel, consisting of various accounts outside of our premium mass, specialty, and gift channels, of approximately $10.2 million and (ii) increased sales in our specialty and department store channel of approximately $1.7 million, partially offset by (i) decreased sales to premium mass channels of approximately $3.7 million and (ii) decreased sales in our gift store account channel of approximately $2.5 million.

International Sales

International sales increased 6.5% to $72.0 million for the thirty-nine weeks ended September 29, 2012 from $67.6 million for the thirty-nine weeks ended October 1, 2011.

The increase in international sales was primarily due to (i) an increase in our international distributor channels of $2.3 million, (ii) increased sales in our retail concession channel of $2.2 million, (iii) increased sales in our European wholesale business (outside of the United Kingdom) of $0.8 million and (iv) increased sales in our United Kingdom wholesale business of $0.2 million.  These increases in our international sales were partially offset by a decrease of $1.1 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 6.4 % to $274.6 million for the thirty-nine weeks ended September 29, 2012 from $258.0 million for the thirty-nine weeks ended October 1, 2011. As a percentage of sales, gross profit decreased slightly to 54.7 % for the thirty-nine weeks ended September 29, 2012 from 55.0% for the thirty-nine weeks ended October 1, 2011. Included in gross profit for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 are purchase accounting costs of $1.0 million and $0.3 million respectively. These costs were not allocated to our segments.

Retail Gross Profit

Retail gross profit dollars increased 9.6% to $165.0 million for the thirty-nine weeks ended September 29, 2012 compared to $150.5 million for the thirty-nine weeks ended October 1, 2011.  The increase in gross profit dollars was primarily due to (i) increased sales volume which increased gross profit by approximately $14.7 million, (ii) price increases taken during the first quarter of 2012, which assuming no elasticity contributed $11.5 million, (iii) decreased costs in our supply chain operations of approximately $1.0 million and (iv) sales volume increases from our Yankee Candle fundraising division which contributed additional gross profit of approximately $1.1 million. These retail gross profit increases were partially offset by increased promotional and marketing activity of approximately $12.6 million, coupled with unfavorable product mix of approximately $1.2 million.

As a percentage of sales, retail gross profit decreased slightly to 64.5% for the thirty-nine weeks ended September 29, 2012 from 64.7% for the thirty-nine weeks ended October 1, 2011. The decrease in gross profit rate consisted of increased promotional activity which decreased gross profit by approximately 1.7 % and unfavorable product mix which also decreased gross profit rate by approximately 0.6 %. These decreases in gross profit rate were offset by price increases taken during the first quarter of 2012, which assuming no elasticity increased gross profit by approximately 1.7% coupled with decreased costs in our supply chain operations resulting in an increase in gross profit rate of 0.4%.

Wholesale Gross Profit

Wholesale gross profit dollars increased 3.6% to $83.2 million for the thirty-nine weeks ended September 29, 2012 from $80.3 million for the thirty-nine weeks ended October 1, 2011. The increase in wholesale gross profit dollars was primarily attributable to price increases taken during the first quarter of 2012, which assuming no elasticity increased gross profit by approximately $8.5 million, coupled with decreased costs in our supply chain operations of approximately $1.4 million. These increases were partially offset by (i) unfavorable product cost related to shift in channel mix of approximately $4.2 million, (ii) increased promotional and marketing activity of approximately $2.6 million and (iii) decreased sales volume, which decreased gross profit by approximately $0.2 million.

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As a percentage of sales, wholesale gross profit increased slightly to 47.7% for the thirty-nine weeks ended September 29, 2012 from 47.5% for the thirty-nine weeks ended October 1, 2011. The increase in gross profit rate was primarily attributable to (i) price increases taken during the first quarter of 2012, which assuming no elasticity contributed approximately 2.7%, (ii) decreased costs in our supply chain operations which increased gross profit rate by approximately 0.8%, partially offset by unfavorable product cost mix of 2.6% coupled with promotional and marketing activity which decreased gross profit rate by 0.7%.

