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: March 29, 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  x    No  ¨

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 May 7, 2008, there were 499,560 shares of Yankee Holding Corp. common stock, $.01 par value, outstanding, all of which are owned by a holding company, YCC Holdings LLC.

YANKEE HOLDING CORP.

FORM 10-Q – Quarter Ended March 29, 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 its 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
Item 1.	Financial Statements-Unaudited
	Condensed Consolidated Balance Sheets as of March 29, 2008 (Successor) and December 29, 2007 (Successor)	4
	Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended March 29, 2008 (Successor), the period February 6, 2007 to March 31, 2007 (Successor) and the period December 31,2006 to February  5, 2007 (Predecessor)	5
	Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended March 29, 2008 (Successor), the period February 6, 2007 to March 31, 2007 (Successor) and the period December 31, 2006 to February  5, 2007 (Predecessor)	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4T.	Controls and Procedures	30
PART II. Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Submission of Matters to a Vote of Security Holders	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Signatures		35

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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 audited condensed consolidated financial statements of the Successor as of December 29, 2007, the unaudited condensed consolidated financial statements of the Successor as of March 29, 2008, for the thirteen weeks ended March 29, 2008 and the period February 6, 2007 to March 31, 2007. The accompanying unaudited 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)

	March 29, 2008		December 29, 2007
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,305	$	5,627
Accounts receivable, net		45,639		52,126
Inventory		81,700		69,963
Prepaid expenses and other current assets		15,544		9,344
Deferred tax assets		22,185		18,271
TOTAL CURRENT ASSETS		168,373		155,331
PROPERTY AND EQUIPMENT-NET		150,609		155,911
MARKETABLE SECURITIES		464		259
GOODWILL		1,019,982		1,019,982
INTANGIBLE ASSETS		410,758		414,242
DEFERRED FINANCING COSTS		27,618		28,654
OTHER ASSETS		1,537		1,418
TOTAL ASSETS	$	1,779,341	$	1,775,797
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	30,051	$	21,613
Accrued payroll		13,471		17,394
Accrued interest		6,300		17,679
Accrued income taxes		—		15,755
Accrued purchases of property and equipment		2,225		2,818
Other accrued liabilities		33,342		35,909
Current portion of long-term debt		6,500		6,500
TOTAL CURRENT LIABILITIES		91,889		117,668
DEFERRED COMPENSATION OBLIGATION		659		410
DEFERRED TAX LIABILITIES		107,450		105,565
LONG-TERM DEBT		1,163,625		1,123,625
DEFERRED RENT		10,218		10,230
OTHER LONG-TERM LIABILITIES		1,907		1,694
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS’ EQUITY		403,593		416,605
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,779,341	$	1,775,797

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
	Thirteen Weeks Ended March 29, 2008			Period from February 6, 2007 to March 31, 2007			Period from December 31, 2006 to February 5, 2007
Sales	$	140,899		$	89,617		$	53,382
Cost of sales		64,537			66,109			24,553
Gross profit		76,362			23,508			28,829
Selling expenses		49,514			29,443			16,201
General and administrative expenses		14,414			11,822			13,828
Restructuring charge		1,475			—			—
Income (loss) from operations		10,959			(17,757	)		(1,200	)
Interest income		(12	)		(12	)		(1	)
Interest expense		23,808			15,863			986
Other income		(101	)		(10	)		(15	)
Loss before benefit from income taxes		(12,736	)		(33,598	)		(2,170	)
Benefit from income taxes		(4,878	)		(12,866	)		(340	)
Net loss	$	(7,858	)	$	(20,732	)	$	(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
	Thirteen Weeks Ended March 29, 2008			Period from February 6, 2007 to March 31, 2007			Period from December 31, 2006 to February 5, 2007
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income	$	(7,858	)	$	(20,732	)	$	(1,830	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		11,595			6,872			2,673
Unrealized loss (gain) on marketable securities		17			230			(31	)
Stock-based compensation expense		226			480			8,638
Deferred taxes		1,335			(9,755	)		(3,905	)
Non-cash charge related to increased inventory carrying value		—			26,982			—
Loss on disposal and impairment of property and equipment		462			—			14
Excess tax benefit from exercise of stock options		—			—			(4,317	)
Investments in marketable securities		(222	)		(368	)		(27	)
Changes in assets and liabilities:
Accounts receivable, net		6,468			(11,654	)		179
Inventory		(11,756	)		(4,451	)		(2,739	)
Prepaid expenses and other assets		(2,061	)		(4,253	)		336
Accounts payable		8,440			5,398			(4,443	)
Income taxes payable		(19,657	)		(26,904	)		3,642
Accrued expenses and other liabilities		(26,028	)		9,263			(8,257	)
NET CASH USED IN OPERATING ACTIVITIES		(39,039	)		(28,892	)		(10,067	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(2,935	)		(3,897	)		(2,250	)
Payment of contingent consideration on Aroma Naturals		(225	)		—			—
Acquisition of the Company		—			(1,444,476	)		—
NET CASH USED IN INVESTING ACTIVITIES		(3,160	)		(1,448,373	)		(2,250	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayments under bank credit agreements		—			(140,000	)		—
Borrowings under senior secured term loan facility		—			650,000			—
Borrowings under senior secured revolving credit facility		40,000			35,000			—
Borrowings under senior notes and senior subordinated notes		—			525,000			—
Repurchase of common stock		(121	)		—			—
Excess tax benefit from exercise of stock options		—			—			4,317
Deferred financing costs		—			(32,088	)		—
Net proceeds from issuance of common stock		—			433,071			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		39,879			1,470,983			4,317
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(2	)		3			11
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,322	)		(6,279	)		(7,989	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		5,627			14,784			22,773
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,305		$	8,505		$	14,784
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest	$	34,060		$	4,253		$	903
Income taxes	$	13,619		$	25,192		$	(77	)
Net decrease (increase) in accrued purchases of property and equipment	$	593		$	(763	)	$	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 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 Board of Directors and shareholders of the Predecessor approved the Merger Agreement. The transaction 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. MDP’s objective is to invest in companies with strong competitive characteristics that it believes have potential for long-term equity appreciation. 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. The agreement and plan of merger and related documents resulted in the following events, which are collectively referred to as the “Transactions”:

