Yankee Holding 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 27, 2008

Commission File Number: 333-141699-05

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 the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x     We are a voluntary filer of reports required of companies with public securities under Section 13 or 15(d) of the Securities Exchange Act of 1934, and we will have filed all reports which would have been required of us during the past 12 months had we been subject to such provisions.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x    Smaller Reporting Company  ¨

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

As of November 6, 2008, there were 499,551 shares of Yankee Holding Corp. common stock, $.01 par value, outstanding, all of which are owned by YCC Holdings LLC.

YANKEE HOLDING CORP.

FORM 10-Q – Quarter Ended September 27, 2008

This Quarterly Report on Form 10-Q contains a number of forward-looking statements. Any statements contained herein, including without limitation statements to the effect that Yankee Holding Corp. and its subsidiaries (“Yankee Candle”, the “Company”, “we”, and “us”) or its 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” and those set forth under Item 1A-Risk Factors. 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

		Page
Item
PART I. Financial Information		4
Item 1.	Financial Statements-Unaudited	4
	Condensed Consolidated Balance Sheets as of September 27, 2008 (Successor) and December 29, 2007 (Successor)	4
	Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended September 27, 2008 (Successor) and September 29, 2007 (Successor)	5
	Condensed Consolidated Statements of Operations for the Thirty-Nine Weeks Ended September 27, 2008 (Successor), the period February  6, 2007 to September 29, 2007 (Successor) and the period December 31,2006 to February 5, 2007 (Predecessor)	6
	Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended September 27, 2008 (Successor), the period February 6, 2007 to September 29, 2007 (Successor) and the period December 31, 2006 to February 5, 2007 (Predecessor)	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4T.	Controls and Procedures	33
PART II. Other Information		34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		39

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EXPLANATORY NOTE

On February 6, 2007, The Yankee Candle Company, Inc. (the “Predecessor”) merged (the “Merger”) with an affiliate of Madison Dearborn Partners, LLC (“MDP” or “Madison Dearborn”). In connection with the Merger, YCC Holdings LLC (“Holdings”) acquired all of the outstanding capital stock of the Predecessor for approximately $1,413.5 million in cash. Holdings is owned by affiliates of MDP and certain members of our senior management. Holdings owns 100% of the stock of Yankee Holding Corp. (the “Parent” or “Successor”), which in turn owns 100% of the stock of The Yankee Candle Company, Inc. The Merger and related transactions are sometimes referred to collectively as the “Transactions.”

This report contains the condensed consolidated financial statements of the Successor as of December 29, 2007, the condensed consolidated financial statements of the Successor as of September 27, 2008, for the thirteen and thirty-nine weeks ended September 27, 2008, the thirteen weeks ended September 29, 2007 and the period February 6, 2007 to September 29, 2007. The accompanying condensed consolidated financial statements for the period December 31, 2006 to February 5, 2007 are those of the Predecessor.

Unless the context requires otherwise, “we,” “us,” “our,” or the “Company” refer to the Successor and its subsidiaries and for the periods prior to February 6, 2007, the Predecessor and its subsidiaries. The Successor is a Delaware corporation formed in connection with the Merger. The Predecessor is a Massachusetts corporation formed in 1976.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)

	September 27, 2008		December 29, 2007
ASSETS
CURRENT ASSETS:
Cash	$	25,905	$	5,627
Accounts receivable, net		73,118		52,126
Inventory, net		98,514		69,963
Prepaid expenses and other current assets		37,112		9,344
Deferred tax assets		10,266		18,271
TOTAL CURRENT ASSETS		244,915		155,331
PROPERTY AND EQUIPMENT, NET		146,495		155,911
MARKETABLE SECURITIES		616		259
GOODWILL		1,019,982		1,019,982
INTANGIBLE ASSETS, NET		404,425		414,242
DEFERRED FINANCING COSTS, NET		25,195		28,654
OTHER ASSETS		1,205		1,418
TOTAL ASSETS	$	1,842,833	$	1,775,797
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	46,360	$	21,613
Accrued payroll		14,145		17,394
Accrued interest		14,957		17,679
Accrued income taxes		—		15,755
Accrued purchases of property and equipment		1,520		2,818
Other accrued liabilities		28,190		35,909
Current portion of long-term debt		6,500		6,500
TOTAL CURRENT LIABILITIES		111,672		117,668
DEFERRED COMPENSATION OBLIGATION		754		410
DEFERRED TAX LIABILITIES		111,720		105,565
LONG-TERM DEBT		1,195,625		1,123,625
DEFERRED RENT		10,966		10,230
OTHER LONG-TERM LIABILITIES		5,331		1,694
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY		406,765		416,605
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,842,833	$	1,775,797

See notes to condensed consolidated financial statements

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YANKEE HOLDING CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Thirteen Weeks Ended September 27, 2008			Thirteen Weeks Ended September 29, 2007
Sales	$	181,060		$	175,815
Cost of sales		81,575			78,162
Gross profit		99,485			97,653
Selling expenses		50,874			51,530
General and administrative expenses		15,388			16,313
Income from operations		33,223			29,810
Interest income		(5	)		(15	)
Interest expense		23,104			25,619
Other expense (income)		52			(35	)
Income before provision for income taxes		10,072			4,241
Provision for income taxes		3,332			1,047
Net income	$	6,740		$	3,194

See notes to condensed consolidated financial statements

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YANKEE HOLDING CORP. AND SUBSIDIARIES (AND PREDECESSOR)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(Unaudited)

	Successor			Successor			Predecessor
	Thirty-Nine Weeks Ended September 27, 2008			Period from February 6, 2007 to September 29, 2007			Period from December 31, 2006 to February 5, 2007
Sales	$	449,431		$	398,848		$	53,382
Cost of sales		201,116			217,189			24,553
Gross profit		248,315			181,659			28,829
Selling expenses		152,588			128,583			16,201
General and administrative expenses		44,493			46,566			13,828
Restructuring charge		1,475			—			—
Income (loss) from operations		49,759			6,510			(1,200	)
Interest income		(22	)		(34	)		(1	)
Interest expense		69,880			67,061			986
Gain on extinguishment of debt		(2,131	)		—			—
Other income		(72	)		(722	)		(15	)
Loss before benefit from income taxes		(17,896	)		(59,795	)		(2,170	)
Benefit from income taxes		(7,435	)		(25,592	)		(340	)
Net loss	$	(10,461	)	$	(34,203	)	$	(1,830	)

See notes to condensed consolidated financial statements

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YANKEE HOLDING CORP. AND SUBSIDIARIES (AND PREDECESSOR)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Successor			Successor			Predecessor
	Thirty-nine Weeks Ended September 27, 2008			Period from February 6, 2007 to September 29, 2007			Period from December 31, 2006 to February 5, 2007
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net Loss	$	(10,461	)	$	(34,203	)	$	(1,830	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on extinguishment of debt		(2,131	)		—			—
Depreciation and amortization		34,628			29,954			2,673
Unrealized loss (gain) on marketable securities		105			219			(31	)
Stock-based compensation expense		677			522			8,638
Deferred taxes		12,992			(14,480	)		(3,905	)
Non-cash charge related to increased inventory carrying value		—			40,472			—
Loss on disposal and impairment of property and equipment		878			615			14
Excess tax benefit from exercise of stock options		—			—			(4,317	)
Investments in marketable securities		(462	)		(553	)		(27	)
Changes in assets and liabilities:
Accounts receivable		(21,940	)		(33,434	)		179
Inventory		(29,443	)		(26,277	)		(2,739	)
Prepaid expenses and other assets		(2,252	)		(13,728	)		336
Accounts payable		24,837			32,433			(4,443	)
Income taxes payable		(35,390	)		(25,382	)		3,642
Accrued expenses and other liabilities		(11,621	)		7,942			(8,257	)
NET CASH USED IN OPERATING ACTIVITIES		(39,583	)		(35,900	)		(10,067	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(14,206	)		(19,772	)		(2,250	)
Payment of contingent consideration on Aroma Naturals		(225	)		—			—
Acquisition of the Company		—			(1,429,476	)		—
NET CASH USED IN INVESTING ACTIVITIES		(14,431	)		(1,449,248	)		(2,250	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Repayments under bank credit agreements		(26,005	)		(179,250	)		—
Borrowings under senior secured term loan facility		—			650,000			—
Borrowings under senior secured revolving credit facility		100,500			101,000			—
Borrowings under senior notes and senior subordinated notes		—			525,000			—
Repurchase of common stock		(126	)		(98	)		—
Excess tax benefit from exercise of stock options		—			—			4,317
Deferred financing costs		—			(32,358	)		—
Net proceeds from issuance of common stock		22			418,083			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		74,391			1,482,377			4,317
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(99	)		88			11
NET INCREASE (DECREASE) IN CASH		20,278			(2,683	)		(7,989	)
CASH, BEGINNING OF PERIOD		5,627			14,784			22,773
CASH, END OF PERIOD	$	25,905		$	12,101		$	14,784
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest	$	69,302		$	57,920		$	903
Income taxes	$	14,962		$	26,955		$	(77	)
Net decrease in accrued purchases of property and equipment	$	1,298		$	1,882		$	1,520

See notes to condensed consolidated financial statements

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YANKEE HOLDING CORP. AND SUBSIDIARIES (AND PREDECESSOR)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(Unaudited)

1. ACQUISITION OF THE COMPANY

On October 25, 2006, the Yankee Candle Company Inc. (“the Predecessor”) announced that it had entered into a definitive merger agreement (the “Merger”) under which affiliates of MDP, a private equity investment firm, agreed to acquire all of the outstanding shares of the Predecessor for $34.75 per share in cash. The Merger closed on February 6, 2007 (the “Effective Date”).

On the Effective Date, Holdings acquired all of the outstanding capital stock of the Predecessor for approximately $1,413,527 in cash. Holdings is owned by affiliates of MDP and certain members of our senior management and has no operations. The Successor and Yankee Acquisition Corp. (the “Merger Sub”) are corporations formed by Holdings in connection with the acquisition and, concurrently with the closing of the offering of the notes (described below) and the acquisition on February 6, 2007, the Merger Sub merged with and into The Yankee Candle Company, Inc., which was the surviving corporation and assumed the obligations of the Merger Sub under the notes and related indentures by operation of law.

Immediately following the Merger, The Yankee Candle Company, Inc. became a wholly–owned subsidiary of the Parent and a wholly–owned indirect subsidiary of Holdings and the equity investors indirectly own all of the Company’s outstanding equity interests.

The purchase price of the Company was allocated to the assets and liabilities acquired based on their estimated fair market values as of the Effective Date.

As a result of the consummation of the Transactions and the application of purchase accounting as of February 6, 2007, the condensed consolidated financial statements for the period after February 5, 2007 are presented on a different basis than that for the periods before February 6, 2007 and therefore are not comparable to prior periods.

2. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of the Company 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 period are not necessarily indicative of the results to be expected for the full fiscal year.

The Company has separated its historical financial results for the Predecessor and Successor. The separate presentation is required as there was a change in accounting basis, which occurred when purchase accounting was applied to the acquisition of the Predecessor. Purchase accounting requires that the historical carrying value of assets acquired and liabilities assumed be adjusted to fair value, which may yield results that are not comparable on a period–to–period basis due to the different, and sometimes higher, cost basis associated with the allocation of the purchase price.

Certain information and disclosures normally included in the notes to consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying unaudited condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 29, 2007 included in the Company’s Annual Report on Form 10-K. Unless otherwise indicated, all amounts are in thousands.

3. EQUITY-BASED COMPENSATION

Effective as of the closing of the Transactions, all of the prior equity plans of the Predecessor ceased to be effective and all existing equity grants and awards were paid out. In connection with the Transactions, the Company entered into equity arrangements with certain members of senior management of the Company (“Management Investors”). The equity consists of ownership interests in Holdings. At the time of the Transactions there were two classes of these ownership interests: Class A common units and Class B common units. The Class A and Class B common units were issued to and purchased by the Management Investors under the YCC Holdings LLC 2007 Incentive Equity Plan adopted on February 6, 2007 (the “Plan”). The Plan grants the Board authorization to issue up to 593,622 Class B common units. The rights and obligations of Holdings and the holders of its Class A and Class B common units are generally set forth in Holdings’ limited liability company agreement, Holdings’ unitholders agreement and the individual Class A and Class B unit purchase agreements entered into with the respective unitholders (the “equity agreements”).

Upon closing of the Transactions, certain eligible Management Investors purchased 40,933 Class A common units (approximately 0.96% of Holdings’ Class A common units). The remaining 4,233,353 Class A common units were purchased by MDP in connection with the consummation of the Transactions. The purchase price paid by the Management Investors for the Class A common units was $101.22 per unit, the same as that paid by MDP pursuant to the Merger. The Class A common units are not subject to vesting. Each Management Investor has the right to require the Company to repurchase the Class A common units at original cost if the Company terminates him or her without cause or he or she resigns for good reason prior to the second anniversary of the closing of the Transactions.

Additionally, the Board approved the issuance of 474,897 shares of Class B common units. Pursuant to the Plan the Management Investors purchased 427,643 Class B common units of Holdings (representing approximately 9.9% of the residual equity interest of Holdings). The remainder of the Class B common units were available for issuance to eligible participants under the Plan. The Class B common units were purchased at a cost of $1.00 per unit. The Class B common units are subject to a five-year vesting period, with 10% of the units vesting immediately upon the date of purchase and the remainder generally vesting daily beginning on the sixth month anniversary of the purchase date, continuing over the subsequent 54 month period. If the Management Investors’ employment is terminated as a result of death or disability, an additional amount of Class B common units equal to the lesser of (i) twenty percent (20%) of the aggregate number of units held by such Management Investor and (ii) the remainder of the Management Investor’s unvested units, shall automatically become vested units. All unvested Class B common units will vest upon a sale of all or substantially all of the business to an independent third party so long as the employee holding such units continues to be an employee of the Company at the closing of the sale. Class B common units are also subject to the right of Holdings or, if not exercised by Holdings, of MDP, to repurchase such Class B common units upon a termination of employment, as more fully set forth in the equity agreements.

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In October 2007, the Compensation Committee approved the creation of a new class of equity interest in Holdings, Class C common units, for future issuance to eligible participants under the Management Equity Plan. As approved by the Compensation Committee, the number of remaining authorized and unissued Class B common units will be reduced by any Class C common unit grants made, and the number of combined Class B common units and Class C common units can not exceed the initial pool of Class B common units originally reserved in connection with the Merger. Class C common units will otherwise have the same general characteristics as Class B common units, including with respect to time vesting and repurchase terms (except that unvested Class C common units are forfeited rather than repurchased as there is no initial capital outlay for the Class C common units). The recipient of a Class C common unit incentive grant is required to make a corresponding purchase of Class A common units, at then fair market value, which may range in size from $1 to $15 depending on the size of the Class C common unit grant. The Company currently anticipates that all future long-term equity incentive grants will be made using Class C common units.

Class A, Class B and Class C common units are all subject to various restrictions on transfer and other conditions, all as more fully set forth in the equity agreements. Holdings may issue additional units subject to the terms and conditions of certain of the equity agreements.