International Gross Profit

International gross profit dollars decreased 1.1% to $27.3 million for the thirty-nine weeks ended September 29, 2012 from $27.6 million for the thirty-nine weeks ended October 1, 2011. The decrease in international gross profit dollars was primarily attributable to (i) increased allowances and promotional and marketing activity which decreased gross profit by approximately $4.1 million, (ii) increased supply chain operations costs which decreased gross profit by approximately $1.1 million were primarily related to additional labor and processing costs to address the shipping issues associated with the implementation of the new ERP system for YCE, in addition to a decrease of $0.5 million due to the effect of changes in foreign currency exchange rates, primarily the British Pound. These decreases in gross profit dollars were partially offset by increased sales volume of $3.9 million coupled with favorable product cost and channel mix of approximately $1.5 million.

As a percentage of sales, international gross profit decreased to 37.9% for the thirty-nine weeks ended September 29, 2012 as compared to 40.9% for the thirty-nine weeks ended October 1, 2011.The decrease in gross profit rate was primarily attributable to  increased allowances and promotional and marketing activity which decreased gross profit rate by 3.4% coupled with increased supply chain operations costs which decreased gross profit by 1.7%, offset by favorable product cost and channel mix of approximately 2.1% largely attributable to increased sales within our retail concessions channel, which has the highest margins within our international business.

SELLING EXPENSES

Selling expenses increased 1.4% to $165.4 million for the thirty-nine weeks ended September 29, 2012 from $163.1 million for the thirty-nine weeks ended October 1, 2011. 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 32.9 % and 34.8% for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, respectively.

Included in selling expenses for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 are purchase accounting costs of $2.5 million and $10.3 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 5.1% to $134.0 million for the thirty-nine weeks ended September 29, 2012 from $127.5 million for the thirty-nine weeks ended October 1, 2011. As a percentage of retail sales, retail selling expenses were 52.4% and 54.8% for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, 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 2012 and 2011, which together represented an increase of approximately $7.6 million partially offset by decreased marketing related costs of approximately $1.0 million. The decrease in selling expense rate was primarily due to the leveraging of selling expenses by 1.0% as a result of increased comparable store sales, coupled with the decrease in marketing related costs of approximately 0.7%.

Wholesale Selling Expenses

Wholesale selling expenses decreased 8.2% to $9.0 million for the thirty-nine weeks ended September 29, 2012 from $9.8 million for the thirty-nine weeks ended October 1, 2011. As a percentage of wholesale sales, wholesale selling expenses were 5.2% and 5.8% for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, respectively. The decrease in selling expenses and as a percentage of sales was attributable to decreased marketing and labor costs year over year.

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International Selling Expenses

International selling expenses increased 29.2% to $19.9 million for the thirty-nine weeks ended September 29, 2012 from $15.4 million for the thirty-nine weeks ended October 1, 2011. As a percentage of international sales, international selling expenses were 27.6% and 22.7% for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, respectively.  The increase in selling expenses was primarily related to (i) increased commissions and labor expenses of $1.8 million, (ii) the write-off of a portion of a receivables balance from one of our wholesale accounts that unexpectedly went into receivership of approximately $1.2 million and other operating costs of approximately $1.5 million related to the increased sales volume in this business.  The increase in selling expenses as a percentage of sales was primarily related to the write-off of receivables mentioned above which had a negative impact of approximately 1.7%, increased commissions and labor costs of approximately 1.7% related to the revenue growth in the business and increases in other selling expenses. The decreased sales in our European operations related to the ERP implementation during the thirteen weeks ended September 29, 2012 caused our selling expenses to deleverage against the sales base for the thirty-nine weeks ended September 29, 2012 relative to the prior year.

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 7.2% to $51.8 million for the thirty-nine weeks ended September 29, 2012 compared to $48.3 million for the thirty-nine weeks ended October 1, 2011.  As a percentage of sales, general and administrative expenses were approximately 10.3% for each of the thirty-nine weeks ended September 29, 2012 and October 1, 2011.

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 Class B and Class C common unit holders in February 2011 in connection with the issuance of the Senior PIK Notes. Excluding such expenses, general and administrative costs were unfavorable by $6.5 million driven largely by (i) increased incentive program expenses of $3.2 million driven by positive performance to plans, (ii) increased medical costs of $1.4 million, (iii) increased consulting and advertising expenses of $1.6 million and (iv) additional operating expenses driven by increased sales over prior year of $0.3 million.