• the purchase by the equity investors of class A and class B common units of Holdings for approximately $433,071 in cash (Holdings contributed the $433,071 to Parent immediately prior to the closing; Parent in turn contributed the $433,071 to Merger Sub);

• the Company paid MDP a fee of $15,000, and recorded the payment as a reduction in proceeds from common stock;

• the entering into by the Merger Sub of a senior secured credit facility consisting of a $650,000 funded senior secured term loan and $125,000 senior secured revolving credit facility, which are discussed in Note 7;

• the offering by the Merger Sub of $325,000 of senior notes and $200,000 of senior subordinated notes, which are discussed in Note 7;

• the refinancing of the Predecessor’s existing indebtedness, which was approximately $140,000 as of February 6, 2007;

• the merger of the Merger Sub with and into the Predecessor, with the Predecessor as the surviving corporation, and the payment of approximately $1,413,527 as merger consideration; and

• the payment of approximately $52,925 of fees and expenses related to the transactions, including approximately $4,602 of fees expensed.

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 has been allocated to the assets and liabilities acquired based on their estimated fair market values at the date of acquisition as described in Note 3, “Purchase Accounting.”

The condensed consolidated balance sheets as of March 29, 2008 and December 29, 2007, the condensed consolidated statements of operations and cash flows for the thirteen weeks ended March 29, 2008 and the condensed consolidated statements of operations and cash flows for the period February 6, 2007 to March 31, 2007 show the operations of the Successor. The condensed consolidated statements of operations and cash flows for the period December 31, 2006 to February 5, 2007 are operations of the Predecessor.

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. PURCHASE ACCOUNTING

The Transactions have been accounted for as a purchase in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” whereby the purchase price paid to effect the Transactions was allocated to record acquired assets and liabilities at fair value. The Transactions and the allocation of the purchase price have been recorded as of February 6, 2007. The purchase price was $1,429,476.

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Management determined the fair value of assets acquired and liabilities assumed. The Company recorded purchase accounting adjustments to increase the carrying value of property and equipment and inventory, to establish intangible assets for tradenames, customer lists and favorable lease commitments and to revalue the Company’s long-term deferred rent obligation, among other items.

Allocation of the purchase price for the acquisition of the Company is based on estimates of the fair value of net assets acquired. The purchase price has been allocated as follows (in thousands):

Cash consideration purchase price:
Paid to shareholders	$	1,413,527
Transaction costs		15,949
		1,429,476
Net assets acquired:
Inventory		107,357
Property and equipment		154,995
Trade receivables		33,614
Other assets		14,960
Record intangible assets acquired:
Tradenames		359,808
Customer lists		64,700
Favorable lease agreements		2,330
Unfavorable lease agreements		(8,652	)
Current liabilities assumed		(136,640	)
Tax impact of purchase accounting adjustments		(182,753	)
Net assets acquired at fair value		409,719
Goodwill	$	1,019,757

Goodwill as a result of this transaction is not deductible for tax purposes. See Note 6, “Goodwill and Intangible Assets”, to the condensed consolidated financial statements for additional information.