As of September 27, 2008, shares outstanding were as follows:

	Class A Common Units	Class B Common Units		Class C Common Units
Outstanding at December 29, 2007	4,271,715	403,185		475
Granted	213	—		40,873
Forfeited	—	(3,021	)	—
Repurchased	—	(4,409	)	—
Outstanding at September 27, 2008	4,271,928	395,755		41,348
Vested at September 27, 2008	4,271,928	130,068		5,578

The total estimated fair value of equity awards vested during the thirty-nine weeks ended September 27, 2008 was $590. Stock-based compensation expense for the thirty-nine weeks ended September 27, 2008 was $677.

As of September 27, 2008, there was approximately $2,981 of total unrecognized compensation cost related to Class B and Class C common unit equity awards and there is no unrecognized expense related to the Class A common unit equity awards. This cost is expected to be recognized over the remaining vesting period, of approximately 55 months (October 2008 to April 2013).

Presented below is a summary of assumptions for the indicated period. There were 12,086 class B grants and no Class A grants for the period from February 6, 2007 to September 29, 2007 by the Successor. There were no grants made for the period from December 31, 2006 to February 5, 2007 by the Predecessor.

Assumptions	Thirty-Nine Weeks Ended September 27, 2008			Period February 6, 2007 to September 29, 2007 Option Pricing Method Black-Scholes
Weighted average calculated value of awards granted	$	13.72		$	10.39
Weighted average volatility		29.1	%		30.0	%
Weighted average expected term (in years)		3.9			5.0
Dividend yield		—			—
Weighted average risk-free interest rate		2.2	%		4.7	%
Weighted average expected annual forfeitures		—			—

With respect to the Class B and Class C common units, since the Company is no longer publicly traded, the Company based its estimate of expected volatility on the average historical volatility of a group of six comparable companies. The historical volatilities of the comparable companies were measured over a 5-year historical period. The Company’s historical volatility prior to the acquisition was also considered in the estimate of expected volatility. The expected term of the Class B and Class C common units granted represents the period of time that the units are expected to be outstanding and is assumed to be 5 years. The Company is not expected to pay dividends, and accordingly, the dividend yield is zero. The risk free interest rate for a period commensurate with the expected term was based on the U.S. Treasury yield curve in effect at the time of issuance.

4. INVENTORIES

The Predecessor valued its inventories on the last–in first–out (“LIFO”) basis. The Successor has elected to value its inventories using the first–in first–out (“FIFO”) basis. As a result of the Merger, purchase accounting adjustments of approximately $43,452 were recorded to increase inventories to estimated fair value. During the period February 6, 2007 to September 29, 2007 approximately $40,472, of the increase has been recorded as a cost of sale in the condensed consolidated statement of operations as the related inventory was sold. There were no costs recorded for the fair value adjustment for the thirteen weeks ended September 29, 2007.

The components of inventories were as follows:

	September 27, 2008		December 29, 2007
Finished goods	$	91,336	$	62,723
Work-in-process		368		559
Raw materials and packaging		6,810		6,681
	$	98,514	$	69,963

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5. INTANGIBLE ASSETS

Intangible Assets

In connection with the Transactions, the Company’s intangible assets were valued by management. The carrying amount and accumulated amortization of intangible assets consisted of the following:

	Weighted Average Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Book Value
September 27, 2008
Indefinite life:
Tradenames	N/A	$	359,862	$	—		$	359,862
Finite-lived intangible assets:
Customer lists	5		65,353		(22,139	)		43,214
Favorable lease agreements	5		2,330		(996	)		1,334
Other	3		36		(21	)		15
Total finite-lived intangible assets			67,719		(23,156	)		44,563
Total intangible assets		$	427,581	$	(23,156	)	$	404,425
December 29, 2007
Indefinite life:
Tradenames	N/A	$	359,862	$	—		$	359,862
Finite-lived intangible assets:
Customer lists	5		64,700		(12,081	)		52,619
Favorable lease agreements	5		2,330		(592	)		1,738
Other	3		36		(13	)		23
Total finite-lived intangible assets			67,066		(12,686	)		54,380
Total intangible assets		$	426,928	$	(12,686	)	$	414,242

Total amortization expense from finite–lived intangible assets was $3,508 and $3,510 for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively. Total amortization expense from finite–lived intangible assets was $10,470 for the thirty-nine weeks ended September 27, 2008, $9,181 for the period February 6, 2007 to September 29, 2007 and $178 for the period December 31, 2006 to February 5, 2007. The intangible assets are amortized on a straight line basis. Favorable lease agreements are amortized over the remaining lease term of each respective lease.

6. LONG-TERM DEBT

Long-term debt consisted of the following at September 27, 2008 and December 29, 2007:

	September 27, 2008		December 29, 2007
Senior secured revolving credit facility	$	89,000	$	5,000
Senior secured term loan facility		600,125		600,125
Senior notes due 2015		325,000		325,000
Senior subordinated notes due 2017		188,000		200,000
Total		1,202,125		1,130,125
Less current portion		6,500		6,500
Long-term debt	$	1,195,625	$	1,123,625

Senior Secured Credit Facility

The Company’s senior secured credit facility (the “Credit Facility”) consists of a $650,000 senior secured term loan facility maturing on February 6, 2014 and a $125,000 senior secured revolving credit facility, which expires on February 6, 2013. The senior secured term loan facility was used by the Company to finance part of the Merger. The senior secured revolving credit facility is being used by the Company for, among other things, working capital, letters of credit and other general corporate purposes.

All borrowings under the Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at the Company’s option, (i) the higher of (a) the prime rate (as set forth on the British Banking Association Telerate Page 5) and (b) the federal funds effective rate, plus one-half percent (0.50%) per annum or (ii) the Eurodollar rate, and resets periodically. In addition to paying interest on outstanding principal under the senior secured credit facility, the Company is required to pay a commitment fee to the lenders in respect of unutilized loan commitments at a rate of 0.50% per annum. As of September 27, 2008, the weighted average combined interest rate on the senior secured term loan facility and senior secured revolving credit facility was 4.87%.

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

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

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

The Credit Facility and related agreements contain customary financial and other covenants, including, but not limited to, maximum consolidated total secured leverage (net of certain cash and cash equivalents) and certain other limitations on the Company and certain of the Company’s restricted subsidiaries, as defined in the Credit Facility, ability to incur additional debt, guarantee other obligations, grant liens on assets, make investments or acquisitions, dispose of assets, make optional payments or modifications of other debt instruments, pay dividends or other payments on capital stock, engage in mergers or consolidations, enter into sale and leaseback transactions, enter into arrangements that restrict the Company’s ability to pay dividends or grant liens and engage in transactions with affiliates. The Credit Facility requires that the Company maintain at the end of each fiscal quarter, commencing with the quarter ended December 29, 2007, a consolidated total secured debt (net of certain cash and cash equivalents) to consolidated EBITDA ratio of no more than 4.50 to 1.00. As of September 27, 2008, the consolidated total secured debt to consolidated EBITDA ratio was 3.51 to 1.00.

During the quarter ended September 27, 2008, Lehman Commercial Paper, Inc. (“LCP”), one of the creditors under the Credit Facility, declared bankruptcy. LCP’s share of the Credit Facility was 12% or $15,000 of the $125,000 revolving facility. As of September 27, 2008, $89,000 was outstanding under the Credit Facility of which approximately $10,700 is payable to LCP. As the Company continuously pays down on the revolver, 12% of the payment goes towards paying off the $10,700. If the Company is unable to secure additional or substitute funding from other parties, the Credit Facility would effectively be reduced from $125,000 to $110,000.

In addition to the $89,000 outstanding at September 27, 2008 there were outstanding letters of credit of $1,614, leaving $34,386 in availability based on the $125,000 facility. Not including LCP’s share of the remaining capacity under the Credit Facility, the Company’s availability was $30,086 at September 27, 2008.

Senior Notes and Senior Subordinated Notes

The senior notes due 2015 bear interest at a per annum rate equal to 8.50%. Interest is paid every six months on February 15 and August 15, beginning on August 15, 2007. The senior subordinated notes due 2017 bear interest at a per annum rate equal to 9.75%. Interest is paid every six months on February 15 and August 15, beginning on August 15, 2007. The senior notes mature on February 15, 2015 and the senior subordinated notes mature on February 15, 2017.

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 Parent and the Company’s existing and future domestic subsidiaries. If the Company 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 the notes, the Company must offer to repurchase all or a portion of the notes at 101% of the principal amount of the exchange notes on the date of purchase, plus any accrued and unpaid interest to the date of repurchase.

Senior Notes Redemption Provisions—The senior note indenture permits the Company on or after February 15, 2011, to redeem all or a part of the senior notes at its option at the redemption prices set forth below (expressed as a percentage of the principal amount), plus accrued and unpaid interest, on the senior notes to be redeemed to the applicable redemption date if redeemed during the twelve-month period beginning on February 15 of the years indicated below:

Year	Percentage
2011	104.250	%
2012	102.125	%
2013 and thereafter	100.000	%

The senior notes may also be redeemed, in whole or in part, at any time prior to February 15, 2011, at a redemption price equal to 100% of the principal amount of the senior notes redeemed plus a make whole premium calculated in accordance with the indenture plus accrued and unpaid interest to the applicable redemption date.

In addition, at any time prior to February 15, 2010, the Company under certain conditions may on one or more occasions redeem in the aggregate up to 35% of the aggregate principal amount of the senior notes issued under the indenture with the net cash proceeds of one or more equity offerings, at a redemption price of 108.500% of the principal amount of the senior notes, plus accrued and unpaid interest, to the redemption date provided such redemption occurs within 90 days after such equity offering.

Senior Subordinated Notes Redemption Provisions—The senior subordinated note indenture permits the Company on or after February 15, 2012, to redeem all or a part of the senior subordinated notes at its option at the redemption prices set forth below (expressed as a percentage of the principal amount), plus accrued and unpaid interest, on the senior notes to be redeemed to the applicable redemption date if redeemed during the twelve-month period beginning on February 15 of the years indicated below:

Year	Percentage
2012	104.875	%
2013	103.250	%
2014	101.625	%
2015 and thereafter	100.000	%

The senior subordinated notes may also be redeemed, in whole or in part, at any time prior to February 15, 2012, at a redemption price equal to 100% of the principal amount of the senior notes redeemed plus a make whole premium calculated in accordance with the indenture plus accrued and unpaid interest to the applicable redemption date.

In addition, at any time prior to February 15, 2010, the Company under certain conditions may on one or more occasions redeem in the aggregate up to 35% of the aggregate principal amount of the senior subordinated notes issued under the indenture with the net cash proceeds of one or more equity offerings, at a redemption price of 109.750% of the principal amount of the senior notes, plus accrued and unpaid interest, to the redemption date provided such redemption occurs within 90 days of such equity offering.

During the thirty-nine weeks ended September 27, 2008, the Company paid $9,505, plus accrued interest of $414 to repurchase $12,000 of the senior subordinated notes in the open market. In connection with this repurchase, the Company recorded a gain of $2,131, net of deferred financing costs written off in the amount of $364. The repurchase was authorized by the Company’s Board of Directors pursuant to a resolution adopted on May 20, 2008.

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7. DERIVATIVE FINANCIAL INSTRUMENTS

The Company follows SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133), as amended and related interpretations. SFAS 133 establishes accounting and reporting standards for derivative instruments. Specifically, SFAS 133 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 stockholders’ equity as accumulated other comprehensive income (loss) or net income (loss) depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.

The Company uses interest rate swaps to eliminate the variability of a portion of cash flows associated with the forecasted interest payments on its $650,000 senior secured term loan facility. This is achieved through converting a portion of the floating rate senior secured term loan facility to a fixed rate by entering into pay-fixed interest rate swaps. The Company has determined that its interest rate swap agreements have been appropriately designated and documented as cash flow hedges under SFAS 133.

On February 14, 2007 the Company entered into an interest rate swap agreement with Merrill Lynch to hedge a portion of the cash flows associated with its $650,000 senior secured term loan facility. This agreement has a total notional value of $415,000. The $415,000 notional value amortizes over the life of the swap. This interest rate swap agreement effectively converts the senior secured term loan facility, which is floating–rate debt, to a fixed–rate up to the unamortized notional value of the swap by having the Company pay fixed–rate amounts in exchange for the receipt of the amount of the floating–rate interest payments. Under the terms of this agreement, a quarterly net settlement is made for the difference between the fixed rate of 5.095% and the variable rate based upon the three–month LIBOR rate on the notional amount of the interest rate swap. This interest rate swap agreement terminates on February 14, 2010.

As of September 27, 2008 the Company recorded the fair value of the derivative liability of $8,790 in other current liabilities, and $5,351 and $3,439 in other comprehensive loss and deferred taxes, respectively. For the thirteen and thirty-nine weeks ended September 27, 2008 and the thirteen weeks ended September 29, 2007 and the period February 6, 2007 to September 29, 2007 there was no hedge ineffectiveness recorded in earnings.

On February 13, 2008 the Company entered into another interest rate swap agreement with Bank of America, effective March 31, 2008, to hedge an additional portion of the cash flows associated with its $650,000 senior secured term loan facility. The agreement has an initial notional value of $100,000. The $100,000 notional value increases on March 31, 2010 to approximately $397,000 and then amortizes over the remaining life of the swap. The interest rate swap agreement converts amounts under the senior secured term loan facility, which is floating–rate debt, to a fixed–rate by having the Company pay fixed–rate amounts in exchange for the receipt of the amount of the floating–rate interest payments. Under the terms of this agreement, a quarterly net settlement is made for the difference between the fixed rate of 3.347% and the variable rate based upon the three–month LIBOR rate on the notional amount of the interest rate swap. This interest rate swap agreement terminates on March 31, 2011.

As of September 27, 2008 the Company recorded the fair value of the derivative asset of $2,300 in prepaid expenses and other current assets and $1,400 and $900 in other comprehensive income and deferred taxes, respectively. For the thirteen and thirty-nine weeks ended September 27, 2008 there was no hedge ineffectiveness recorded in earnings.

8. FAIR VALUE MEASUREMENTS

On December 30, 2007 the Company adopted SFAS No. 157 “Fair Value Measurements” (SFAS 157), as described in Note 10, “Recent Accounting Pronouncements.” The adoption of SFAS 157 did not have a material effect on the Company’s financial statements. SFAS 157 defines fair value, provides a consistent framework for measuring fair value under GAAP and expands fair value financial statement disclosure requirements. SFAS 157’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. SFAS 157 classifies these inputs into the following hierarchy:

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

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

Level 3 Inputs– Instruments with primarily unobservable value drivers.

The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of September 27, 2008.

	Fair Value Measurements on a Recurring Basis as of September 27, 2008
	Level 1		Level 2		Level 3		Total
Assets
Interest rate swap	$	—	$	2,300	$	—	$	2,300
Marketable securities		616		—		—		616
Total Assets	$	616	$	2,300	$	—	$	2,916
Liabilities
Interest rate swap	$	—	$	8,790	$	—	$	8,790
Total Liabilities	$	—	$	8,790	$	—	$	8,790

The Company holds marketable securities in its deferred compensation plan. The marketable securities consist of investments in mutual funds and are recorded at fair value based on third party quotes. The Company uses an income approach to value the asset and liability for its outstanding 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 three month LIBOR curve and the creditworthiness of the Company and its counterparties.