Restructuring Charges

During the first quarter of 2012, the Company restructured its Wholesale and Retail operations.  The Company also initiated a change in reporting structure and changes of roles and responsibilities within the organization that resulted in workforce reductions.  These changes included changes to the executive committee, changes to the reporting structure and operational focus within the retail segment, alignment of the brand innovation and merchandising teams across all channels of the business, and other administrative changes. In addition, during the second quarter of 2012, YCE relocated its corporate headquarters and distribution center in England. As a result of these changes the Company incurred restructuring charges of $1.1 million during the thirteen weeks ended June 30, 2012 related to exiting the old facility and non-cash writeoffs for the impairment of equipment and deferred rent.  As a result of the changes discussed, the Company incurred restructuring charges of $1.7 million during the thirty-nine weeks ended September 29, 2012.

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 $88.7 million for the thirty-nine weeks ended September 29, 2012 compared to $70.4 million for the thirty-nine weeks ended October 1, 2011.  The primary component of this expense is interest expense, which was $80.3 million and $75.7 million for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, respectively. During the thirty-nine weeks ended September 29, 2012, in connection with the refinancing of our Senior Secured Credit Facility we recorded a loss on extinguishment of debt of $13.4 million comprised of the write-off of unamortized deferred financing fees of $6.7 million and call premiums of $6.7 million. The $13.4 million loss on extinguishment of debt is also included in interest and other expense, net, in the segment footnote.

The increase in interest expense primarily relates to additional interest expense of $3.8 million of related to the Senior PIK Notes which were outstanding for the full thirty-nine weeks ended September 29, 2012.

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 $62.5 million for the thirty-nine weeks ended September 29, 2012 compared to $48.0 million for the thirty-nine weeks ended October 1, 2011. The primary component of this expense is interest expense, which was $54.1 million and $53.3 million for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 respectively. During the thirty-nine weeks ended September 29, 2012, in connection with the refinancing of our Senior Secured Credit Facility we recorded a loss on extinguishment of debt of $13.4 million comprised of the write-off of unamortized deferred financing fees of $6.7 million and call premiums of $6.7 million. The $13.4 million loss on extinguishment of debt is also included in interest and other expense, net, in the segment footnote.

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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 September 29, 2012 and October 1, 2011, Yankee Candle recognized a gain related to its derivative contracts of $5.8 million and $4.3 million, respectively.

Benefit From Income Taxes

The benefit from income taxes for YCC Holdings for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 was approximately $12.1 million and $9.1 million, respectively. The effective tax rates for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 were 36.6% and 38.4%, respectively.

The benefit from income taxes for Holding Corp. for the thirty-nine weeks ended September 29, 2012 was $2.0 million compared to $0.8 million for the thirty-nine weeks ended October 1, 2011. The effective tax rates for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 were 30.4 % and 95.0%, respectively. The decrease in the effective tax rate primarily relates to the release of uncertain tax positions during the thirty-nine weeks ended October 1, 2011 for which the statute of limitations had passed.

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 thirty-nine weeks ended September 29, 2012 and October 1, 2011, respectively. The loss from discontinued operations, net of income taxes was $0.1 million and $0.2 million for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Senior Secured Credit Facility

As of December 31, 2011, Yankee Candle’s senior secured credit facility (the “Senior Secured Credit Facility”) consisted of a $650.0 million senior secured term loan facility (the “Prior Term Facility”) with outstanding borrowings of $388.1 million and a senior secured revolving credit facility (“Prior Revolving Facility”) of $140.0 million with no outstanding borrowings.

Refinancing of the Senior Secured Credit Facility and Repurchase of $315 million of Yankee Candle’s 8 ½% Senior Notes Due 2015

On April 2, 2012, Yankee Candle refinanced its old Senior Secured Credit Facility and $315.0 million of its Senior Notes due 2015 by entering into a senior secured term loan facility (the “Term Loan Facility”) and by entering into a senior secured asset-based credit facility (the “ABL Facility”).

Under the Term Loan Facility, Yankee Candle borrowed $725.0 million resulting in proceeds of $717.8 million, net of original issue discount.  At closing, on April 2, 2012, a portion of the proceeds from the Term Loan Facility were used to (i) redeem $180.0 million of Yankee Candle’s Senior Notes due 2015 at a call premium of 2.125%, (ii) repay $403.1 million of outstanding debt on the Company’s old Senior Secured Credit Facility (consisting of $388.1 million outstanding under the Prior Term Facility and $15.0 outstanding under the Prior Revolving Facility), and (iii) pay fees and expenses of $11.5 million related to the foregoing.  On April 13, 2012, the Company used the remaining proceeds and borrowings under the ABL Facility to redeem an additional $135.0 million of the Senior Notes due 2015 at a call premium of 2.125%.  As a result of the refinancing the Company recorded a loss on extinguishment of debt of $13.4 million comprised of the write-off of unamortized deferred financing fees of $6.7 million and call premiums of $6.7 million.  The Company also recorded total deferred financing costs of $11.6 million, $9.0 million related to the Term Loan Facility and $2.6 million related to the ABL Facility.  The costs associated with the Term Loan Facility are being amortized using the interest method through the expiration date of the Term Loan Facility and the costs associated with the ABL Facility are being amortized on a straight line basis through the expiration date of the ABL Facility.