Total fees and expenses related to the Transactions were approximately $52,925, consisting of approximately $4,602 of indirect transaction costs which were expensed, $15,949 of direct acquisition costs of the Company and $32,374 of deferred financing costs. Such fees include commitment, placement, financial advisory and other transaction fees as well as legal, accounting and other professional fees. The direct acquisition costs are included in the purchase price and are a component of goodwill. Deferred financing costs are comprised of approximately $15,171 related to the senior secured credit facility, which are amortized over 7 years, $10,170 related to the senior notes, which are amortized over 8 years and $7,033 related to the senior subordinated notes, which are amortized over 10 years. See Note 7, “Long-Term Debt”, for a complete description of the senior secured credit facility, senior notes and senior subordinated notes.

4. EQUITY-BASED COMPENSATION

Share–based Compensation Plans–Predecessor

Prior to the completion of the Merger, the Predecessor granted stock options, restricted stock and performance share awards to key employees and directors under share–based compensation plans. The exercise price of the options was typically determined by the actual closing price of the Predecessor’s common stock as quoted by the NYSE on the last business day before the date of grant. Compensation expense for restricted stock awards was measured at fair value on the date of the grant based on the number of shares granted and the quoted market price of the Predecessor’s common stock. Such value was recognized as expense over the vesting period of the award adjusted for actual forfeitures. The performance share grants were valued on the grant date by multiplying the number of performance shares covered by the awards that were expected to vest by the Predecessor’s closing stock price on the grant date. The cost was recognized within the condensed consolidated statements of operations on a straight line basis over the period specified in the award (generally three years for each grant) based upon the number of shares which were considered probable of vesting.

Under the terms of the Merger Agreement, each outstanding share of the Predecessor’s common stock was converted into a right to receive an amount in cash, without interest, of $34.75 (the “Merger Consideration”). In this regard, with respect to the Predecessor’s outstanding stock option grants and restricted stock and performance share awards, in accordance with the terms of the Merger Agreement, the Predecessor’s equity plan documents and various actions taken by its Board of Directors:

• all options outstanding immediately prior to the effective date of the Merger, whether or not then vested or exercisable, were canceled as of such effective date, with each holder of an option receiving for each share of common stock subject to the option, an amount equal to the Merger Consideration less the per share exercise price of such option;

• all shares of restricted stock outstanding immediately prior to the effective date of the Merger vested and became free of restrictions as of such effective date and each such share of restricted stock was converted into a right to receive the Merger Consideration; and

• immediately prior to the effective date of the Merger, the Predecessor issued to each holder of a performance share award the following number of shares of common stock: (i) with respect to the performance share award covering fiscal years 2004—2006, a number of shares equal to 60% of the target number of each recipient’s performance share award, (ii) with respect to the performance share award covering fiscal years 2005—2007, a number of shares equal to 66.67% of the target number of each recipient’s performance share award, and (iii) with respect to the performance share award covering fiscal years 2006—2008, a number of shares equal to 33.33% of the target number of each recipient’s performance share award. In connection with the closing of the Merger, each holder received the Merger Consideration for each share of common stock so issued.

The following is a summary of activity related to the stock options, restricted shares and performance shares that were in effect through the effective date of the Merger, when all of the stock options were exercised and the restricted shares and performance share units were issued:

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Predecessor’s Plan	Outstanding at December 30, 2006		Exercised/ Issued		Cancelled	Outstanding at February 6, 2007
Stock options
1998 Plan		62,559		62,559	—	—
1999 Plan		1,499,275		1,481,025	18,250	—
2005 Plan		395,950		385,950	10,000	—
Total options outstanding		1,957,784		1,929,534	28,250	—
Weighted average exercise price per option	$	23.74	$	25.20
Weighted average remaining contractual term per option		6.9 years
Restricted shares
2005 Plan		93,700		93,700	—	—
Weighted average fair market value per share at date of award	$	29.69	$	29.69
Weighted average remaining restriction period		2.2 years
Performance shares
2005 Plan		211,275		211,275	—	—
Weighted average fair market value per share at date of award	$	30.69	$	30.69
Weighted average remaining restriction period		1.2 years

Share-based compensation charges amounted to $8,638 for the period December 31, 2006 to February 5, 2007. There were no share based grants during the period December 31, 2006 to February 5, 2007. The total fair value of stock options that vested during the period from December 31, 2006 to February 5, 2007 prior to the date of the Merger was approximately $96. There were no restricted or performance shares that vested during the period from December 31, 2006 to February 5, 2007 prior to the date of the Merger.