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9. COMPREHENSIVE LOSS

The computation of comprehensive loss is as follows:

	Successor												Predecessor
	Thirteen Weeks Ended September 27, 2008			Thirteen Weeks Ended September 29, 2007			Thirty-Nine Weeks Ended September 27, 2008			Period February 6, 2007 to September 29, 2007			Period December 31, 2006 to February 5, 2007
Net income (loss)	$	6,740		$	3,194		$	(10,461	)	$	(34,203	)	$	(1,830	)
Other comprehensive (loss) income:
Currency translation adjustments		(1,794	)		52			(1,732	)		(35	)		58
Change in unrealized gain (loss) on interest rate swap agreements, net of tax		(1,132	)		(3,737	)		1,780			(2,691	)		—
Other comprehensive (loss) income		(2,926	)		(3,685	)		48			(2,726	)		58
Comprehensive income (loss)	$	3,814		$	(491	)	$	(10,413	)	$	(36,929	)	$	(1,772	)

10. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS 133 with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments and their impact on an entity’s financial position, financial performance and cash flows. The requirements of SFAS 161 are effective for our fiscal year beginning on January 4, 2009. The Company is in the process of evaluating the impact of adopting SFAS 161 on our derivative disclosures.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “Hierarchy of Generally Accepted Accounting Principles” (SFAS 162). This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the U.S. Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendment to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its financial condition, results of operations and cash flows.

11. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION

The Company has segmented its operations in a manner that reflects how its chief operating decision–maker (the “CEO”) currently reviews the results of the Company and its subsidiaries’ businesses. The Company has two reportable segments—retail and wholesale. The identification of these segments results from management’s recognition that while the product sold is similar, the type of customer for the product and services and methods used to distribute the product are different.

The CEO evaluates both its retail and wholesale operations based on an “operating earnings” measure. Such measure gives recognition to specifically identifiable operating costs such as cost of sales and selling expenses. Administrative charges are generally not allocated to specific operating segments and are accordingly reflected in the unallocated/corporate/other reconciliation to the total consolidated results. As described in Note 1, the Merger of the Company on February 6, 2007 resulted in several purchase accounting adjustments to record assets and liabilities acquired at fair market value. The effects of purchase accounting adjustments on the operations of the Successor are not included in segment operations below, consistent with internal reports used by the CEO. These amounts are also included in the unallocated/corporate/other column. Other components of the condensed consolidated statements of operations, which are classified below operating income, are also not allocated by segments. The Company does 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 weeks ended September 27, 2008 (Successor) and September 29, 2007 (Successor), the thirty-nine weeks ended September 27, 2008 (Successor) the period February 6, 2007 to September 29, 2007 (Successor), and the period December 31, 2006 to February 5, 2007 (Predecessor):

Successor Thirteen Weeks Ended September 27, 2008	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statements of Operations
Sales	$	76,162	$	104,898	$	—		$	181,060
Gross profit		51,289		48,037		159			99,485
Selling expenses		40,823		6,046		4,005			50,874
Income (loss) from operations		10,466		41,991		(19,234	)		33,223
Other expense, net		—		—		(23,151	)		(23,151	)
Income before provision for income taxes		—		—		—			10,072

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Successor Thirteen Weeks Ended September 29, 2007	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statements of Operations
Sales	$	77,245	$	98,570	$	—		$	175,815
Gross profit		52,239		45,526		(112	)		97,653
Selling expenses		42,142		5,525		3,863			51,530
Income (loss) from operations		10,097		40,001		(20,288	)		29,810
Other expense, net		—		—		(25,569	)		(25,569	)
Income before provision for income taxes		—		—		—			4,241
Successor Thirty-Nine Weeks Ended September 27, 2008	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statements of Operations
Sales	$	219,554	$	229,877	$	—		$	449,431
Gross profit		141,952		105,951		412			248,315
Selling expenses		120,042		20,952		11,594			152,588
Income (loss) from operations		21,910		84,999		(57,150	)		49,759
Other expense, net		—		—		(67,655	)		(67,655	)
Loss before benefit from income taxes		—		—		—			(17,896	)
Successor Period February 6, 2007 to September 29, 2007	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statements of Operations
Sales	$	191,855	$	206,993	$	—		$	398,848
Gross profit		126,922		95,285		(40,548	)		181,659
Selling expenses		104,443		13,840		10,300			128,583
Income (loss) from operations		22,479		81,445		(97,414	)		6,510
Other expense, net		—		—		(66,305	)		(66,305	)
Loss before benefit from income taxes		—		—		—			(59,795	)
Predecessor Period December 31, 2006 to February 5, 2007	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per Condensed Consolidated Statements of Operations
Sales	$	26,530	$	26,852	$	—		$	53,382
Gross profit		15,653		13,176		—			28,829
Selling expenses		14,423		1,778		—			16,201
Income (loss) from operations		1,230		11,398		(13,828	)		(1,200	)
Other expense, net		—		—		(970	)		(970	)
Loss before benefit from income taxes		—		—		—			(2,170	)

Sales for the Company’s international operations, which are included in the wholesale segment for reporting purposes, were approximately $16,196 and $11,937 for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively. For the thirty-nine weeks ended September 27, 2008 and for the periods February 6, 2007 to September 29, 2007 and December 31, 2006 to February 5, 2007, sales for the Company’s international operations were approximately $36,332, $26,111 and $2,021, respectively. Long lived assets of the Company’s international operations were approximately $976 and $1,151 as of September 27, 2008 and September 29, 2007, respectively.

12. RESTRUCTURING CHARGE

During the first quarter of fiscal 2008, the Company initiated a restructuring plan designed to close three underperforming Illuminations stores and move the Illuminations corporate headquarters from Petaluma, California to the Company’s South Deerfield, Massachusetts headquarters. In connection with this restructuring plan, a charge of $1,475 was recorded during the thirteen weeks ended March 29, 2008. Included in the restructuring charge was $632 related to lease termination costs, $493 related to non-cash fixed assets write-offs and other costs, and $350 in employee related costs. As of March 29, 2008 the three underperforming stores had been closed.

In accounting for the restructuring charge, the Company complied with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred.

The following is a summary of restructuring charge activity for the thirteen and thirty-nine weeks ended September 27, 2008:

	Accrued as of June 28, 2008		Thirteen Weeks ended September 27, 2008				Accrued as of September 27, 2008
			Costs Paid		Non-Cash Charges
Occupancy related	$	440	$	59	$	—	$	381
Fixed asset impairment and other		—		—		—		—
Employee related		98		98		—		—
Total	$	538	$	157	$	—	$	381

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	Thirty-Nine Weeks Ended September 27, 2008							Accrued as of September 27, 2008
	Expense		Costs Paid		Non-Cash Charges
Occupancy related	$	632	$	295	$	(44	)	$	381
Fixed asset impairment and other		493		42		451			—
Employee related		350		350		—			—
Total	$	1,475	$	687	$	407		$	381

The company expects occupancy related costs to be paid by March 2013.

13. WRITE OFF OF RECEIVABLE

The Company accounts for its loss contingencies in accordance with SFAS No. 5, “Accounting for Contingencies” (SFAS 5). SFAS 5 requires that an estimated loss is recorded when information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. If the threshold of probable is not met disclosure of the contingency should be made when there is at least a reasonable possibility that a loss has been incurred.

On May 2, 2008, one of the Company’s wholesale customers, Linens ‘N Things, filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company has an outstanding pre-petition receivable balance due from Linens ‘N Things and is an unsecured creditor with respect to that receivable. During the quarter ended June 28, 2008 the Company determined it probable that the outstanding pre-petition receivable balance with Linens ‘N Things had become impaired and recorded a bad debt provision in the amount of $4.5 million. Linens ‘N Things is in the process of being liquidated.

14. FINANCIAL INFORMATION RELATED TO GUARANTOR SUBSIDIARIES

As discussed in Note 6, 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 the Parent and 100% of the Company’s existing and future domestic subsidiaries. The senior notes are fully and unconditionally guaranteed by all of our 100% owned U.S. subsidiaries (the “Guarantor Subsidiaries”) on a senior unsecured basis. These guarantees are joint and several obligations of the Guarantors. The foreign subsidiary does not guarantee these notes.

The following tables present condensed consolidating supplementary financial information for the issuer of the notes, the Parent, the issuer’s domestic guarantor subsidiaries and the non guarantor together with eliminations as of and for the periods indicated. The issuer’s parent company is also a guarantor of the notes. Parent was a newly formed entity with no assets, liabilities or operations prior to the completion of the Merger on February 6, 2007. 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.

The Company has corrected its previous presentation of its “investment in subsidiaries” within the parent company balance sheet to appropriately reflect its subsidiaries on an equity method basis, as of December 29, 2007. This also impacted the stockholder’s equity line item, inventory and the intercompany receivable/payable line item for the parent and its subsidiaries. The prior disclosure did not allocate certain intercompany balances to their respective entities; rather they were presented in a separate column as intercompany eliminations. The presentation as of December 29, 2007 has been corrected to properly allocate those balances. This adjustment had no impact to the condensed consolidated balance sheet, as the investment in subsidiaries line item, inventory and intercompany receivable/payable line item, and the subsidiaries stockholder’s equity line item, appropriately eliminate in both the prior year presentation and current year presentation.

In addition, the Company had previously presented intercompany payables and receivables transactions between the issuer and its guarantor and non-guarantor subsidiaries as financing activities. These transactions should have been presented in investing and financing activities. The accompanying condensed consolidating financial statements for 2007 have been corrected to properly present these cash flow activities in the respective columns. Any changes in the classification between investing and financing activities are eliminated in consolidation, therefore there is no impact on the condensed consolidated statement of cashflows for the periods February 6, 2007 to September 29, 2007 and for the periods December 31, 2006 to February 5, 2007.

Condensed consolidating financial information is as follows:

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YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING BALANCE SHEET

September 27, 2008

(in thousands)

	Parent		Issuer of Notes		Guarantor Subsidiaries			Non Guarantor Subsidiary		Intercompany Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash	$	—	$	23,611	$	1,714		$	580	$	—		$	25,905
Accounts receivable, net		—		58,797		934			13,387		—			73,118
Inventory		—		87,393		1,800			9,321		—			98,514
Prepaid expenses and other current assets		—		36,372		297			443		—			37,112
Deferred tax assets		—		10,266		—			—		—			10,266
TOTAL CURRENT ASSETS		—		216,439		4,745			23,731		—			244,915
PROPERTY AND EQUIPMENT, NET		—		144,859		660			976		—			146,495
MARKETABLE SECURITIES		—		616		—			—		—			616
GOODWILL		—		1,010,862		9,120			—		—			1,019,982
INTANGIBLE ASSETS		—		401,234		2,571			620		—			404,425
DEFERRED FINANCING COSTS		—		25,195		—			—		—			25,195
OTHER ASSETS		—		1,150		—			55		—			1,205
INTERCOMPANY RECEIVABLES		—		33,984		—			—		(33,984	)		—
INVESTMENT IN SUBSIDIARIES		406,765		2,333		—			—		(409,098	)		—
TOTAL ASSETS	$	406,765	$	1,836,672	$	17,096		$	25,382	$	(443,082	)	$	1,842,833
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	—	$	44,612	$	437		$	1,311	$	—		$	46,360
Accrued payroll		—		13,655		209			281		—			14,145
Accrued interest		—		14,957		—			—		—			14,957
Accrued purchases of property and equipment		—		1,520		—			—		—			1,520
Other accrued liabilities		—		24,297		1,555			2,338		—			28,190
Current portion of long-term debt		—		6,500		—			—		—			6,500
TOTAL CURRENT LIABILITIES		—		105,541		2,201			3,930		—			111,672
DEFERRED COMPENSATION OBLIGATION		—		754		—			—		—			754
DEFERRED TAX LIABILITIES		—		111,702		18			—		—			111,720
LONG-TERM DEBT		—		1,195,625		—			—		—			1,195,625
DEFERRED RENT		—		10,954		12			—		—			10,966
OTHER LONG-TERM LIABILITIES		—		5,331		—			—		—			5,331
INTERCOMPANY PAYABLES		—		—		16,130			17,854		(33,984	)		—
STOCKHOLDERS’ EQUITY		406,765		406,765		(1,265	)		3,598		(409,098	)		406,765
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	406,765	$	1,836,672	$	17,096		$	25,382	$	(443,082	)	$	1,842,833

- 16 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING BALANCE SHEET

December 29, 2007

(in thousands)

	Parent		Issuer of Notes		Guarantor Subsidiaries			Non Guarantor Subsidiary		Intercompany Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash	$	—	$	1,316	$	2,341		$	1,970	$	—		$	5,627
Accounts receivable, net		—		40,655		1,251			10,220		—			52,126
Inventory		—		60,580		1,470			7,913		—			69,963
Prepaid expenses and other current assets		—		8,491		66			787		—			9,344
Deferred tax assets		—		17,841		430			—		—			18,271
TOTAL CURRENT ASSETS		—		128,883		5,558			20,890		—			155,331
PROPERTY AND EQUIPMENT, NET		—		153,954		829			1,128		—			155,911
MARKETABLE SECURITIES		—		259		—			—		—			259
GOODWILL		—		1,010,862		9,120			—		—			1,019,982
INTANGIBLE ASSETS		—		411,431		2,811			—		—			414,242
DEFERRED FINANCING COSTS		—		28,654		—			—		—			28,654
OTHER ASSETS		—		1,340		—			78		—			1,418
INTERCOMPANY RECEIVABLES		—		28,492		—			—		(28,492	)		—
INVESTMENT IN SUBSIDIARIES		416,605		5,997		—			—		(422,602	)		—
TOTAL ASSETS	$	416,605	$	1,769,872	$	18,318		$	22,096	$	(451,094	)	$	1,775,797
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	—	$	20,350	$	355		$	908	$	—		$	21,613
Accrued payroll		—		17,016		92			286		—			17,394
Accrued interest		—		17,679		—			—		—			17,679
Accrued income taxes		—		15,755		—			—		—			15,755
Accrued purchases of property and equipment		—		2,818		—			—		—			2,818
Other accrued liabilities		—		31,635		2,934			1,340		—			35,909
Current portion of long-term debt		—		6,500		—			—		—			6,500
TOTAL CURRENT LIABILITIES		—		111,753		3,381			2,534		—			117,668
DEFERRED COMPENSATION OBLIGATION		—		410		—			—		—			410
DEFERRED TAX LIABILITIES		—		105,565		—			—		—			105,565
LONG-TERM DEBT		—		1,123,625		—			—		—			1,123,625
DEFERRED RENT		—		10,220		10			—		—			10,230
OTHER LONG-TERM LIABILITIES		—		1,694		—			—		—			1,694
INTERCOMPANY PAYABLES		—		—		15,904			12,588		(28,492	)		—
STOCKHOLDERS’ EQUITY		416,605		416,605		(977	)		6,974		(422,602	)		416,605
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	416,605	$	1,769,872	$	18,318		$	22,096	$	(451,094	)	$	1,775,797