Term Loan Facility

The Term Loan Facility will mature on April 2, 2019; however, the maturity date of the Term Loan Facility will accelerate if the Senior Subordinated Notes and the Senior PIK Notes are not defeased, repurchased, refinanced or redeemed 91 days prior to their respective maturity dates. The Term Loan Facility is subject to quarterly amortization of principal equal to 0.25% ($1.8 million) of the original aggregate principal amount of the Term Loan Facility, with the balance payable at final maturity.  Interest is payable on the Term Loan Facility at either (i) the Eurodollar Rate (subject to a 1.25% floor) plus 4.00% or (ii) the ABR (subject to a 2.25% floor) plus 3.00%. The default rate of interest will accrue (i) on the overdue principal amount of any loan at a rate of 2% in excess of the rate otherwise applicable to such loan and (ii) on any overdue interest or any other outstanding overdue amount at a rate of 2% in excess of the non-default interest rate then applicable to ABR loans. As of September 29, 2012, the interest rate applicable to the Term Loan Facility was 5.25%.

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The Term Loan Facility contains a financial covenant which requires that Yankee Candle maintain at the end of each fiscal quarter, commencing with the quarter ended June 30, 2012 through the quarter ending September 29, 2012, a consolidated net debt (net of cash and cash equivalents not to exceed $75.0 million) to Consolidated EBITDA ratio of no more than 7.25 to 1.00. As of September 29, 2012, Yankee Candle's actualnet total leverage ratio was 5.13 to 1.00, as defined. As of September 29, 2012, total debt (including Yankee Candle's capital lease obligations of $5.7 million and net of $9.6 million in cash) was approximately $996.5 million. Under Yankee Candle's Term Loan Facility, Consolidated 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 Yankee Candle’s Consolidated EBITDA, as calculated under Yankee Candle's Term Loan Facility, to EBITDA and net income for the four quarters ended September 29, 2012 (in thousands):

Net income	$	50,027
Provision for income taxes		29,298
Interest expense, net (excluding amortization of deferred financing fees)		58,899
Depreciation and amortization		35,000
EBITDA		173,224
Share-based compensation expense		759
Restructuring charges		1,725
Fees paid pursuant to the Management Agreement		1,500
Other non-cash expense		17,204
Consolidated EBITDA under the Credit Facility	$	194,412

Under the Term Loan Facility, Yankee Candle is permitted to make dividends to YCC Holdings provided there is no event of default and the dividend payment would not cause the consolidated net interest coverage ratio (as defined in the Term Loan agreement) to be less than 2.0 to 1.0, in an amount equal to the sum of (a) $10.0 million and (b) the available excess cash flow based on provisions determined in Yankee Candle’s Term Loan Facility, together with certain equity and debt issuances which, to date, have not occurred and together with the receipt of certain cash and cash equivalents and certain investments.  Available excess cash flow for Yankee Candle’s Term Loan Facility is defined as the aggregate cumulative amount of excess cash flow for all fiscal years commencing with the fiscal year ending December 31, 2012 and for all fiscal years ending after December 31, 2012 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 net total leverage ratio (as defined in the Term Loan agreement) is not greater than 4.0 to 1.0.  Yankee Candle is not required to make a payment if the consolidated net total leverage ratio is not greater than 3.0 to 1.0.  Excess cash flow is defined in the Term Loan agreement as consolidated net income of Holding Corp. and its restricted subsidiaries plus all non-cash charges (including depreciation, amortization, and 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 the Company’s equity sponsor,  increases in working capital and the net decrease in deferred tax liabilities or net increase in deferred tax assets, call premiums in connection with cancellation of indebtedness, and certain amounts paid in connection with an asset sale or recovery event.