A summary of the status of option grants and changes during the period ending on that date are presented below:

	Stock Options			Restricted Shares			Performance Shares
Predecessor	Options	Fair Value (1)		Options	Fair Value (1)		Units	Fair Value (1)
Nonvested at December 31, 2006	852,889	$	8.06	93,700	$	34.31	147,750	$	34.31
Grants	—		—	—		—	—		—
Vested(2)	852,889		8.06	93,700		34.31	147,750		34.31
Cancelled	—		—	—		—	—		—
Nonvested at February 6, 2007	—	$	—	—	$	—	—	$	—

(1) Represents the weighted average grant date fair value per share-based unit, using the Black-Scholes option pricing model for stock options and average December 29, 2006 high/low market price of the Predecessor’s common stock for restricted and performance shares.

(2) All of the share based units became immediately vested on the date of the Merger.

As of February 5, 2007, there was approximately $5,238 of total unrecognized compensation cost related to stock option grants and $2,930 of total unrecognized compensation costs related to restricted shares and performance shares awards, under stock–based compensation plans. The consummation of the Merger accelerated the recognition of compensation cost, and accordingly, all of this cost was included in general and administrative expense in the condensed consolidated statements of operations for the period from December 31, 2006 to February 5, 2007.

Equity-based Compensation Plans-Successor Entity

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 as described above. 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 in connection with MDP’s purchase of its Class A common units. 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 Investor’s 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.

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 would be reduced by any Class C common unit grants actually made, and the number of combined Class B common units and Class C common units

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could 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 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 March 29, 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		—			—			—
Forfeited		—			(2,647	)		—
Repurchased		—			(4,060	)		—
Outstanding at March 29, 2008		4,271,715			396,478			475
Vested at March 29, 2008		4,271,715			90,868			47
Purchase price of award	$	101.22		$	1.00			—
Estimated fair market value of award, under SFAS 123(R)	$	99.60	(1)	$	10.39		$	18.55

(1) Implied value based upon valuation of the Class B common units and the total equity value of $433,071.

The total estimated fair value of equity awards vested during the thirteen weeks ended March 29, 2008 was $161. Share-based compensation charges for the thirteen weeks ended March 29, 2008 were $226.

As of March 29, 2008, there was approximately $2,872 of total unrecognized compensation cost related to Class B and Class C common unit equity awards and there is no expense related to the Class A common unit equity awards. This cost is expected to be recognized over the remaining vesting period, of approximately 56 months (April 2008 to November 2012).

Presented below is a summary of assumptions for the indicated period. There were no grants during the thirteen weeks ended March 29, 2008 or for the period from December 31, 2006 to February 5, 2007 by the Predecessor.

	Successor
Assumptions	Period February 6, 2007 to March 31, 2007 Option Pricing Method Black-Scholes
Weighted average fair value of awards granted	$	10.94
Weighted average volatility		30.0	%(1)
Weighted average expected term (in years)		5.0
Dividend yield		—
Weighted average risk-free interest rate		4.7	%
Weighted average expected annual forfeiture		—

(1) The Company used a five-year annualized historical volatility of guideline companies.

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.

5. 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 March 31, 2007 approximately $26,982 of the increase has been recorded as a cost of sale in the condensed consolidated statement of operations as the related inventory was sold.

The components of inventory were as follows:

	March 29, 2008		December 29, 2007
Finished goods	$	75,122	$	62,723
Work-in-process		368		559
Raw materials and packaging		6,210		6,681
	$	81,700	$	69,963

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6. GOODWILL AND 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
March 29, 2008
Indefinite life:
Tradenames	N/A	$	359,862	$	—		$	359,862
Finite-lived intangible assets:
Customer lists	5		64,700		(15,423	)		49,277
Favorable lease agreements	5		2,330		(732	)		1,598
Other	3		36		(15	)		21
Total finite-lived intangible assets			67,066		(16,170	)		50,896
Total intangible assets		$	426,928	$	(16,170	)	$	410,758
December 29, 2007
Indefinite life:
Tradename	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 $3,484 for the thirteen weeks ended March 29, 2008, $2,139 for the period February 6, 2007 to March 31, 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.

Aggregate amortization expense related to intangible assets at March 29, 2008 in the remainder of fiscal 2008 and in each of the next five fiscal years is expected to be as follows:

2008	$	10,430
2009		13,761
2010		12,645
2011		12,499
2012		1,353
2013		143
Thereafter		65
Total	$	50,896

Goodwill

The Company has two reportable segments – retail and wholesale. In connection with the Transactions, the Company recorded goodwill in the amount of $1,019,757. This goodwill was allocated to retail in the amount of $354,937 and wholesale in the amount of $664,820. Subsequent to the Transactions an additional $225 of goodwill was recorded in relation to an additional purchase price payment related to the Aroma Naturals acquisition. This payment was accrued in the fourth quarter of 2007 and paid during the first quarter of 2008. Aroma Naturals is reported within the wholesale segment.

Goodwill is non-amortizable but is subject to annual impairment tests in accordance with SFAS 142. The Company completed its annual impairment testing of goodwill and indefinite-lived intangible assets as of November 3, 2007 and no impairment was recorded as a result of these tests.