- 17 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirteen Weeks Ended September 27, 2008

(in thousands)

	Parent			Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
Sales	$	—		$	168,596		$	1,902		$	14,886		$	(4,324	)	$	181,060
Cost of sales		—			73,763			1,050			12,595			(5,833	)		81,575
Gross profit		—			94,833			852			2,291			1,509			99,485
Selling expenses		—			47,299			887			2,748			(60	)		50,874
General and administrative expenses		—			15,341			—			—			47			15,388
Income (loss) from operations		—			32,193			(35	)		(457	)		1,522			33,223
Interest income		—			—			—			(5	)		—			(5	)
Interest expense		—			23,104			—			—			—			23,104
Other (income) expense		—			(12	)		—			64			—			52
Income (loss) before (benefit from) provision for income taxes		—			9,101			(35	)		(516	)		1,522			10,072
Provision for (benefit from) income taxes		—			2,987			(12	)		(147	)		504			3,332
Income (loss) before equity in (earnings of) losses of subsidiaries		—			6,114			(23	)		(369	)		1,018			6,740
Equity in (earnings of) losses of subsidiaries, net of tax		(6,740	)		392			—			—			6,348			—
Net income (loss)	$	6,740		$	5,722		$	(23	)	$	(369	)	$	(5,330	)	$	6,740

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirteen Weeks Ended September 29, 2007

(in thousands)

	Parent			Issuer of Notes		Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
Sales	$	—		$	166,847	$	1,741		$	11,169		$	(3,942	)	$	175,815
Cost of sales		—			71,713		1,049			8,951			(3,551	)		78,162
Gross profit		—			95,134		692			2,218			(391	)		97,653
Selling expenses		—			48,282		1,108			2,140			—			51,530
General and administrative expenses		—			16,313		—			—			—			16,313
Income (loss) from operations		—			30,539		(416	)		78			(391	)		29,810
Interest income		—			—		—			(15	)		—			(15	)
Interest expense		—			25,619		—			—			—			25,619
Other (income) expense		—			190		—			(225	)		—			(35	)
Income (loss) before (benefit from) provision for income taxes		—			4,730		(416	)		318			(391	)		4,241
Provision for (benefit from) income taxes		—			1,150		(101	)		95			(97	)		1,047
Income (loss) before equity in (earnings of) losses of subsidiaries		—			3,580		(315	)		223			(294	)		3,194
Equity in (earnings of) losses of subsidiaries, net of tax		(3,194	)		92		—			—			3,102			—
Net income (loss)	$	3,194		$	3,488	$	(315	)	$	223		$	(3,396	)	$	3,194

- 18 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirty-Nine Weeks Ended September 27, 2008

(in thousands)

	Parent			Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
Sales	$	—		$	427,788		$	5,295		$	33,268		$	(16,920	)	$	449,431
Cost of sales		—			185,862			3,197			27,112			(15,055	)		201,116
Gross profit		—			241,926			2,098			6,156			(1,865	)		248,315
Selling expenses		—			143,231			2,596			6,941			(180	)		152,588
General and administrative expenses		—			44,359			—			—			134			44,493
Restructuring charge		—			1,475			—			—			—			1,475
Income (loss) from operations		—			52,861			(498	)		(785	)		(1,819	)		49,759
Interest income		—			—			—			(22	)		—			(22	)
Interest expense		—			69,880			—			—			—			69,880
Gain on extinguishment of debt					(2,131	)		—			—			—			(2,131	)
Other income		—			(48	)		—			(24	)		—			(72	)
Loss before benefit from income taxes		—			(14,840	)		(498	)		(739	)		(1,819	)		(17,896	)
Benefit from income taxes		—			(6,258	)		(210	)		(211	)		(756	)		(7,435	)
Loss before equity in (earnings of) losses of subsidiaries		—			(8,582	)		(288	)		(528	)		(1,063	)		(10,461	)
Equity in (earnings of) losses of subsidiaries, net of tax		10,461			816			—			—			(11,277	)		—
Net (loss) income	$	(10,461	)	$	(9,398	)	$	(288	)	$	(528	)	$	10,214		$	(10,461	)

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Period February 6, 2007 to September 29, 2007

(in thousands)

	Parent			Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
Sales	$	—		$	382,570		$	4,169		$	24,095		$	(11,986	)	$	398,848
Cost of sales		—			200,922			2,971			23,201			(9,905	)		217,189
Gross profit		—			181,648			1,198			894			(2,081	)		181,659
Selling expenses		—			120,781			2,565			5,237			—			128,583
General and administrative expenses		—			46,566			—			—			—			46,566
Income (loss) from operations		—			14,301			(1,367	)		(4,343	)		(2,081	)		6,510
Interest income		—			—			—			(34	)		—			(34	)
Interest expense		—			67,061			—			—			—			67,061
Other (income) expense		—			45			—			(767	)		—			(722	)
Loss before benefit from income taxes		—			(52,805	)		(1,367	)		(3,542	)		(2,081	)		(59,795	)
Benefit from income taxes		—			(23,041	)		(597	)		(1,063	)		(891	)		(25,592	)
Loss before equity in (earnings of) losses of subsidiaries		—			(29,764	)		(770	)		(2,479	)		(1,190	)		(34,203	)
Equity in (earnings of) losses of subsidiaries, net of tax		34,203			3,249			—			—			(37,452	)		—
Net (loss) income	$	(34,203	)	$	(33,013	)	$	(770	)	$	(2,479	)	$	36,262		$	(34,203	)

- 19 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (PREDECESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Period December 31, 2006 to February 5, 2007

(in thousands)

	Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
Sales	$	52,861		$	555		$	1,747		$	(1,781	)	$	53,382
Cost of sales		23,935			385			1,473			(1,240	)		24,553
Gross profit		28,926			170			274			(541	)		28,829
Selling expenses		15,312			338			551			—			16,201
General and administrative expenses		13,828			—			—			—			13,828
Loss from operations		(214	)		(168	)		(277	)		(541	)		(1,200	)
Interest income		—			—			(1	)		—			(1	)
Interest expense		986			—			—			—			986
Other (income) expense		(39	)		—			24			—			(15	)
Loss before benefit from income taxes		(1,161	)		(168	)		(300	)		(541	)		(2,170	)
Benefit from income taxes		(144	)		(21	)		(90	)		(85	)		(340	)
Loss before equity in (earnings of) losses of subsidiaries		(1,017	)		(147	)		(210	)		(456	)		(1,830	)
Equity in losses of subsidiaries, net of tax		357			—			—			(357	)		—
Net loss	$	(1,374	)	$	(147	)	$	(210	)	$	(99	)	$	(1,830	)

- 20 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Thirty-Nine Weeks Ended September 27, 2008

(in thousands)

	Parent			Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
CASH FLOWS (USED IN ) PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income	$	(10,461	)	$	(9,398	)	$	(288	)	$	(528	)	$	10,214		$	(10,461	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Gain on extinguishment of debt					(2,131	)											(2,131	)
Depreciation and amortization		—			33,997			427			204			—			34,628
Unrealized loss on marketable securities		—			105			—			—			—			105
Stock based compensation expense		—			677			—			—			—			677
Deferred taxes		—			12,543			449			—			—			12,992
Loss on disposal and impairment of property and equipment		—			878			—			—			—			878
Investments in marketable securities		—			(462	)		—			—			—			(462	)
Equity in earnings of subsidiaries		10,461			816			—			(1,063	)		(10,214	)		—
Changes in assets and liabilities:
Accounts receivable, net		—			(18,142	)		317			(4,115	)		—			(21,940	)
Inventory		—			(26,814	)		(329	)		(2,300	)		—			(29,443	)
Prepaid expenses and other assets		—			(1,716	)		(229	)		(307	)		—			(2,252	)
Accounts payable		—			24,266			79			492			—			24,837
Income taxes payable		—			(35,390	)		—			—			—			(35,390	)
Accrued expenses and other liabilities		—			(11,832	)		(1,035	)		1,246			—			(11,621	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		—			(32,603	)		(609	)		(6,371	)		—			(39,583	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		—			(14,076	)		(18	)		(112	)		—			(14,206	)
Payment of contingent consideration on Aroma Naturals		—			—			(225	)		—			—			(225	)
Intercompany Payables / Receivables		—			(5,417	)					—			5,417			—
NET CASH USED IN INVESTING ACTIVITIES		—			(19,493	)		(243	)		(112	)		5,417			(14,431	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayments under bank credit agreements		—			(26,005	)		—			—			—			(26,005	)
Borrowings under senior secured revolving credit facility		—			100,500			—			—			—			100,500
Repurchase of common stock		—			(126	)		—			—			—			(126	)
Net proceeds from issuance of common stock		—			22			—			—			—			22
Intercompany Payables / Receivables		—			—			225			5,192			(5,417	)		—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		—			74,391			225			5,192			(5,417	)		74,391
EFFECT EXCHANGE RATE CHANGES ON CASH		—			—			—			(99	)		—			(99	)
NET INCREASE (DECREASE) IN CASH		—			22,295			(627	)		(1,390	)		—			20,278
CASH, BEGINNING OF PERIOD		—			1,316			2,341			1,970			—			5,627
CASH, END OF PERIOD	$	—		$	23,611		$	1,714		$	580		$	—		$	25,905

- 21 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Period February 6, 2007 to September 29, 2007

(in thousands)

	Parent			Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income	$	(34,203	)	$	(33,013	)	$	(770	)	$	(2,479	)	$	36,262		$	(34,203	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		—			29,655			134			165			—			29,954
Unrealized loss on marketable securities		—			219			—			—			—			219
Stock based compensation expense		—			522			—			—			—			522
Deferred taxes		—			(14,914	)		434			—			—			(14,480	)
Non-cash charge related to increased inventory carrying value		—			40,472			—			—			—			40,472
Loss on disposal and impairment of property and equipment		—			615			—			—			—			615
Investments in marketable securities		—			(553	)		—			—			—			(553	)
Equity in earnings of subsidiaries		34,203			3,249			—			(1,190	)		(36,262	)		—
Changes in assets and liabilities:
Accounts receivable, net		—			(28,522	)		(62	)		(4,850	)		—			(33,434	)
Inventory		—			(25,693	)		(225	)		(359	)		—			(26,277	)
Prepaid expenses and other assets		—			(16,056	)		1,782			546			—			(13,728	)
Accounts payable		—			32,438			422			(427	)		—			32,433
Income taxes payable		—			(25,770	)		371			17			—			(25,382	)
Accrued expenses and other liabilities		—			8,813			(639	)		(232	)		—			7,942
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		—			(28,538	)		1,447			(8,809	)		—			(35,900	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		—			(19,622	)		(53	)		(97	)		—			(19,772	)
Acquisition of the Company		—			(1,429,476	)		—			—			—			(1,429,476	)
Intercompany Payables / Receivables		(418,083	)		(6.256	)		—			—			424,339			—
NET CASH USED IN INVESTING ACTIVITIES		(418,083	)		(1,455,354	)		(53	)		(97	)		424,339			(1,449,248	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayments of existing bank loan		—			(179,250	)		—			—			—			(179,250	)
Net proceeds from issuance of common stock		418,083			—			—			—			—			418,083
Borrowings under senior secured term loan facility		—			650,000			—			—			—			650,000
Deferred financing costs		—			(32,358	)		—			—			—			(32,358	)
Borrowings under senior secured revolving credit facility		—			101,000			—			—			—			101,000
Borrowings under senior notes and senior subordinated notes		—			525,000			—			—			—			525,000
Repurchase of common stock					(98	)		—			—			—			(98	)
Intercompany Payables / Receivables					418,083			(1,829	)		8,085			(424,339	)		—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		418,083			1,482,377			(1,829	)		8,085			(424,339	)		1,482,377
EFFECT EXCHANGE RATE CHANGES ON CASH		—			—			—			88			—			88
NET DECREASE IN CASH		—			(1,515	)		(435	)		(733	)		—			(2,683	)
CASH, BEGINNING OF PERIOD		—			10,781			2,156			1,847			—			14,784
CASH, END OF PERIOD	$	—		$	9,266		$	1,721		$	1,114		$	—		$	12,101

- 22 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (PREDECESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Period December 31, 2006 to February 5, 2007

(in thousands)

	Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net loss	$	(1,374	)	$	(147	)	$	(210	)	$	(99	)	$	(1,830	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,608			46			19			—			2,673
Unrealized gain on marketable securities		(31	)		—			—			—			(31	)
Stock based compensation expense		8,638			—			—			—			8,638
Deferred taxes		(3,905	)		—			—			—			(3,905	)
Loss on disposal and impairment of property and equipment		14			—			—			—			14
Investments in marketable securities		(27	)		—			—			—			(27	)
Excess tax benefit from exercise of stock options		(4,317	)		—			—			—			(4,317	)
Equity in earnings of subsidiaries		357			—			(456	)		99			—
Changes in assets and liabilities:
Accounts receivable, net		(1,190	)		159			1,210			—			179
Inventory		(2,396	)		152			(495	)		—			(2,739	)
Prepaid expenses and other assets		697			1			(362	)		—			336
Accounts payable		(3,895	)		(191	)		(357	)		—			(4,443	)
Income taxes payable		3,642			—			—			—			3,642
Accrued expenses and other liabilities		(7,437	)		(550	)		(270	)		—			(8,257	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(8,616	)		(530	)		(921	)		—			(10,067	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(2,247	)		—			(3	)		—			(2,250	)
Intercompany Payables / Receivables		660									(660	)
NET CASH USED IN INVESTING ACTIVITIES		(1,587	)		—			(3	)		(660	)		(2,250	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Excess tax benefit from exercise of stock options		4,317			—			—			—			4,317
Intercompany Payables / Receivables		—			324			(984	)		660			—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		4,317			324			(984	)		660			4,317
EFFECT EXCHANGE RATE CHANGES ON CASH		—			—			11			—			11
NET DECREASE IN CASH		(5,886	)		(206	)		(1,897	)		—			(7,989	)
CASH, BEGINNING OF PERIOD		16,667			2,362			3,744			—			22,773
CASH, END OF PERIOD	$	10,781		$	2,156		$	1,847		$	—		$	14,784

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, 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. On an ongoing basis, management evaluates its estimates and judgments, including those related to inventories, derivative financial instruments, restructuring costs, bad debts, intangible assets, income taxes, promotional allowances, sales returns, self-insurance, debt service and contingencies and litigation. 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. Management believes the following critical accounting policies, among others, involve its more significant estimates and judgments and are therefore particularly important to an understanding of our results of operations and financial position.