Additionally, as of April 2, 2012, a basket of $137.1 million consisting of the cumulative retained (and not yet applied) available excess amount from the former Senior Secured Credit Facility is available for dividends from Yankee Candle to YCC Holdings to be applied to cash interest payments on the Senior PIK Notes.

In addition, the Term Loan Facility contains customary covenants and restrictions on Holding Corp. and its subsidiaries’ activities, including but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates and the ability to change the nature of its business or its fiscal year.  All obligations under the Term Loan Facility are guaranteed by Holding Corp.’s and Yankee Candle’s domestic subsidiaries and secured by a lien on substantially all of the assets of Holding Corp. and its domestic subsidiaries.

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Yankee Candle uses interest rate swaps to eliminate the variability of a portion of cash flows associated with the forecasted interest payments on the Term Loan Facility.  During the second and third quarters of 2009, Yankee Candle entered into forward starting amortizing interest rate swaps 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. The aggregate notional value amortizes over the life of the swaps. As of September 29, 2012, the aggregate notional value of the swaps was $219.8 million, or 30.5% of the Term Loan Facility, resulting in a blended fixed rate of 3.49%. The forward starting swaps are not designated as cash flow hedges and, are measured at fair value with changes in fair value recognized in the consolidated statements of operations as a component of other income (expense). The forward starting swap agreements terminate in March 2013.

Asset-Based Credit Facility

On April 2, 2012, Yankee Candle, together with certain of its foreign subsidiaries, also entered into a Credit Agreement (the “ABL Facility”) with BofA, as agent, the other lenders party thereto, Barclays, as syndication agent, U.S. Bank National Association and Wells Fargo Capital Finance LLC, as co-documentation agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Barclays, as joint lead arrangers and joint book runners.

The ABL Facility is scheduled to expire on April 2, 2017; however, the expiration date of the ABL Facility will accelerate if the Senior Subordinated Notes and the Senior PIK Notes are not defeased, repurchased, refinanced or redeemed 91 days prior to their respective maturity dates.  The ABL Facility permits revolving borrowings of up to $175.0 million subject to eligible inventory and trade accounts receivable balances.  The ABL Facility is inclusive of sub-facilities for up to $25.0 million in swing line advances, up to $25.0 million for letters of credit, up to $10.0 million for borrowings by Yankee Candle’s Canadian subsidiary, up to $10.0 million for borrowings by Yankee Candle’s German subsidiary and up to $75.0 million for borrowing by Yankee Candle’s United Kingdom subsidiary.  Borrowings under the ABL Facility bear interest at a rate equal to either (i)LIBOR or the BofA rate plus the applicable margin or (ii) the prime rate plus the applicable margin. The applicable margin ranges from 0.50% to 2.00%, dependent on the currency of the borrowing.  For purposes of determining interest rates, the applicable margin is subject to a variable grid, dependent on average daily excess availability calculated as of the immediately preceding fiscal quarter.  As of September 29, 2012 the interest rate applicable to the ABL Facility was 2.0 %.

The unused line fee payable under the ABL Facility is equal to (i) 0.50% per annum if less than 50% of the ABL Facility has been used on average during the immediately preceding fiscal quarter or (ii) 0.375% per annum if 50% or more of the ABL Facility has been utilized on average during the immediately preceding fiscal quarter.

The ABL Facility requires Yankee Candle and its subsidiaries to maintain a consolidated fixed charge coverage ratio of at least 1.0: 1.0 during a covenant compliance event, which occurs if unused borrowing availability is less than the greater of (x) 10% of the maximum amount that can be borrowed under the ABL Facility, which amount is the lesser of $175.0 million and a borrowing formula based on receivables and inventory (the “ABL Loan Cap”) or (y) $15.0 million and continues until excess availability has exceeded the amounts set forth herein for 30 consecutive days.   As of September 29, 2012, the ABL Loan Cap was $142.5 million.  As of September 29, 2012 Yankee Candle had outstanding letters of credit of $2.2 million and $81.0 million outstanding under the ABL Facility or $83.2 million utilized resulting in unused borrowings of $59.3 million.  As such, Yankee Candle was not subject to the fixed charge coverage ratio.

Under the ABL Facility, Yankee Candle is permitted to declare dividends to Holding Corp. (1) on an unlimited basis if certain tests are met and (2) also solely to fund interest payments on the Senior PIK notes subject to the restrictions described below.