7. LONG-TERM DEBT

Long-term debt and credit arrangements consisted of the following at March 29, 2008 and December 29, 2007:

	March 29, 2008		December 29, 2007
Senior secured revolving credit facility	$	45,000	$	5,000
Senior secured term loan facility		600,125		600,125
Senior notes due 2015		325,000		325,000
Senior subordinated notes due 2017		200,000		200,000
Total		1,170,125		1,130,125
Less current portion		6,500		6,500
Long-term debt	$	1,163,625	$	1,123,625

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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 March 29, 2008, the weighted average combined interest rate on the senior secured term loan facility and senior secured revolving credit facility was 4.63%.

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.

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 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 March 29, 2008, the consolidated total secured debt to consolidated EBITDA ratio was 3.33 to 1.00.

As of March 29, 2008, $45,000 was outstanding under the senior secured revolving credit facility and there were outstanding letters of credit of $1,494, leaving $78,506 in availability. As of March 29, 2008, the Company was in compliance with all covenants under the Credit Facility.

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	%

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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 as defined within the indenture, 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.

8. INCOME TAXES

The income tax benefit for the thirteen weeks ended March 29, 2008 was $4,878 compared to $13,206 for the thirteen weeks ended March 31, 2007. The effective tax rates for the thirteen weeks ended March 29, 2008 and March 31, 2007 were 38.3% and 36.9%, respectively. The change in the effective tax rate is primarily the net result of non-recurring effects of the merger in the prior year quarter.

The Company files income tax returns in the U.S. federal jurisdiction, various states, and in the United Kingdom. The Company’s earliest open U.S. federal tax year and United Kingdom tax year is 2005. In addition, open tax years related to states remain subject to examination but are not considered material.

9. 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.

On February 14, 2007 the Company entered into an interest rate swap agreement to hedge a portion of the cash flows associated with the $650,000 senior secured credit facility. The agreement has a total notional value of $415,000. The $415,000 notional value amortizes over the life of the swap. The interest rate swap agreement effectively converts approximately 60% of the outstanding amount under the senior secured 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.

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. The interest rate swap agreement terminates on February 14, 2010.

The Company has determined that the interest rate swap agreement has been appropriately designated and documented as a cash flow hedge under SFAS 133. To record this swap as of March 29, 2008 the Company recorded the fair value of the derivative liability of $18,000 in other current liabilities, offset by $10,957 and $7,043 in other comprehensive loss and deferred taxes, respectively. For the thirteen weeks ended March 29, 2008 and the period February 6, 2007 to March 31, 2007 there was no hedge ineffectiveness recorded in earnings.

10. FAIR VALUE MEASUREMENTS

On December 30, 2007 the Company adopted SFAS No. 157 “Fair Value Measurements” (SFAS 157), as described in Note 13, “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 March 29, 2008.

	Fair Value Measurements on a Recurring Basis as of March 29, 2008
	Level 1		Level 2		Level 3		Total
Assets
Marketable securities	$	464	$	—	$	—	$	464
Total Assets	$	464	$	—	$	—	$	464
Liabilities
Interest rate swap	$	—	$	18,000	$	—	$	18,000
Deferred compensation plan		464		—		—		464
Total Liabilities	$	464	$	18,000	$	—	$	18,464

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 assets and liabilities for outstanding derivative contracts. As of March 29, 2008

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the only derivative instrument outstanding is the interest rate swap described in Note 9, “Derivative Financial Instruments.” The interest rate swap is valued using an income approach which consists of 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 counterparty.

11. COMPREHENSIVE LOSS

The computation of comprehensive loss is as follows:

	Successor			Successor			Predecessor
	Thirteen Weeks Ended March 29, 2008			Period February 6, 2007 to March 31, 2007			Period December 31, 2006 to February 5, 2007
Net loss	$	(7,858	)	$	(20,732	)	$	(1,830	)
Other comprehensive (loss) income:
Currency translation adjustments		(33	)		20			58
Change in unrealized loss on interest rate swap		(5,227	)		(1,457	)		—
Other comprehensive (loss) income		(5,260	)		(1,437	)		58
Comprehensive loss	$	(13,118	)	$	(22,169	)	$	(1,772	)

12. RELATED PARTY TRANSACTIONS

Upon closing of the Transactions, the Company entered into a management services contract with an affiliate of MDP pursuant to which MDP will provide the Company with management and consulting services and financial and advisory services on an ongoing basis for a fee of $1,500 per year, payable in equal quarterly installments, and reimbursement of out–of–pocket expenses incurred in connection with the provision of such services. Under this management services agreement, the Company also agreed to provide customary indemnification. Pursuant to such agreement, at the closing of the Transactions, MDP received a fee of approximately $15,000 plus out–of–pocket expenses for services rendered in connection with the Transactions. The Company recorded $375 associated with the annual management fee for the thirteen weeks ended March 29, 2008 and for the period February 6, 2007 to March 31, 2007, respectively.

13. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 does not expand or require new fair value measures, however the application of this statement may change current practice. The requirements of SFAS 157 are first effective for our fiscal year beginning December 30, 2007 and interim periods within that fiscal year. However, in February 2008 the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until the subsequent year.

Accordingly, on December 30, 2007 the Company adopted the provisions of SFAS 157 with respect to its financial assets and liabilities. The provisions of SFAS 157 have not been applied to its non-financial assets and liabilities. The application of SFAS 157 to non-financial assets and liabilities is effective for our fiscal year beginning on January 4, 2009. The Company is still evaluating the impact of adopting SFAS 157 with respect to our non-financial assets and liabilities, however, we do not believe the adoption will have a material effect on our financial condition, results of operations and cash flows. See Note 10, “Fair Value Measurements” for the impact of the adoption of SFAS 157 related to the financial assets and liabilities of the Company.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permits entities to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements. The Company adopted SFAS 159 on December 30, 2007 and has elected not to apply the fair value option to any of its financial instruments other than those described in Note 10.

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 its financial condition, results of operations and cash flows.

14. 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 3, 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 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 March 29, 2008 (Successor), the period February 6, 2007 to March 31, 2007 (Successor), and the period December 31, 2006 to February 5, 2007 (Predecessor):

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Successor Thirteen Weeks Ended March 29, 2008	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per Consolidated Statements of Operations
Sales	$	72,839	$	68,060	$	—		$	140,899
Gross profit		45,301		30,970		91			76,362
Selling expenses		40,411		5,365		3,738			49,514
Operating margin		4,889		25,605		(19,535	)		10,959
Other expense, net		—		—		(23,695	)		(23,695	)
Loss before benefit from income taxes		—		—		—			(12,736	)
Successor Period February 6, 2007 to March 31, 2007	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per Consolidated Statements of Operations
Sales	$	42,849	$	46,768	$	—		$	89,617
Gross profit		29,373		21,585		(27,450	)		23,508
Selling expenses		23,719		3,269		2,455			29,443
Operating margin		5,654		18,316		(41,727	)		(17,757	)
Other expense, net		—		—		(15,841	)		(15,841	)
Loss before benefit from income taxes		—		—		—			(33,598	)
Predecessor Period December 31, 2006 to February 5, 2007	Retail		Wholesale		Unallocated/ Corporate/ Other			Balance per 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
Operating margin		1,230		11,398		(13,828	)		(1,200	)
Other expense, net		—		—		(970	)		(970	)
Loss before benefit from income taxes		—		—		—			(2,170	)

Revenues from the Company’s international operations were approximately $9,607 for the thirteen weeks ended March 29, 2008 and $5,374 and $2,021 for the periods February 6, 2007 to March 31, 2007 and December 31, 2006 to February 5, 2007, respectively. Long lived assets of the Company’s international operations were approximately $1,094 and $1,215 as of March 29, 2008 and March 31, 2007, respectively. Goodwill at March 29, 2008 amounted to $1,019,982 with retail and wholesale allocated $354,937 and $665,045 respectively.

15. 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 have been closed. The Company anticipates no further accruals related to this restructuring.

In accounting for the restructuring charges, 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:

	Thirteen Weeks Ended March 29, 2008						Accrued as of March 29, 2008
	Expense		Costs Paid		Non-Cash Charges
Occupancy related	$	632	$	201	$	—	$	431
Fixed asset impairment and other		493		—		451		42
Employee related		350		94		—		256
Total	$	1,475	$	295	$	451	$	729

16. LOSS CONTINGENCY

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 be 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 receivable balance due from Linens ‘N Things and is an unsecured creditor with respect to that receivable. At this point in time, the Company does not have sufficient information to conclude as to the ultimate collectability of the receivable and cannot yet reasonably predict the likely outcome of this bankruptcy proceeding. In addition, the amount of the receivable is subject to reconciliation with Linens ‘N Things and that reconciliation has not yet occurred. As a preliminary matter, the Company estimates that its potential credit exposure is anywhere from $0 to $6,000. Accordingly, no provision for loss contingency has been recorded in the accompanying condensed consolidated statements of financial position or operations as of March 29, 2008. The Company will continue to monitor the proceedings.

17. FINANCIAL INFORMATION RELATED TO GUARANTOR SUBSIDIARIES

As discussed in Note 7, 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 issuer’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.

- 15 -

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.