Acquisition of the Company

On February 6, 2007, Holdings acquired all of the outstanding capital stock of the Predecessor for approximately $1,413.5 million in cash. Holdings is owned by affiliates of MDP and certain members of our senior management. The acquisition of The Yankee Candle Company, Inc. was accounted for as a business combination using the purchase method of accounting, whereby the purchase price (including liabilities assumed) was allocated to the assets acquired based on their estimated fair market values at the date of acquisition and the excess of the total purchase price over the fair value of the Company’s net assets was allocated to goodwill. The purchase price paid by Holdings to acquire the Company and related purchase accounting adjustments were “pushed down” and recorded in Yankee Holding Corp.’s and its subsidiaries’ financial statements and resulted in a new basis of accounting for the “successor” period beginning on the day the acquisition was completed. As a result, the purchase price and related costs were allocated to the estimated fair values of the assets acquired and liabilities assumed at the time of the acquisition based on management’s best estimates.

Sales/receivables

We sell our products both directly to retail customers and through wholesale channels. Merchandise sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of the risk of loss related to those goods. In our wholesale segment, products are shipped “free on board” shipping point; however revenue is recognized at the time the product is received for certain customers due to our practice of absorbing risk of loss in the event of damaged or lost shipments for those customers. In our retail segment, transfer of title takes place at the point of sale (i.e., at our retail stores). There are no situations, either in our wholesale or retail segments, where legal risk of loss does not transfer immediately upon receipt by our customers. Although we do not provide a contractual right of return, in the course of arriving at practical business solutions to various claims, we have allowed sales returns and allowances. In these situations, customer claims for credit or return due to damage, defect, shortage or other reason must be pre-approved by us before credit is issued or such product is accepted for return. Such returns have not precluded sales recognition because we have a long history with such returns, which we use in estimating a reserve. This reserve, however, is subject to change. In our wholesale segment, we have included a reserve in our financial statements representing our estimated obligation related to promotional marketing activities. In addition to returns, we bear credit risk relative to our wholesale customers. We have provided a reserve for bad debts in our financial statements based on our estimates of the creditworthiness of our customers. However, this reserve is also subject to change. Changes in these reserves would affect our operating results.

Other income statement accounts

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

Included within selling expenses are costs directly related to both Wholesale and Retail operations and primarily consist of payroll, occupancy, advertising and other operating costs, as well as pre–opening costs, which are expensed as incurred.

Included within general and administrative expenses are costs associated with corporate overhead departments, including senior management, accounting, information systems, management incentive programs and bonus and costs that are not readily allocable to either the retail or wholesale segments.

Inventory

We write down our inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market value, based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write–downs may be required. Prior to the Merger we valued our inventory at the lower of cost or fair market value on a last–in first–out (“LIFO”) basis. At February 6, 2007, as a result of purchase accounting, inventories were revalued by approximately $43.5 million to estimated fair value. Since the Merger on February 6, 2007, we have valued our inventory at the lower of cost or market on a first–in first–out (“FIFO”) basis. Fluctuations in inventory levels along with the cost of raw materials could impact the carrying value of our inventory. Changes in the carrying value of inventory could affect our operating results.

Derivative instruments

In accordance with SFAS 133, as amended, the Company designated certain interest rate swap derivative arrangements entered into on February 14, 2007 and February 13, 2008 as cash flow hedges and recognizes the fair value of the instruments on the condensed consolidated balance sheet. Gains and losses related to a hedge and that result from changes in the fair value of the hedge are either recognized in income immediately to offset the gain or loss on the hedged item, or the effective portion is deferred and reported as a component of other comprehensive income in stockholders’ equity and subsequently recognized in income when the hedged item affects earnings. To record these swaps as of September 27, 2008 the Company recorded the fair value of the derivative asset of $2.3 million in other current assets, the fair value of the derivative liability of $8.8 million in other current liabilities, and by $4.0 million and $2.5 million in other comprehensive loss and deferred taxes, respectively.

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Taxes

We have significant deferred tax liabilities recorded on our financial statements, which are primarily attributable to the effect of purchase accounting adjustments recorded as a result of the Merger.

We also have a significant net deferred tax asset recorded on our financial statements. This asset primarily arose at the time of our recapitalization in 1998 and reflects the tax benefit of future tax deductions available to us from the recapitalization. The recoverability of this future tax deduction is dependent upon our future profitability. We have made an assessment that this asset is likely to be recovered and is appropriately reflected on the balance sheet. Should we find that we are not able to utilize this deduction in the future we would have to record a reserve for all or a part of this asset, which would adversely affect our operating results and cash flows.

Value of long-lived assets, including intangibles

Long-lived assets on our condensed consolidated balance sheet consist primarily of property and equipment, customer lists, tradenames and goodwill. An intangible asset with a finite useful life is amortized; an intangible asset with an indefinite useful life is not amortized, but is evaluated annually for impairment. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, competition and other economic factors. We have determined that our tradenames have an indefinite useful life and therefore they are not being amortized. We periodically review the carrying value of all of these assets. We undertake this review when facts and circumstances suggest that cash flows emanating from those assets may be diminished, and at least annually in the case of tradenames and goodwill.

For goodwill, the annual impairment evaluation compares the fair value of a reporting unit to its carrying value and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Fair values of the reporting units are derived through a combination of market-based and income-based approaches. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, “Business Combinations”. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. The Company completed its annual impairment testing of goodwill and indefinite-lived intangible assets as of November 3, 2007 noting that in all cases fair value exceeded carrying value and no impairment was recorded as a result of these tests.

Share-based compensation

The Company accounts for its stock-based compensation in accordance with SFAS No. 123(R) “Share–Based Payment” (SFAS 123(R)). Under SFAS 123(R), we are required to record compensation expense for all awards granted including our Class B and Class C common units. Stock-based compensation expense of $0.7 million, $8.6 million and $0.5 million were recorded in the accompanying condensed consolidated statements of operations for the thirty-nine weeks ended September 27, 2008 and the periods December 31, 2006 to February 5, 2007 and February 6, 2007 to September 29, 2007, respectively. The increase in stock-based compensation expense during the period December 31, 2006 to February 5, 2007 was attributable to stock–based compensation expense of $8.2 million as a result of the accelerated vesting associated with stock options, restricted and performance shares that resulted from the Merger.

The fair value of the stock options granted was estimated on the date of grant using a Black–Scholes option valuation model. The risk–free rate is based on the U.S. Treasury yield curve in effect at the time of grant which most closely correlates with the expected life of the options. The expected life (estimated period of time outstanding) of the stock options granted was estimated using the historical exercise behavior of employees. Expected volatility was based on a combination of implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock and other factors. Expected dividend yield was based on the Company’s dividend policy at the time the options were granted.

With respect to the Class B and Class C common units, since the Company is no longer publicly traded, the Company based its estimate of expected volatility on the average historical volatility of a group of six comparable companies. The historical volatilities of the comparable companies were measured over a 5–year historical period. The Company’s historical volatility prior to the acquisition was also considered in the estimate of expected volatility. The expected term of the Class B common units granted represents the period of time that the Units are expected to be outstanding and is assumed to be 5 years. The Company is not expected to pay dividends, and accordingly, the dividend yield is zero. The risk free interest rate for a period commensurate with the expected term was based on the U.S. Treasury yield curve in effect at the time of issuance.

Self-insurance

We are self-insured for certain losses related to health insurance and worker’s compensation, although we maintain stop–loss coverage with third–party insurers to limit our liability exposure. Liabilities associated with these losses are estimated in part by considering historical claims experience, industry factors, severity factors and other actuarial assumptions.

PERFORMANCE MEASURES

We measure the performance of our retail and wholesale segments through a segment margin calculation, which specifically identifies not only gross profit on the sales of products through the two channels but also costs and expenses specifically related to each segment.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

We have experienced, and will experience in the future, fluctuations in our quarterly operating results. There are numerous factors that can contribute to these fluctuations; however, the principal factors are seasonality, new store openings and the addition of new wholesale accounts.

Seasonality. We have historically realized higher revenues and operating income in our fourth quarter, particularly in our retail business. This has been primarily due to increased sales in the giftware industry during the holiday season of the fourth quarter.

New Store Openings. The timing of our new store openings may also have an impact on our quarterly results. First, we incur certain one-time expenses related to opening each new store. These expenses, which consist primarily of occupancy, salaries, supplies and marketing costs, are expensed as incurred. Second, most store expenses vary proportionately with sales, but there is a fixed cost component. This typically results in lower store profitability when a new store opens because new stores generally have lower sales than mature stores. Due to both of these factors, during periods when new store openings as a percentage of the base are higher, operating profit may decline in dollars and/or as a percentage of sales. As the overall store base matures, the fixed cost component of selling expenses is spread over an increased level of sales, assuming sales increase as stores age, resulting in a decrease in selling and other expenses as a percentage of sales.

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New Wholesale Accounts. The timing of new wholesale accounts may have an impact on our quarterly results due to the size of initial opening orders, promotional programs associated with the roll-out of orders.

RESULTS OF OPERATIONS

Overview

We are the largest designer, manufacturer and distributor of premium scented candles in the U.S. based on annual sales. We have a 39–year history of offering our distinctive products and marketing them as affordable luxuries and consumable 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 Yankee Candle^® branded electric home fragrancers, potpourri, scented oils, reed diffusers, room sprays, Yankee Candle Car Jars^® auto air fresheners, and candle related home decor accessories. We operate a vertically integrated business model with approximately 68% of our 2007 sales generated from products we manufactured at our Whately, Massachusetts facility.

Our multi–channel distribution strategy enables us to offer Yankee Candle^® products through a wide variety of locations and venues. We sell our products through an extensive and growing wholesale customer network in North America and through our growing retail store base located primarily in malls. As a result of acquisitions in recent years, our operations also include (i) our Illuminations division, a designer and marketer of premium scented candles, candle accessories and other home decor products under the Illuminations^® brand, pursuant to which we operate 28 Illuminations retail stores (as of September 27, 2008) in California, Arizona and Washington, (ii) our Yankee Candle fundraising division and (iii) our wholly owned subsidiary, Aroma Naturals, Inc., a specialized line of wellness candles and aromatherapy products. As of September 27, 2008, we had 485 Company–owned and operated stores, including 28 Illuminations stores, and approximately 20,800 wholesale locations, including our European operations. In addition, we own and operate a 90,000 square foot flagship store in South Deerfield, Massachusetts and a 42,000 square foot flagship store in Williamsburg, Virginia.

We also sell our products directly to consumers through our catalogs and our Internet web sites at www.yankeecandle.com, www.illuminations.com and www.aromanaturals.com. Outside of North America, the Company sells its products primarily through its subsidiary, Yankee Candle Company (Europe), Ltd., which as of September 27, 2008 has an international wholesale customer network of approximately 3,000 store locations and distributors covering approximately 20 countries.

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.

In accordance with generally accepted accounting principles, we have separated our historical financial results for the Predecessor and Successor. The separate presentation is required under generally accepted accounting principles when there is a change in accounting basis, which occurred when purchase accounting was applied to the acquisition of the Predecessor. Purchase accounting requires that the historical carrying value of assets acquired and liabilities assumed be adjusted to fair value, which may yield results that are not comparable on a period–to–period basis due to the different, and sometimes higher, cost basis associated with the allocation of the purchase price. In addition, due to financial transactions completed in connection with the Merger, we experienced other changes in our results of operations for the period following the Merger. There have been no material changes to the operations or customer relationships of our business as a result of the acquisition of the Predecessor.

In evaluating our results of operations and financial performance, our management has used combined results for the thirty-nine weeks ended September 29 2007 as a single measurement period. Due to the Transactions, we believe that comparisons between the thirty-nine weeks ended September 27, 2008 and either the Predecessor’s results for the period December 31, 2006 to February 5, 2007 or the Successor’s results for the period February 6, 2007 to September 29, 2007 may impede the ability of users of our financial information to understand our operating and cash flow performance.

Consequently, to enhance an analysis of operating results and cash flows, we have presented our operating results and cash flows on a combined basis for the thirty-nine weeks ended September 29, 2007. This combined presentation for the thirty-nine weeks ended September 29, 2007 represents the mathematical addition of the pre–Merger results of operations of the Predecessor for the period December 31, 2006 to February 5, 2007 and the results of operations for the Successor for the period from February 6, 2007 to September 29, 2007. We believe the combined presentation provides relevant information for investors. These combined results, however, are not intended to represent what our operating results would have been had the Transactions occurred at the beginning of the period. A reconciliation showing the mathematical combination of our operating results for such periods is included below.

In the following discussion, comparisons are made between the thirty-nine week periods ended September 27, 2008 and September 29, 2007, notwithstanding the presentation in our condensed consolidated statements of operations for the thirty-nine weeks of fiscal 2007 which is comprised of the period from December 31, 2006 to February 5, 2007 (Predecessor) and the period from February 6, 2007 to September 29, 2007 (Successor). We do not believe a discussion of the various periods presented for the thirty-nine weeks of fiscal 2007 in the condensed consolidated statements of operations would be meaningful and, accordingly, we have prepared the discussion of our results of operations by comparing the thirty-nine weeks of fiscal 2008 to the thirty-nine weeks of fiscal 2007 without regard to the differentiation between the period from December 31, 2006 to February 5, 2007 (Predecessor) and the period from February 6, 2007 to September 29, 2007 (Successor).

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The following table reconciles the thirty-nine weeks ended September 29, 2007 condensed consolidated statements of operations with the discussion of the results of operations that follows:

	Successor Period February 6, 2007 to September 29, 2007			Predecessor Period December 31, 2006 to February 5, 2007			Non-GAAP Combined Thirty-nine Weeks Ended September 29, 2007
Sales	$	398,848		$	53,382		$	452,230
Cost of sales		217,189			24,553			241,742
Gross profit		181,659			28,829			210,488
Selling expenses		128,583			16,201			144,784
General and administrative expenses		46,566			13,828			60,394
Income (loss) from operations		6,510			(1,200	)		5,310
Interest income		(34	)		(1	)		(35	)
Interest expense		67,061			986			68,047
Other income		(722	)		(15	)		(737	)
Loss before benefit from income taxes		(59,795	)		(2,170	)		(61,965	)
Benefit from income taxes		(25,592	)		(340	)		(25,932	)
Net loss	$	(34,203	)	$	(1,830	)	$	(36,033	)

In addition, 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.

	Successor Thirteen Weeks Ended September 27, 2008		Successor Thirteen Weeks Ended September 29, 2007		Successor Thirty-nine Weeks Ended September 27, 2008		Non-GAAP Combined Thirty-nine Weeks Ended September 29, 2007
Statements of Operations Data:
Sales:
Wholesale	57.9	%	56.1	%	51.1	%	51.7	%
Retail	42.1	%	43.9	%	48.9	%	48.3	%
Total net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	45.1	%	44.5	%	44.7	%	53.5	%
Gross profit	54.9	%	55.5	%	55.3	%	46.5	%
Selling expenses	28.1	%	29.3	%	34.0	%	32.0	%
General and administrative expenses	8.5	%	9.3	%	9.9	%	13.4	%
Restructuring charge	—	%	—	%	0.3	%	—	%
Income from operations	18.3	%	17.0	%	11.1	%	1.2	%
Net other expense	12.8	%	14.5	%	15.1	%	14.9	%
Income (loss) before provision for (benefit from) income taxes	5.5	%	2.4	%	(4.0	)%	(13.7	)%
Provision for (benefit from) income taxes	1.8	%	0.6	%	(1.7	)%	(5.7	)%
Net income (loss)	3.7	%	1.8	%	(2.3	)%	(8.0	)%

Widespread national and international concern over instability in the credit and capital markets increased significantly during the nine months ended September 27, 2008 and most notably during the past two quarters with unprecedented market volatility and disruption in the economy of the United States and abroad. Also, signs of recession have become more pronounced, highlighted by higher unemployment levels, further deterioration in consumer confidence and reduced consumer spending, which have distinguished the first nine months of 2008 from 2007.