(1) Yankee Candle is permitted to make dividends to Holding Corp. in an unlimited amount so long as (a) unused borrowing availability is greater than or equal to 15% of the ABL Loan Cap at the time of the making of such dividend and projected on a pro forma basis for the immediately succeeding six months following such dividend, except that, to the extent that the dividend is made during the “August Period”, or the August Period is included in such six month projections, then unused borrowing availability shall only be required to be greater than or equal to 10% of the ABL Loan Cap and (b) to the extent unused borrowing availability is less than 25% of the ABL Loan Cap and is projected to be less than 25% of the ABL Loan Cap for the immediately succeeding six months following such dividend (or 10%, in the case that the dividend is made in the August Period or  the August Period is included in such six month projections), the consolidated fixed charge coverage ratio for the most recently ended period of twelve fiscal months preceding such dividend on a pro forma basis is greater than or equal to 1.1 to 1.0.

“August Period”, as used herein, means August 1st through the earlier of the date that the borrowing base certificate is filed for the month of August and the fifteenth business day after the end of the August fiscal month.

(2) Yankee Candle is permitted to make dividends to Holding Corp and Holding Corp is permitted to make dividends to YCC Holdings solely for the purpose of funding interest payments due on the Senior PIK Notes if (a) except for payments to be made during the August Period as to which there is no minimum unused borrowing availability requirement, unused borrowing availability is greater than or equal to 15% of the ABL Loan Cap at the time of the making of such dividend and projected on a pro forma basis for the immediately succeeding six months following such dividend and (b) to the extent unused borrowing availability is less than 25% of the ABL Loan Cap and is projected to be less than 25% of the ABL Loan Cap for the immediately succeeding six months following such dividend (or 10%, in the case that the August Period is included in such projected six month period), the consolidated fixed charge coverage ratio for the most recently ended period of twelve fiscal months preceding such dividend on a pro forma basis is greater than or equal to 1.1 to 1.0; provided that for purposes of satisfying the test in this clause (b), no dividend made during the month of August for the purpose of funding, in whole or in part, an interest payment on the Senior PIK Notes shall be included in the calculation of consolidated fixed charge coverage ratio.

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In addition, the ABL Facility contains customary covenants and restrictions on Yankee Candle and its subsidiaries’ activities, including but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates, the ability to change the nature of its business or its fiscal year, enter into certain hedging agreements and enter into certain burdensome agreements.  All obligations under the ABL Facility are guaranteed by Yankee Candle’s domestic subsidiaries and secured by a lien on substantially all of the assets of Yankee Candle and its domestic subsidiaries. Certain of the obligations under the ABL Facility are guaranteed by Yankee Candle’s foreign subsidiaries and are secured by a lien on substantially all of the assets of such foreign subsidiaries, which consist primarily of inventory and receivables.

Senior PIK Notes of YCC Holdings

In February 2011 YCC Holdings formed a 100% owned subsidiary, Yankee Finance, for the purpose of co-issuing in conjunction with YCC Holdings $315.0 million Senior PIK Notes. 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 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 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 September 29, 2012, the Senior PIK Notes are structurally subordinated to approximately $993.8 million of indebtedness of Holding Corp.

The $315.0 million aggregate principal amount of the 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 term 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 to 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. Yankee Candle’s ability to pay dividends to Holding Corp. to permit Holding Corp. to pay dividends to YCC Holdings was restricted at September 29, 2012 by Yankee Candle’s Term Loan Facility, ABL Facility and the indentures governing the senior notes and senior subordinated notes.

The indentures governing Yankee Candle’s Senior notes permit Yankee Candle to pay dividends to Holding Corp. if: (i) there is no default or event of default under the indentures governing the Yankee Candle Senior 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 $35.0 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.

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Because the Term Loan Facility, ABL Facility and the indentures governing Yankee Candle’s senior notes and senior subordinated notes each contain limitations on dividends, Yankee Candle is permitted to make dividends only to the extent it is permitted to do so under each of these agreements.

During the thirty-nine weeks ended September 29, 2012 Holding Corp. declared and paid a dividend of $32.4 million to YCC Holdings to fund interest payments for the Senior PIK Notes, which decreased the amount available for future dividends.  As of September 29, 2012, the amount available for dividends from Yankee Candle to YCC Holdings was approximately $130.9 million.  We currently anticipate that Yankee Candle will be permitted under the terms of its debt agreements to make dividends sufficient to pay cash interest on the PIK Notes in the next twelve months.