Condensed consolidating financial information is as follows:

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING BALANCE SHEET

March 29, 2008

(in thousands)

	Parent		Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary		Intercompany Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	857		$	1,855		$	593	$	—		$	3,305
Accounts receivable, net		—		36,972			690			7,977		—			45,639
Inventory		—		71,978			1,627			10,817		(2,722	)		81,700
Prepaid expenses and other current assets		—		14,795			259			490		—			15,544
Deferred tax assets		—		22,090			95			—		—			22,185
TOTAL CURRENT ASSETS		—		146,692			4,526			19,877		(2,722	)		168,373
PROPERTY AND EQUIPMENT, NET		—		148,740			775			1,094		—			150,609
MARKETABLE SECURITIES		—		464			—			—		—			464
GOODWILL		—		1,010,862			9,120			—		—			1,019,982
INTANGIBLE ASSETS		—		408,027			2,731			—		—			410,758
DEFERRED FINANCING COSTS		—		27,618			—			—		—			27,618
OTHER ASSETS		—		1,264			—			273		—			1,537
INVESTMENT IN SUBSIDIARIES		403,593		5,087			—			—		(408,680	)		—
TOTAL ASSETS	$	403,593	$	1,748,754		$	17,152		$	21,244	$	(411,402	)	$	1,779,341
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	—	$	28,384		$	359		$	1,308	$	—		$	30,051
Accrued payroll		—		13,043			125			303		—			13,471
Accrued interest		—		6,300			—			—		—			6,300
Accrued purchases of property and equipment		—		2,225			—			—		—			2,225
Other accrued liabilities		—		30,442			1,825			1,075		—			33,342
Current portion of long-term debt		—		6,500			—			—		—			6,500
TOTAL CURRENT LIABILITIES		—		86,894			2,309			2,686		—			91,889
DEFERRED COMPENSATION OBLIGATION		—		659			—			—		—			659
DEFERRED TAX LIABILITIES		—		107,450			—			—		—			107,450
LONG-TERM DEBT		—		1,163,625			—			—		—			1,163,625
DEFERRED RENT		—		10,207			11			—		—			10,218
OTHER LONG-TERM LIABILITIES		—		1,907			—			—		—			1,907
INTERCOMPANY		—		(25,988	)		15,937			12,366		(2,315	)		—
STOCKHOLDERS’ EQUITY		403,593		404,000			(1,105	)		6,192		(409,087	)		403,593
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	403,593	$	1,748,754		$	17,152		$	21,244	$	(411,402	)	$	1,779,341

- 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 and cash equivalents	$	—	$	1,316		$	2,341		$	1,970		$	—		$	5,627
Accounts receivable, net		—		40,655			1,251			10,220			—			52,126
Inventory		—		60,580			1,470			9,494			(1,581	)		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			22,471			(1,581	)		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
INVESTMENT IN SUBSIDIARIES		422,598		6,370			—			—			(428,968	)		—
TOTAL ASSETS	$	422,598	$	1,741,753		$	18,318		$	23,677		$	(430,549	)	$	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		—		(28,735	)		15,904			22,753			(9,922	)		—
STOCKHOLDERS’ EQUITY		422,598		417,221			(977	)		(1,610	)		(420,627	)		416,605
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	422,598	$	1,741,753		$	18,318		$	23,677		$	(430,549	)	$	1,775,797

- 17 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Thirteen Weeks Ended March 29, 2008

(in thousands)

	Parent			Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
Sales	$	—		$	135,519		$	1,724		$	8,674		$	(5,018	)	$	140,899
Cost of sales		—			60,487			1,102			6,806			(3,858	)		64,537
Gross profit		—			75,032			622			1,868			(1,160	)		76,362
Selling expenses		—			46,532			829			2,213			(60	)		49,514
General and administrative expenses		—			14,373			—			—			41			14,414
Restructuring charge		—			1,475			—			—			—			1,475
Income (loss) from operations		—			12,652			(207	)		(345	)		(1,141	)		10,959
Interest income		—			—			—			(12	)		—			(12	)
Interest expense		—			23,808			—			—			—			23,808
Other income		—			(50	)		—			(51	)		—			(101	)
Loss before benefit from income taxes		—			(11,106	)		(207	)		(282	)		(1,141	)		(12,736	)
Benefit from income taxes		—			(4,281	)		(80	)		(80	)		(437	)		(4,878	)
Loss before equity in (earnings of) losses of subsidiaries		—			(6,825	)		(127	)		(202	)		(704	)		(7,858	)
Equity in (earnings of) losses of subsidiaries, net of tax		7,858			329			—			—			(8,187	)		—
Net (loss) income	$	(7,858	)	$	(7,154	)	$	(127	)	$	(202	)	$	7,483		$	(7,858	)

- 18 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Period February 6, 2007 to March 31, 2007