The current retail and economic environment continues to be difficult. General consumer spending levels, including employment levels and other economic conditions, greatly impact the retail and wholesale industries. Like other consumer-facing companies, our business continues to be negatively impacted. Declining mall traffic and reduced consumer spending obviously impact both our retail and wholesale businesses. Our operations for the thirteen and thirty-nine weeks ended September 27, 2008 were significantly impacted by the volatility of the economic environment and our available credit under our facility was decreased.

Thirteen weeks ended September 27, 2008 versus the Thirteen weeks ended September 29, 2007

SALES

Sales increased 3.0% to $181.1 million for the thirteen weeks ended September 27, 2008 from $175.8 million for the thirteen weeks ended September 29, 2007.

Retail Sales

Retail sales decreased 1.3% to $76.2 million for the thirteen weeks ended September 27, 2008 from $77.2 million for the thirteen weeks ended September 29, 2007. The decrease in retail sales was primarily due to decreased comparable store sales of approximately $5.5 million and decreased sales in our catalog and Internet division of

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approximately $0.3 million, offset in part by (i) increased sales attributable to stores opened in 2007 that have not entered the comparable store base (which in 2007 were open for less than a full year), including Illuminations stores, of approximately $1.1 million, (ii) the addition of 30 new Yankee Candle retail stores and one new Illuminations store opened in 2008, which increased sales by approximately $3.3 million and (iii) increased sales in our Yankee Candle Fundraising division of approximately $0.4 million.

Comparable Yankee Candle retail store and catalog and Internet sales decreased 6.6% for the thirteen weeks ended September 27, 2008 compared to the thirteen weeks ended September 29, 2007. Yankee Candle retail comparable store sales for the thirteen weeks ended September 27, 2008 decreased 7.6% compared to the thirteen weeks ended September 29, 2007. 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. There were 417 stores included in the Yankee Candle comparable store base as of September 27, 2008, and 33 of these stores were included for less than a full year. There were 485 retail stores open as of September 27, 2008 compared to 449 retail stores open as of September 29, 2007 and 459 retail stores open as of December 29, 2007. Permanently closed stores are excluded from the comparable store calculation beginning in the month in which the store closes.

Wholesale Sales

Wholesale sales, including European operations, increased 6.4% to $104.9 million for the thirteen weeks ended September 27, 2008 from $98.6 million for the thirteen weeks ended September 29, 2007. The increase in wholesale sales was due to increased sales to domestic wholesale locations opened during the last 12 months of approximately $5.7 million, increased sales in our European operations of approximately $3.7 million and increased sales within our Aroma Naturals division of approximately $0.2 million, partially offset by decreased sales to domestic wholesale locations in operation prior to September 29, 2007 of approximately $2.2 million and decreased sales for new product ventures of approximately $1.0 million.

GROSS PROFIT

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

Gross profit increased 1.8% to $99.5 million for the thirteen weeks ended September 27, 2008 from $97.7 million for the thirteen weeks ended September 29, 2007. As a percentage of sales, gross profit decreased to 54.9% for the thirteen weeks ended September 27, 2008 from 55.5% for the thirteen weeks ended September 29, 2007.

Retail Gross Profit

Retail gross profit dollars decreased 1.2% to $51.4 million for the thirteen weeks ended September 27, 2008 from $52.0 million for the thirteen weeks ended September 29, 2007. The decrease in gross profit dollars was primarily due to sales decreases in our retail operations which contributed approximately $2.7 million, increased promotional activity of $1.5 million, increased costs in supply chain operations of approximately $0.7 million and decreased profitability in our Illuminations division of $0.7 million. The decreases in retail gross profit dollars were offset in part by (i) the impact of price increases initiated on selected products during the first and third quarters of fiscal 2008 which, assuming no elasticity, contributed approximately $4.8 million and (ii) increased profitability in our Yankee Candle Fundraising division of approximately $0.1 million.

As a percentage of sales, retail gross profit remained flat at 67.4% for the thirteen weeks ended September 27, 2008 and September 29, 2007. Although remaining flat as a percentage of sales, the retail gross profit rate was impacted by price increases initiated on selected products during the first quarter of fiscal 2008 which, assuming no elasticity, contributed an increase of approximately 2.2%, offset by decreased productivity in supply chain operations of approximately 1.2%, increased marketing and promotional activity of 0.6%, decreased profitability in our Yankee Candle Fundraising division of approximately 0.2% and decreased profitability in our Illuminations division of approximately 0.2%.

Wholesale Gross Profit

Wholesale gross profit dollars increased 5.5% to $48.1 million for the thirteen weeks ended September 27, 2008 from $45.6 million for the thirteen weeks ended September 29, 2007. The increase in wholesale gross profit dollars was attributable to the impact of price increases initiated on selected products during the first and third quarters of fiscal 2008 which, assuming no elasticity, contributed approximately $5.8 million and sales increases within our wholesale operations, which increased gross profit by approximately $1.7 million, offset in part by increased marketing and promotional activity of $3.6 million and increased costs in our supply chain operations of approximately $1.4 million.

As a percentage of sales, wholesale gross profit decreased to 45.9% for the thirteen weeks ended September 27, 2008 from 46.3% for the thirteen weeks ended September 29, 2007. The decrease in wholesale gross profit rate was primarily the result of decreased productivity in supply chain operations of 1.8% and increased marketing and promotional activity of 1.8%, partially offset by the impact of price increases initiated on selected products during the first and third quarters of fiscal 2008 which, assuming no elasticity, contributed approximately 3.2%.

SELLING EXPENSES

Selling expenses decreased 1.2% to $50.9 million for the thirteen weeks ended September 27, 2008 from $51.5 million for the thirteen weeks ended September 29, 2007. These expenses are related to both wholesale and retail operations and consist of payroll, occupancy, advertising and other operating costs, as well as pre-opening costs, which are expensed as incurred. In addition, the effect of purchase accounting adjustments of approximately $4.0 million and $3.9 million, which related to additional occupancy costs, is included in selling expense for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively. As a percentage of sales, selling expenses were 28.1% and 29.3% for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively.

Retail Selling Expenses

Retail selling expenses decreased 2.8% to $41.8 million for the thirteen weeks ended September 27, 2008 from $43.0 million for the thirteen weeks ended September 29, 2007. These expenses relate to payroll, occupancy, advertising and other store operating costs, as well as pre–opening costs, which are expensed as incurred. As a percentage of retail sales, retail selling expenses were 54.9% and 55.7% for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively. The decrease in selling expense dollars and rate was primarily due to cost savings associated with the Illuminations restructuring of $1.2 million or 1.3%.

Wholesale Selling Expenses

Wholesale selling expenses increased 7.1% to $9.1 million for the thirteen weeks ended September 27, 2008 from $8.5 million for the thirteen weeks ended September 29, 2007. These expenses relate to payroll, advertising and other operating costs. As a percentage of wholesale sales, wholesale selling expenses were relatively flat at 8.6% and 8.7% for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively.

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GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist primarily of personnel–related costs including senior management, accounting, information systems, management incentive programs and costs that are not readily allocable to either the retail or wholesale operations, decreased 5.5% to $15.4 million for the thirteen weeks ended September 27, 2008 from $16.3 million for the thirteen weeks ended September 29, 2007. As a percentage of sales, general and administrative expenses were 8.5% and 9.3% for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively. The decrease in general and administrative expense in dollars and rate was primarily due to a reduction in management incentive plans.

RESTRUCTURING CHARGE

During the first quarter of fiscal 2008, the Company initiated a restructuring plan designed to close three underperforming Illuminations stores and move the Illuminations corporate headquarters from Petaluma, California to the Company’s South Deerfield, Massachusetts headquarters. In connection with this restructuring plan, a charge of $1.5 million was recorded during the thirteen weeks ended March 29, 2008. Included in the restructuring charge was $0.6 million related to lease termination costs, $0.5 million related to non-cash fixed assets write-offs and other costs, and $0.4 million in employee related costs. As of March 29, 2008, the three underperforming stores had been closed. The Company anticipates no further accruals related to this restructuring.

The following is a summary of restructuring charge activity for the thirteen weeks ended September 27, 2008 (in thousands):

	Accrued as of June 28, 2008		Thirteen Weeks ended September 27, 2008				Accrued as of September 27, 2008
			Costs Paid		Non-Cash Charges
Occupancy related	$	440	$	59	$	—	$	381
Fixed asset impairment and other		—		—		—		—
Employee related		98		98		—		—
Total	$	538	$	157	$	—	$	381

OTHER EXPENSE, NET

Other expense, net was $23.2 million for the thirteen weeks ended September 27, 2008 compared to $25.6 million for the thirteen weeks ended September 29, 2007. The primary component of this expense was interest expense, which was $23.1 million and $25.6 million for the thirteen weeks ended September 27, 2008 and September 29, 2007, respectively. The decrease in interest expense was primarily due to a decrease in our average daily debt outstanding during the period coupled with decreased borrowing rates as a result of a decrease in bank lending rates. Amortization of deferred financing costs, included in interest expense, was $1.0 million for both the thirteen weeks ended September 27, 2008 and September 29, 2007.

PROVISION FOR INCOME TAXES

The income tax provision for the thirteen weeks ended September 27, 2008 was $3.3 million compared to a provision for income taxes of $1.0 million for the thirteen weeks ended September 29, 2007. The effective tax rates for the thirteen weeks ended September 27, 2008 and September 29, 2007 were 33.1% and 24.7%, respectively. The change in the effective tax rate was driven by greater pre-tax income, tax-effected at statutory rates for the thirteen weeks ended September 27, 2008.

Thirty-nine weeks ended September 27, 2008 versus the Combined Thirty-nine weeks ended September 29, 2007

SALES

Sales decreased 0.6% to $449.4 million for the thirty-nine weeks ended September 27, 2008 from $452.2 million for the thirty-nine weeks ended September 29, 2007.

Retail Sales

Retail sales increased 0.5% to $219.6 million for the thirty-nine weeks ended September 27, 2008 from $218.4 million for the thirty-nine weeks ended September 29, 2007. The increase in retail sales was achieved primarily through (i) increased sales attributable to stores opened in 2007 that have not entered the comparable store base (which in 2007 were open for less than a full year), including Illuminations stores, of approximately $6.0 million, (ii) the addition of 30 new Yankee Candle retail stores and one new Illuminations store opened in 2008, which increased sales by approximately $5.1 million, (iii) increased sales in our Yankee Candle Fundraising division of approximately $1.8 million and (iv) increased sales in our catalog and Internet division of approximately $0.9 million, offset in part by decreased comparable store sales of $12.6 million.

Comparable Yankee Candle retail store and catalog and Internet sales decreased 5.1% for the thirty-nine weeks ended September 27, 2008 compared to the thirty-nine weeks ended September 29, 2007. Yankee Candle retail comparable store sales for the thirty-nine weeks ended September 27, 2008 decreased 6.4% compared to the thirty-nine weeks ended September 29, 2007. 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. There were 417 stores included in the Yankee Candle comparable store base as of September 27, 2008, and 33 of these stores were included for less than a full year. There were 485 retail stores open as of September 27, 2008 compared to 449 retail stores open as of September 29, 2007 and 459 retail stores open as of December 29, 2007. Permanently closed stores are excluded from the comparable store calculation beginning in the month in which the store closes.

Wholesale Sales

Wholesale sales, including European operations, decreased 1.7% to $229.9 million for the thirty-nine weeks ended September 27, 2008 from $233.8 million for the thirty-nine weeks ended September 29, 2007. The decrease in wholesale sales was primarily from decreased sales to domestic wholesale locations in operation prior to September 29, 2007 of approximately $17.9 million and a decrease in sales for our new product ventures of approximately $1.9 million, offset in part by increased sales to domestic wholesale locations opened during the last 12 months of approximately $7.7 million, increased sales in our European operations of approximately $7.4 million and increased sales within our Aroma Naturals division of approximately $0.7 million.

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GROSS PROFIT

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

Gross profit increased 18.0% to $248.3 million for the thirty-nine weeks ended September 27, 2008 from $210.5 million for the thirty-nine weeks ended September 29, 2007. As a percentage of sales, gross profit increased to 55.3% for the thirty-nine weeks ended September 27, 2008 from 46.5% for the thirty-nine weeks ended September 29, 2007. The effect of purchase accounting adjustments decreased gross profit in the prior year by approximately $41.0 million or 9.1% of sales. Purchase accounting adjustments affecting gross profit in the prior year consisted primarily of the step-up of the carrying value of inventory at the acquisition date.

Retail Gross Profit

Retail gross profit dollars increased 18.1% to $142.2 million for the thirty-nine weeks ended September 27, 2008 from $120.4 million for the thirty-nine weeks ended September 29, 2007. The increase in gross profit dollars was primarily due to (i) the decreased impact of purchase accounting adjustments in the current year as compared to the prior year of approximately $22.4 million, (ii) the impact of price increases initiated on selected products during the first and third quarters of fiscal 2008, which, assuming no elasticity, contributed approximately $8.3 million of the increase and (iii) increased profitability in our Yankee Candle Fundraising division of approximately $1.7 million, offset in part by increased promotional activity of $4.0 million, increased costs in supply chain operations of approximately $3.0 million, sales decreases in our retail operations, which contributed approximately $3.4 million, and decreased profitability in our Illuminations division of approximately $0.3 million.

As a percentage of sales, retail gross profit increased to 64.8% for the thirty-nine weeks ended September 27, 2008 from 55.2% for the thirty-nine weeks ended September 29, 2007. The increase in retail gross profit rate was primarily the result of the decreased impact of purchase accounting adjustments in the current year as compared to the prior year of approximately 10.1%, the impact of price increases initiated on selected products during the first and third quarters of fiscal 2008, which, assuming no elasticity, contributed approximately 1.4% of the increase, and increased profitability in our Yankee Candle Fundraising division of approximately 0.3%, offset in part by decreased productivity in supply chain operations of approximately 1.5%, increased marketing and promotional activity of 0.6% and decreased profitability in our Illuminations division of 0.2%.

Wholesale Gross Profit

Wholesale gross profit dollars increased 17.9% to $106.1 million for the thirty-nine weeks ended September 27, 2008 from $90.0 million for the thirty-nine weeks ended September 29, 2007. The increase in wholesale gross profit dollars was primarily attributable to the decreased impact of purchase accounting adjustments in the current year as compared to the prior year of approximately $18.6 million and the impact of price increases initiated on selected products during the first and third quarters of fiscal 2008 which, assuming no elasticity, contributed approximately $8.1 million of the increase, offset in part by increased promotional activity of approximately $3.7 million, sales decreases within our wholesale operations, which decreased gross profit by approximately $3.0 million, increased costs in our supply chain operations of approximately $2.7 million and a decrease in new product ventures of approximately $1.3 million.