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 September 29, 2012, was $9.6 million compared to $50.8 million as of December 31, 2011.  Cash used in operating activities for Holding Corp. for the thirty-nine weeks ended September 29, 2012 was $58.3 million as compared to cash used in operations of $90.2 million for the thirty-nine weeks ended October 1, 2011. The reduction in cash used in operations relative to the prior year was primarily driven by an increase in operating income net of depreciation and amortization of $2.0 million, a decrease in income tax payments of $12.1 million which was largely related to the tax benefit from interest expense of the $315.0 million Senior PIK Notes that were issued in 2011, a reduced pre-build of inventory during the first three quarters of 2012 of $13.1 million, and additional favorable changes in working capital of $6.8 million driven mostly by a reduction in the payment of incentive compensation during the thirty-nine weeks ended September 29, 2012, offset by additional interest paid of $3.7 million during the first three quarters of 2012. The additional interest payments in the first three quarters of 2012 were primarily attributable to the debt refinancing that occurred in April 2012.  The refinancing resulted in slightly higher interest rates overall and also resulted in paying interest monthly on the $725.0 million Term Loan Facility as opposed to paying interest semi-annually on the $315 million of Senior Notes.

Cash used in operating activities for YCC Holdings during the thirty-nine weeks ended September 29, 2012 was $90.6 million as compared to cash used in operations of $107.2 million for the thirty-nine weeks ended October 1, 2011.  The difference in cash used for operations between YCC Holdings and Holding Corp. was primarily related to interest paid on the Senior PIK Notes.  Those interest payments are funded by dividends from Holding Corp. to YCC Holdings and are recorded as a financing activity by Holding Corp. as compared to an operating activity for YCC Holdings.

Net cash used in investing activities was $21.0 million and $17.2 million for the thirty-nine weeks ended September 29, 2012 and October 1, 2011 respectively and was used for the purchase of property and equipment, primarily related to new stores, store renovations, the buildout of YCE’s new corporate headquarters and distribution facility and supply chain initiatives.

For the thirty-nine weeks ended September 29, 2012, net cash provided by financing activities for Holding Corp. was $37.9 million compared to cash provided by financing activities of $99.0 million for the thirty-nine weeks ended October 1, 2011.  The decrease in cash provided by financing activities was primarily driven by reduced revolving credit facility borrowings of $41.0 during the first nine months of 2012, and increased dividends of $13.2 million paid to YCC Holdings related primarily to the interest expense and payment of financing fees from the $315.0 million Senior PIK Notes.  For the thirty-nine weeks ended September 29, 2012, net cash provided by financing activities for YCC Holdings was $70.3 million compared to cash provided by financing activities of $116.0 million for the thirty-nine weeks ended October 1, 2011.  The difference in financing activities between Holding Corp. and YCC Holdings is primarily attributable to the dividends paid to YCC Holdings to fund interest payments on the $315.0 million Senior PIK Notes.

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.

YCC Holdings is dependent upon dividends from Holding Corp., which are subject to restrictions under Yankee Candle’s Term Loan Facility and ABL Facility and the indentures governing Yankee Candle’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 ABL 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 ABL 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, to pay principal on 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 2012 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 ABL Facility are dependent upon our continued compliance with the financial and other covenants contained therein.