As a percentage of sales, wholesale gross profit increased to 46.2% for the thirty-nine weeks ended September 27, 2008 from 38.5% for the thirty-nine weeks ended September 29, 2007. The increase in wholesale gross profit rate was primarily the result of the decreased impact of purchase accounting adjustments in the current year as compared to the prior year of approximately 8.0% and the impact of price increases initiated on selected products during the first and third quarters of fiscal 2008 which, assuming no elasticity, contributed approximately 2.0% of the increase, offset in part by decreased productivity in supply chain operations of 1.3%, increased marketing and promotional activity of 0.9% and a decrease in new product ventures, which decreased gross profit by approximately 0.2%.

SELLING EXPENSES

Selling expenses increased 5.4% to $152.6 million for the thirty-nine weeks ended September 27, 2008 from $144.8 million for the thirty-nine weeks ended September 29, 2007. These expenses are related to both wholesale and retail operations and consist of payroll, occupancy, advertising and other operating costs, as well as pre-opening costs, which are expensed as incurred. In addition, the effect of purchase accounting adjustments of approximately $11.6 million and $10.3 million related to additional occupancy costs is included in selling expense for the thirty-nine weeks ended September 27, 2008 and September 29, 2007, respectively. As a percentage of sales, selling expenses were 34.0% and 32.0% for the thirty-nine weeks ended September 27, 2008 and September 29, 2007, respectively.

Retail Selling Expenses

Retail selling expenses increased 1.1% to $122.6 million for the thirty-nine weeks ended September 27, 2008 from $121.3 million for the thirty-nine weeks ended September 29, 2007. These expenses relate to payroll, occupancy, advertising and other store operating costs, as well as pre–opening costs, which are expensed as incurred. The increase in retail selling expenses in dollars was primarily related to selling expenses incurred in the 30 new Yankee Candle retail stores opened in 2008 and the 27 new Yankee Candle retail stores opened in 2007, which together contributed approximately $5.3 million, offset in part by cost savings related to the Illuminations restructuring of $2.5 million.

As a percentage of retail sales, retail selling expenses were 55.8% and 55.5% for the thirty-nine weeks ended September 27, 2008 and September 29, 2007, respectively. The increase in selling expense rate was primarily due to the de-leveraging of selling expenses by 2.8% as a result of decreased comparable retail sales offset in part by the leveraging of selling expenses in our Yankee Candle Fundraising and Consumer Direct divisions by 1.0% and cost savings associated with the Illuminations restructuring of 1.0%.

Wholesale Selling Expenses

Wholesale selling expenses increased 27.7% to $30.0 million for the thirty-nine weeks ended September 27, 2008 from $23.5 million for the thirty-nine weeks ended September 29, 2007. These expenses relate to payroll, advertising and other operating costs. As a percentage of wholesale sales, wholesale selling expenses were 13.0% and 10.0% for the thirty-nine weeks ended September 27, 2008 and September 29, 2007, respectively. The increase in wholesale selling expenses in dollars and rate was the result of the impairment of our outstanding pre-petition receivable balance with Linens ‘N Things of approximately $4.5 million, or 1.9%, coupled with an increase in amortization of intangible assets due to the acquisition of the Company of $1.2 million, or 0.6%, and an increase in commissions expense related to our European and domestic operations.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist primarily of personnel–related costs including senior management, accounting, information systems, management

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incentive programs and costs that are not readily allocable to either the retail or wholesale operations, decreased 26.3% to $44.5 million for the thirty-nine weeks ended September 27, 2008 from $60.4 million for the thirty-nine weeks ended September 29, 2007. As a percentage of sales, general and administrative expenses were 9.9% and 13.4% for the thirty-nine weeks ended September 27, 2008 and September 29, 2007, respectively. The decrease in general and administrative expense in dollars and rate was primarily due to the decreased impact of purchase accounting adjustments in the current year as compared to the prior year of approximately $12.8 million, or 2.8%.

RESTRUCTURING CHARGE

During the first quarter of fiscal 2008, the Company initiated a restructuring plan designed to close three underperforming Illuminations stores and move the Illuminations corporate headquarters from Petaluma, California to the Company’s South Deerfield, Massachusetts headquarters. In connection with this restructuring plan, a charge of $1.5 million was recorded during the thirty-nine weeks ended September 27, 2008. Included in the restructuring charge was $0.6 million related to lease termination costs, $0.5 million related to non-cash fixed assets write-offs and other costs, and $0.4 million in employee related costs. As of March 29, 2008, the three underperforming stores had been closed. The Company anticipates no further accruals related to this restructuring.

The following is a summary of restructuring charge activity for the thirty-nine weeks ended September 27, 2008 (in thousands):

	Thirty-nine Weeks Ended September 27, 2008						Accrued as of September 27, 2008
	Expense		Costs Paid		Non-Cash Charges
Occupancy related	$	632	$	295	(44	)	$	381
Fixed asset impairment and other		493		42	451			—
Employee related		350		350	—			—
Total	$	1,475	$	687	407		$	381

OTHER EXPENSE, NET

Other expense, net was $67.7 million for the thirty-nine weeks ended September 27, 2008 compared to $67.3 million for the thirty-nine weeks ended September 29, 2007. The primary component of this expense was interest expense, which was $69.9 million and $68.0 million for the thirty-nine weeks ended September 27, 2008 and September 29, 2007, respectively. The increase in interest expense was primarily due to an increase in our average daily debt outstanding during the period primarily due to borrowings associated with the Merger, offset in part by decreased borrowing rates as a result of a decrease in bank lending rates. Amortization of deferred financing costs was $2.7 million for the thirty-nine weeks ended September 27, 2008 and September 29, 2007.

During the thirty-nine weeks ended September 27, 2008, we paid $9.5 million, plus accrued interest of $0.4 million, to repurchase $12.0 million of our senior subordinated notes in the open market. In connection with this early repurchase, we recorded a gain of $2.1 million in other income, net of deferred financing costs written off in the amount of $0.4 million.

PROVISION FOR INCOME TAXES

The income tax benefit for the thirty-nine weeks ended September 27, 2008 was $7.4 million compared to $25.9 million for the thirty-nine weeks ended September 29, 2007. The effective tax rates for the thirty-nine weeks ended September 27, 2008 and September 29, 2007 were 41.5% and 41.8%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

In connection with the Transactions, the Company significantly increased its level of debt upon entering into the $650.0 million senior secured term loan facility and issuance of the $325.0 million 8.50% senior notes due 2015 and the $200.0 million 9.75% senior subordinated notes due 2017. As of September 27, 2008 the Company had outstanding debt of $1,202.1 million.

The senior notes mature on February 15, 2015 and the senior subordinated notes mature on February 15, 2017. The senior notes due 2015 bear interest at a per annum rate equal to 8.50%. Interest is paid every six months on February 15 and August 15, beginning on August 15, 2007. The senior subordinated notes due 2017 bear interest at a per annum rate equal to 9.75%. Interest is paid every six months on February 15 and August 15, beginning on August 15, 2007.

Obligations under the senior notes are guaranteed on an unsecured senior basis and the senior subordinated notes are guaranteed on an unsecured senior subordinated basis, by the Parent and the Company’s existing and future domestic subsidiaries. If the Company 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 the notes, the Company must offer to repurchase all or a portion of the notes at 101% of the principal amount of the exchange notes on the date of purchase, plus any accrued and unpaid interest to the date of repurchase.

During the thirty-nine weeks ended September 27, 2008, the Company paid $9.5 million, plus accrued interest of $0.4 million, to repurchase $12.0 million of the senior subordinated notes in the open market. In connection with this early repurchase, the Company recorded a gain of $2.1 million, net of deferred financing costs written off in the amount of $0.4 million.

The indentures governing the senior notes and senior subordinated notes restrict our (and most or all of our subsidiaries’) ability to incur additional debt; pay dividends or make other distributions on our capital stock or repurchase our 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.

The Company’s senior secured credit facility (the “Credit Facility”) consists of a $650.0 million 7–year senior term loan facility and a 6–year $125.0 million senior secured revolving credit facility. All borrowings under the Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at the Company’s option, (i) the higher of (x) the prime rate (as set forth on the British Banking Association Telerate Page 5) and (y) the federal funds effective rate, plus one-half percent (0.50%) per annum or (ii) the Eurodollar rate, and resets periodically. In addition to paying interest on outstanding principal under the senior secured credit facility, the Company is required to pay a commitment fee to the lenders in respect of unutilized loan commitments at a rate of 0.50% per annum.

The Company has an interest rate swap agreement to hedge a portion of the cash flows associated with the Credit Facility. The agreement has a total notional value of $415.0 million. The $415.0 million notional value amortizes over the life of the swap. The interest rate swap agreement effectively converts approximately 60% of the outstanding amount under the Credit Facility, which is floating–rate debt, to a fixed–rate by having the Company pay fixed–rate amounts in exchange for the receipt of the amount of the floating–rate interest payments.

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The Company has a second interest rate swap agreement to hedge an additional portion of the cash flows associated with the Credit Facility. The agreement has a total notional value of $100.0 million. The $100.0 million notional value increases on March 31, 2010 to approximately $397.0 million and then amortizes over the remaining life of the swap. The interest rate swap agreement effectively converts approximately 15% of the outstanding amount under the Credit Facility, which is floating–rate debt, to a fixed–rate by having the Company pay fixed–rate amounts in exchange for the receipt of the amount of the floating–rate interest payments.

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

The senior secured term loan facility matures on February 6, 2014 and the senior secured revolving credit facility matures on February 6, 2013.

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

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

The Credit Facility and related agreements contain customary financial and other covenants, including, but not limited to, maximum consolidated total secured leverage (net of certain cash and cash equivalents) and certain other limitations on the Company and certain of the Company’s restricted subsidiaries’, as defined in the Credit Facility, ability to incur additional debt, guarantee other obligations, grant liens on assets, make investments or acquisitions, dispose of assets, make optional payments or modifications of other debt instruments, pay dividends or other payments on capital stock, engage in mergers or consolidations, enter into sale and leaseback transactions, enter into arrangements that restrict the Company’s ability to pay dividends or grant liens and engage in transactions with affiliates. The Credit Facility requires that the Company maintain at the end of each fiscal quarter, commencing with the quarter ended December 29, 2007, a consolidated total secured debt (net of certain cash and cash equivalents) to consolidated EBITDA (as defined in the Credit Facility) ratio of no more than 4.50 to 1.00. As of September 27, 2008, the consolidated total secured debt to consolidated EBITDA ratio was 3.51 to 1.00.

As a result of the Transactions, the cash flow results for the thirty-nine week period ended September 29, 2007 have been separately presented in the condensed consolidated statements of cash flows split between the “Predecessor”, covering the period December 31, 2006 to February 5, 2007, and the “Successor”, covering the period February 6, 2007 to September 29, 2007. The comparable period results for the current year are presented under “Successor.” For comparative purposes, the Company combined the two periods from December 31, 2006 through September 29, 2007 in its discussion below. This combination is not a GAAP presentation. However, the Company believes this combination is useful to provide the reader a more useful comparison and is provided to enhance the reader’s understanding of cash flows for the periods presented. The following table reconciles the thirteen weeks ended September 29, 2007 cash flows with the discussion of cash flows that follows:

	Successor Period February 6, 2007 to September 29, 2007			Predecessor Period December 31, 2006 to February 5, 2007			Non-GAAP Combined Thirty-nine Weeks Ended September 29, 2007
Net cash used in operating activities	$	(35,900	)	$	(10,067	)	$	(45,967	)
Net cash used in investing activities		(1,449,248	)		(2,250	)		(1,451,498	)
Net cash provided by financing activities		1,482,377			4,317			1,486,694

Cash as of September 27, 2008 was $25.9 million as compared to $5.6 million as of December 29, 2007. Cash used in operating activities for the thirty-nine weeks ended September 27, 2008 was $39.6 million as compared to $41.7 million, net of excess tax benefit from the exercise of stock options, for the combined thirty-nine weeks ended September 29, 2007. Cash used in operating activities for the thirty-nine weeks ended September 27, 2008 includes total payments of $15.0 million of corporate income taxes for fiscal 2007 and cash paid for interest of $69.3 million. Cash used in operating activities for the combined thirty-nine weeks ended September 29, 2007 includes total payments of $26.9 million of corporate income taxes for fiscal 2006 and cash paid for interest of $58.8 million.

Net cash used in investing activities for the thirty-nine weeks ended September 27, 2008 includes purchases of property and equipment of $14.2 million primarily due to new stores and a $0.2 million payment of contingent consideration related to the acquisition of Aroma Naturals. Net cash used in investing activities for the combined thirty-nine weeks ended September 29, 2007 includes the acquisition of the Company for $1,429.5 million and purchases of property and equipment of $22.0 million primarily due to new stores.

Net cash provided by financing activities for the thirty-nine weeks ended September 27, 2008 consists of $100.5 million of borrowings under the revolving credit facility and $26.0 million of repayments as compared to net cash provided by financing activities of $1,482.4 million, net of excess tax benefit from the exercise of stock options, for the combined thirty-nine weeks ended September 29, 2007. The combined thirty-nine weeks ended September 29, 2007 includes borrowings to finance the acquisition of $1,175.0 million, $101.0 million of borrowings under the revolving credit facility, net proceeds of $418.1 million from the issuance of common stock, partially offset by the payment of deferred financing fees of $32.4 million and repayment of $140.0 million of existing bank debt.

The Company funds its operations through a combination of internally generated cash from operations and from borrowings under the Credit Facility. The Company’s primary uses of cash are working capital requirements, new store expenditures, new store inventory purchases and debt service requirements. The Company anticipates that cash generated from operations together with amounts available under the Credit Facility will be sufficient to meet its future working capital requirements, new store expenditures, new store inventory purchases and debt service obligations as they become due over the next twelve months. However, the Company’s ability to fund future operating expenses and capital expenditures and its ability to make scheduled payments of interest on, to pay principal on or refinance indebtedness and to satisfy any other present or future debt obligations will depend on future operating performance, which will be affected by general economic, financial and other factors beyond the Company’s control. In addition, borrowings under our Credit Facility are dependent upon our continued compliance with the financial and other covenants contained therein. As of September 27, 2008, we were in compliance with all covenants under our Credit Facility.

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As part of the recent disruption in the credit markets, during the quarter ended September 27, 2008, Lehman Commercial Paper, Inc. (“LCP”) one of the creditors, who also serves as the Administrative Agent of the Credit Facility, declared bankruptcy. LCP’s share of the Credit Facility was 12% or $15.0 million of the total Credit Facility. As a result of the bankruptcy, our ability to draw upon that portion of the Credit Facility may be reduced. If we are unable to secure additional or substitute funding from other parties, our Credit Facility would effectively be reduced from $125.0 million to $110.0 million. As of September 27, 2008, $89.0 million was outstanding under the Credit Facility and there were outstanding letters of credit of $1.6 million, leaving availability of $34.4 million based on the $125.0 million facility. Not including LCP’s share of the remaining capacity under the Credit Facility, our availability was $30.1 million at September 27, 2008.

Based on our current cash position, credit ratings, cash needs and debt structure the diminished capacity on our revolving credit facility does not have a material impact on our liquidity and we continue to expect that our current liquidity, notwithstanding these adverse market conditions, will be sufficient to meet all of our anticipated needs over the next 12 months and for the foreseeable future.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks relate primarily to changes in interest rates. At September 27, 2008, we had $644.1 million of floating rate debt, a portion of which is hedged by interest rate swaps described below, and $513.0 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 $644.1 million outstanding under our Credit Facility bears interest at variable rates. All borrowings under the Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at the Company’s option, (i) the higher of (a) the prime rate (as set forth on the British Banking Association Telerate Page 5) and (b) the federal funds effective rate, plus one-half percent (0.50%) per annum or (ii) the Eurodollar rate, and resets periodically. At September 27, 2008, the weighted–average interest rate on outstanding borrowings under our Credit Facility was 4.87%. This Credit Facility is intended to fund operating needs. Because this Credit Facility carries a variable interest rate pegged to market indices, our results of operations and cash flows will be exposed to changes in interest rates. Based on September 27, 2008 borrowing levels, a 1.00% increase or decrease in current market interest rates would have the effect of causing an approximately $2.1 million additional annual pre–tax change in interest expense.

The variable nature of our obligations under the Credit Facility creates interest rate risk. In order to mitigate this risk we have entered into certain interest rate swaps. In February 2007, we entered into an interest rate swap agreement in the notional amount of $415.0 million to hedge floating rate debt for the period between February 14, 2007 and March 30, 2010. The $415.0 million notional value amortizes over the life of the swap. The swap, which is with a highly rated counterparty, is treated as a cash flow hedge for accounting purposes and on which we pay a fixed rate of 5.10% and receive LIBOR from the counterparty. In February 2008, we entered into a second interest rate swap agreement in the notional value of $100.0 million, effective March 31, 2008. The $100.0 million notional value increases on March 31, 2010 to approximately $397.0 million and then amortizes over the remaining life of the swap. The swap, which is with a highly rated counterparty, is treated as a cash flow hedge for accounting purposes and on which we pay a fixed rate of 3.347% and receive LIBOR from the counterparty. See Note 7, “Derivative Financial Instruments” to the accompanying condensed consolidated financial statements for additional information.

We buy a variety of raw materials for inclusion in our products. The only raw material that is considered a commodity 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. Continued increases in wax prices could have an adverse affect on our cost of goods sold and could lower our margins.

At this point in time, operations outside of the United States are not significant. Accordingly, we are not exposed to substantial risks arising from foreign currency exchange rates.

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 27, 2008. The term “disclosure controls and procedures,” as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, or 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 27, 2008, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) occurred during the fiscal quarter ended September 27, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes from the legal proceedings discussed in the Company’s Annual Report on Form 10-K.

Item 1A. Risk Factors

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. In addition to factors generally affecting the political, economic and competitive conditions in the United States and abroad, such factors include those set forth below. Investors should consider the following factors before investing in our Company.

The recent disruption in the current credit markets and the continued deterioration in consumer confidence and spending may have an impact on our business and financial condition in ways that we currently cannot predict.

As widely reported, financial markets in the United States and Europe have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others, and the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial institutions. While currently these conditions have not impaired our ability to finance our operations, there can be no assurance that continued and prolonged volatility and disruption in the financial markets and overall economy will not have a significant negative impact on our results of operations, nor can there be any assurance that there will not be a further deterioration in financial markets and confidence in major economies.

These economic developments affect businesses such as ours in a number of ways. The current adverse market conditions, including the tightening of credit in financial markets, negatively impacts the discretionary spending of our customers and may result in a decrease in demand for our products. Similarly, these conditions may negatively impact the financial and operating condition of our wholesale customer base, which in turn could cause them to reduce or delay their purchases of our products and increase our exposure to losses from bad debts. In addition, LCP, one of the creditors, who also serves as the Administrative Agent of the Credit Facility declared bankruptcy during the quarter ended September 27, 2008.LCP’s share of the Credit Facility was 12% or $15.0 million of the total Credit Facility. As a result of the bankruptcy, our ability to draw upon that portion of the Credit Facility has been reduced. If we are unable to secure additional or substitute funding from other parties, our Credit Facility would be reduced from $125.0 million to $110.0 million. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions in the United States and other countries. Nor are we able to predict the long-term impact of these conditions on our operations.

Our substantial indebtedness could have a material adverse effect on our financial condition and operations.

After giving effect to the Transactions and related use of proceeds, we have a substantial amount of debt, which requires significant interest and principal payments. Subject to the limits contained in the indentures governing our senior notes and our senior subordinated notes and our senior secured credit facility, we may be able to incur additional debt from time to time, including drawing on our senior secured revolving credit facility, to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our business associated with our high level of debt could intensify. Specifically, our high level of debt could have important consequences to the holders of the notes, including the following:

• making it more difficult for us to satisfy our obligations with respect to the notes and our other debt;

• requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments on our and our subsidiaries’ debt, which would reduce the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes;

• limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate;

• placing us at a competitive disadvantage compared to any of our less leveraged competitors;

• increasing our vulnerability to both general and industry–specific adverse economic conditions; and

• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing.

We and/or our subsidiaries may be able to incur substantial additional debt in the future in addition to our notes and our senior secured credit facility. The addition of further debt to our current debt levels could intensify the leverage–related risks that we now face.

Our debt agreements contain restrictions on our ability to operate our business and to pursue our business strategies, and our failure to comply with these covenants could result in an acceleration of our indebtedness.

The credit agreement governing our senior secured credit facility and the indentures governing our notes contain, and agreements governing future debt issuances may contain, covenants that restrict our ability to finance future operations or capital needs, to respond to changing business and economic conditions or to engage in other transactions or business activities that may be important to our growth strategy or otherwise important to us. The credit agreement and the indentures restrict, among other things, our ability and the ability of our subsidiaries to:

• incur additional debt;

• pay dividends or make other distributions on our capital stock or repurchase our capital stock or subordinated indebtedness;

• make investments or other specified restricted payments;

• create liens;

• sell assets and subsidiary stock;

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• enter into transactions with affiliates; and

• enter into mergers, consolidations and sales of substantially all assets.

In addition, the credit agreement related to our senior secured credit facility requires us to satisfy a senior secured leverage ratio and to repay outstanding borrowings under such facility with proceeds we receive from certain sales of property or assets and specified future debt offerings. We cannot assure you that we will be able to maintain compliance with such covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Any breach of the covenants in the credit agreement or the indentures could result in a default of the obligations under such debt and cause a default under other debt. If there were an event of default under the credit agreement related to our senior secured credit facility that was not cured or waived, the lenders under our senior secured credit facility could cause all amounts outstanding with respect to the borrowings under our senior secured credit facility to be due and payable immediately. Our assets and cash flow may not be sufficient to fully repay borrowings under our senior secured credit facility and our obligations under the notes if accelerated upon an event of default. If, as or when required, we are unable to repay, refinance or restructure our indebtedness under, or amend the covenants contained in, our senior secured credit facility, the lenders under our senior secured credit facility could institute foreclosure proceedings against the assets securing borrowings under our senior secured credit facility.

We may not be able to generate sufficient cash flows to meet our debt service obligations.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures depends on our ability to generate cash from our future operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our business may not generate sufficient cash flow from operations, or future borrowings under our senior secured credit facility, or from other sources, may not be available to us in an amount sufficient, to enable us to repay our indebtedness or to fund our other liquidity needs, including capital expenditure requirements. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments or alliances. Our senior secured credit facility and the indentures governing the notes restrict our ability to sell assets and use the proceeds from such sales. Additionally, we may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we cannot service our indebtedness, it could impede the implementation of our business strategy or prevent us from entering into transactions that would otherwise benefit our business.

The interests of our controlling stockholders may conflict with the interests of the noteholders.

Private equity funds managed by Madison Dearborn indirectly own substantially all of our common stock. The interests of these funds as equity holders may conflict with the interests of the noteholders. The controlling stockholders may have an incentive to increase the value of their investment or cause us to distribute funds to the detriment of our financial condition and affect our ability to make payments on the outstanding notes. In addition, these funds have the power to elect a majority of our Board of Directors and appoint new officers and management and, therefore, effectively control many other major decisions regarding our operations. Three of our directors are employed by Madison Dearborn. Additionally, our controlling stockholders are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Our controlling stockholders may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

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

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

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

We may be unable to continue to open new stores successfully.

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

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

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

Our products compete with other scented and unscented candle, home fragrance and personal care products and with other gifts within a comparable price range, like boxes of candy, flowers, wine, fine soap and related merchandise. Our retail stores compete primarily with specialty candle retailers and a variety of other retailers including department stores, gift stores and national specialty retailers that carry candles along with personal care items, giftware and houseware. In addition, while we

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focus primarily on the premium scented candle segment, scented and unscented candles are also sold outside of that segment by a variety of retailers, including mass merchandisers. In our wholesale business, we compete with numerous manufacturers and importers of candles, home fragrance products and other home decor and gift items for the limited space available in our wholesale customer locations for the display and sale of such products to consumers. Some of our competitors are part of large, diversified companies which have greater financial resources and a wider range of product offerings than we do. Many of our competitors source their products from low cost manufacturers outside of the United States. This competitive environment could adversely affect our future revenues and profits, financial condition and liquidity and our ability to continue to grow our business.

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

Our results depend on consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in sales during economic downturns or during periods of uncertainty like that which followed the September 11, 2001 terrorist attacks on the United States or which result from the threat of war or the possibility of further terrorist attacks. For example, current adverse market conditions, including the tightening of the credit markets, has negatively impacted the discretionary spending of our customers and may result in decreased demand for our products. Any material decline in the amount of discretionary spending could have a material adverse effect on our sales and income.

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

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

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

Our success is in part dependent upon the retention of our senior executive officers. If our senior executive officers become unable or unwilling to participate in our business, our future business and financial performance could be materially affected. In addition, as our business grows in size and complexity we must be able to continue to attract, develop and retain qualified personnel sufficient to allow us to adequately manage and grow our business. If we are unable to do so, our operating results could be negatively impacted. We cannot guarantee that we will be able to attract and retain personnel as and when necessary in the future.

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

Approximately 68% of our 2007 sales were generated by products we manufactured at our manufacturing facility in Whately, Massachusetts and we rely primarily on our distribution facilities in South Deerfield, Massachusetts to distribute our products. Because most of our machinery is designed or customized by us to manufacture our products, and because we have strict quality control standards for our products, the loss of our manufacturing facility, due to natural disaster or otherwise, would materially affect our operations. Similarly, our distribution facilities rely upon customized machinery, systems and operations, the loss of which would materially affect our operations. Although our manufacturing and distribution facilities are adequately insured, we believe it would take up to twelve months to resume operations at a level equivalent to current operations.

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

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

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

We source various accessories and other products from East Asia. A sustained interruption of the operations of our suppliers, as a result of the impact of health epidemics, natural disasters such as the 2004 tsunami or other factors, could have an adverse effect on our ability to receive timely shipments of certain of our products, which might in turn negatively impact our operating results.

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

In the past several years, including 2007 and for most of 2008, significant increases in the price of crude oil have adversely impacted our transportation and freight costs and have contributed to significant increases in the cost of various raw materials, including wax which is a petroleum-based product. This in turn negatively impacts our cost of goods sold and margins. In addition, we believe that rising oil prices and corresponding increases in raw materials and transportation costs negatively impact not only our business but consumer sentiment and the economy at large. Continued weakness in consumer confidence and the macro—economic environment could negatively impact our sales and earnings. While oil prices have recently decreased significantly, we have yet to see a corresponding reduction in our transportation and freight costs or in the price of various raw materials, including wax.

Historically, the market price of wax has 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. Despite the recent downward movement of oil prices, wax prices have remained at historically high levels. Future significant increases in wax prices could have an adverse affect on our cost of goods sold and could lower our margins.

In addition to the impact of increased wax prices, any shortages in refined oil supplies may impact our wax supply. For example, in 2005, due to hurricanes in the Gulf

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Coast region and the closing and disruption of oil refineries located there, one of our primary wax suppliers placed us on allocation, whereby our wax purchases were allocated at the rate of seventy percent of 2004 purchases. While we took steps to manage this issue and mitigate any impacts, in 2005 the wax allocation had a negative impact on our ability to fulfill customer orders and our costs of production. While we are no longer on allocation, and experienced no supply issues in 2007, any future prolonged interruption or reduction in wax supplies could negatively impact our operations, sales and earnings.

The loss or significant deterioration in the financial condition of a significant wholesale customer could negatively impact our sales and operating results.

A significant deterioration in the financial condition of one of our major customers, or the loss of such a customer, could have a material adverse effect on our sales, profitability and cash flow to the extent that we are unable to offset any revenue losses with additional revenue from existing customers or by opening new accounts. We continually monitor and evaluate the credit status of our customers and attempt to adjust trade and credit terms as appropriate. However, a bankruptcy filing by a key customer could have a material adverse effect on our business, results of operations and financial condition. In this regard, we note that on May 2, 2008 Linens ‘N Things filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. At the time of that filing we had an outstanding receivable balance due from Linens ‘N Things and are an unsecured creditor with respect to that receivable. As noted in Note 13 to the condensed consolidated financial statements we recorded a bad debt provision in the amount of $4.5 million during the quarter ended June 28, 2008 with respect to the pre-petition receivable due from Linens ‘N Things. We believe that this provision should be sufficient for all pre-petition receivables exposure. Shipments to Linens during the course of the bankruptcy proceedings could, depending upon the outcome of those proceedings, result in further receivables exposure. Linens is now in the process of liquidating its assets. The loss of revenue from Linens as a result of these proceedings, if not offset in whole or in part by additional revenue from existing customers or from new accounts, could materially adversely impact our operating results and financial condition. There are also various potential claims which may arise in connection with bankruptcy proceedings that, if filed and adversely decided, could potentially negatively impact our operating results and financial condition.

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

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

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

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

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

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

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

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

• adverse outcomes from significant litigation matters;

• the imposition of additional restrictions or regulations regarding the sale of products we offer;

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

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

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

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

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

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

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

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

Not Applicable

Item 3. Defaults Upon Senior Securities.

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders.

Not Applicable

Item 5. Other Information.

Not Applicable

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Item 6. Exhibits

31.1	Certification of Craig W. Rydin Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 6, 2008
31.2	Certification of Bruce L. Hartman Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated November 6, 2008.
32.1	Certification of Craig W. Rydin Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 6, 2008.
32.2	Certification of Bruce L. Hartman Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated November 6, 2008.

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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 6, 2008	By:	/s/ Bruce L. Hartman
		Bruce L. Hartman
		Senior Vice President, Finance and Chief Financial Officer
		(Principal Financial Officer)

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