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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 ABL 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 2011 the Companies’ peak borrowing was $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 Term Loan Facility and ABL Facility.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks relate primarily to changes in interest rates. At September 29, 2012, Yankee Candle had $802.4 million of floating rate debt and $198.0 million of fixed rate debt. At September 29, 2012, YCC Holdings had an additional $315.0 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 $802.4 million outstanding under Yankee Candle’s Term Loan Facility and ABL Facility bears interest at variable rates. Borrowings under Yankee Candle’s Term Loan Facility bear interest at either (i)the Eurodollar Rate (subject to a 1.25% floor) plus 4.00% or (ii) the ABR (subject to a 2.25% floor) plus 3.00%. The default rate of interest will accrue (i) on the overdue principal amount of any loan at a rate of 2% in excess of the rate otherwise applicable to such loan and (ii) on any overdue interest or any other outstanding overdue amount at a rate of 2% in excess of the non-default interest rate then applicable to ABR loans. Borrowings under the ABL Facility bear interest at a rate equal to either (i)LIBOR or the BofA rate plus the applicable margin or (ii) the prime rate plus the applicable margin. The applicable margin ranges from 0.50% to 2.00%, dependent on the currency of the borrowing.  For purposes of determining interest rates, the applicable margin is subject to a variable grid, dependent on average daily excess availability calculated as of the immediately preceding fiscal quarter.  As of September 29, 2012, the weighted average combined interest rate on Yankee Candle’s Term Loan Facility and ABL Facility was 4.92%.  Because Yankee Candle’s Term Loan Facility and ABL 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 Term Loan Facility and ABL 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 Loan Facility. This is achieved through converting a portion of the floating rate Term Loan Facility to a fixed rate by entering into pay-fixed interest rate swaps. In essence, Yankee Candle converted a portion of its Term Loan 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 September 29, 2012, the aggregate notional value of the swaps was $219.8 million, or 30.5% of Yankee Candle’s Term Loan Facility, resulting in a blended fixed rate of 3.49%. Based on Yankee Candle’s outstanding floating rate debt under the Term Loan Facility and the notional amount of our interest rate swaps, as of September 29, 2012, a 10.0% increase or decrease in current market interest rates would have no effect on our current term loan interest expense because of the Libor floor, but would impact interest expense related to our swaps by approximately $0.1 million on an annual basis.

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.

Item 4. Controls and Procedures

Disclosure Controls and Procedures for YCC Holdings LLC

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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 September 29, 2012. 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 September 29, 2012, 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 September 29, 2012 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 September 29, 2012. 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 September 29, 2012, 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 September 29, 2012 that has materially affected, or is reasonably likely to materially affect, Yankee Holding Corp.’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are party to various 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 following risk factors, which have been updated to reflect the financing that occurred on April 2, 2012, as well as the risk factors discussed in “Item 1A. Risk Factors” in the Companies’ 2011 Form 10-K for the fiscal year ended December 31, 2011, as well as those factors listed in other documents we file with the Securities and Exchange Commission. We do not assume an obligation to update any forward-looking statement.

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

We have a substantial amount of debt.  As of September 29, 2012, YCC Holdings and its subsidiaries had $1,304.2 million of total debt, $795.8 million of which is 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 Term Loan Facility and ABL Facility are 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 the Term Loan Facility and ABL 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 our indebtedness;

● 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

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● 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 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 Term Loan Facility and ABL Facility are 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 or 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.

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 Term Loan Facility and ABL 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 Term Loan Facility and ABL 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 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

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● designate subsidiaries as unrestricted subsidiaries.

Yankee Candle’s Term Loan Facility and ABL Facility restrict, 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 year;

● designate our subsidiaries as unrestricted subsidiaries;

● enter into certain hedging agreements;

● enter into certain burdensome agreements; and

● activities of Holding Corp. (pursuant to the Term Loan Facility only)

In addition, these agreements require Yankee Candle to maintain specified financial ratios and satisfy other financial conditions, including a “consolidated net total leverage ratio” (as defined in the Term Loan Facility) and a “consolidated fixed charge coverage ratio” (as defined in the ABL 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 Term Loan Facility and ABL 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 Term Loan Facility and ABL 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 Term Loan Facility and ABL Facility, may not be able to repay the amounts due under Yankee Candle's senior notes and senior subordinated notes and Yankee Candle’s Term Loan Facility and ABL 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 Term Loan Facility and ABL 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.

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

Not Applicable

Item 3. Defaults Upon Senior Securities.

Not Applicable

Item 4. Mine Safety Disclosures.

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 9, 2012
31.2	YCC Holdings Certification of Lisa K. McCarthy Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 9, 2012
31.3	Yankee Holding Corp. Certification of Harlan M. Kent Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 9, 2012
31.4	Yankee Holding Corp. Certification of Lisa K. McCarthy Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 9, 2012
32.1	YCC Holdings Certification of Harlan M. Kent Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 9, 2012
32.2	YCC Holdings Certification of Lisa K. McCarthy Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 9, 2012
32.3	Yankee Holding Corp. Certification of Harlan M. Kent Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 9, 2012
32.4	Yankee Holding Corp. Certification of Lisa K. McCarthy Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 9, 2012
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 9, 2012	By:	/s/    Lisa K. McCarthy
		Lisa K. McCarthy
		Senior 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 9, 2012	By:	/s/    Lisa K. McCarthy
		Lisa K. McCarthy
		Treasurer
		(Principal Financial and Accounting Officer)

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