(in thousands)

	Parent			Issuer of Notes			Guarantor Subsidiaries			Non Guarantor Subsidiary			Intercompany Eliminations			Consolidated
Sales	$	—		$	88,336		$	879		$	4,752		$	(4,350	)	$	89,617
Cost of sales		—			60,544			1,187			7,465			(3,087	)		66,109
Gross profit		—			27,792			(308	)		(2,713	)		(1,263	)		23,508
Selling expenses		—			27,662			547			1,234			—			29,443
General and administrative expenses		—			11,822			—			—			—			11,822
Income (loss) from operations		—			(11,692	)		(855	)		(3,947	)		(1,263	)		(17,757	)
Interest income		—			—			—			(12	)		—			(12	)
Interest expense		—			15,863			—			—			—			15,863
Other income		—			(18	)		—			8			—			(10	)
Loss before benefit from provision for income taxes		—			(27,537	)		(855	)		(3,943	)		(1,263	)		(33,598	)
Benefit from income taxes		—			(10,735	)		(367	)		(1,183	)		(581	)		(12,866	)
Loss before equity in (earnings of) losses of subsidiaries		—			(16,802	)		(488	)		(2,760	)		(682	)		(20,732	)
Equity losses of subsidiaries, net of tax		(20,732	)		(3,248	)		—			—			23,980			—
Net (loss) income	$	(20,732	)	$	(20,050	)	$	(488	)	$	(2,760	)	$	23,298		$	(20,732	)

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 losses of subsidiaries, net of tax		357			—			—			(357	)		—
Net loss	$	(1,374	)	$	(147	)	$	(210	)	$	(99	)	$	(1,830	)

- 19 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Thirteen Weeks Ended March 29, 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	$	(7,858	)	$	(7,154	)	$	(127	)	$	(202	)	$	7,483		$	(7,858	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		—			11,327			129			139			—			11,595
Unrealized loss on marketable securities		—			17			—			—			—			17
Stock based compensation expense		—			226			—			—			—			226
Deferred taxes		—			1,000			335			—			—			1,335
Loss on disposal and impairment of property and equipment		—			462			—			—			—			462
Investments in marketable securities		—			(222	)		—			—			—			(222	)
Equity in earnings of subsidiaries		7,858			(329	)		—			—			(7,529	)		—
Changes in assets and liabilities
Accounts receivable, net		—			3,682			560			2,226			—			6,468
Inventory		—			(11,397	)		(157	)		(1,343	)		1,141			(11,756	)
Prepaid expenses and other assets		—			(1,968	)		(193	)		100			—			(2,061	)
Accounts payable		—			8,033			3			404			—			8,440
Income Taxes Payable		—			(19,657	)		—			—			—			(19,657	)
Accrued expenses and other liabilities		—			(24,933	)		(850	)		(245	)		—			(26,028	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		—			(40,913	)		(300	)		1,079			1,095			(39,039	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		—			(2,894	)		(7	)		(34	)		—			(2,935	)
Payment of contingent consideration on Aroma Naturals		—			—			(225	)		—			—			(225	)
NET CASH USED IN INVESTING ACTIVITIES		—			(2,894	)		(232	)		(34	)		—			(3,160	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Borrowings under senior secured revolving credit facility		—			40,000			—			—			—			40,000
Repurchase of common stock		—			(121	)		—			—			—			(121	)
Intercompany		—			3,469			46			(2,420	)		(1,095	)		—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		—			43,348			46			(2,420	)		(1,095	)		39,879
EFFECT EXCHANGE RATE CHANGES ON CASH		—			—			—			(2	)		—			(2	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			(459	)		(486	)		(1,377	)		—			(2,322	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		—			1,316			2,341			1,970			—			5,627
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	857		$	1,855		$	593		$	—		$	3,305

- 20 -

YANKEE HOLDING CORP. AND SUBSIDIARIES (SUCCESSOR)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Period February 6, 2007 to March 31, 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	$	(20,732	)	$	(20,050	)	$	(488	)	$	(2,760	)	$	23,298		$	(20,732	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		—			6,761			73			38			—			6,872
Unrealized loss on marketable securities		—			230			—			—			—			230
Stock based compensation expense		—			480			—			—			—			480
Deferred taxes		—			(10,080	)		325			—			—			(9,755	)
Non-cash charge related to increased inventory carrying value		—			23,234			559			3,189			—			26,982
Investments in marketable securities		—			(368	)		—			—			—			(368	)
Equity in earnings of subsidiaries		20,732			(3,248	)		—			—			(17,484	)		—
Changes in assets and liabilities
Accounts receivable, net		—			(10,780	)		192			(1,066	)		—			(11,654	)
Inventory		—			(3,492	)		72			(2,270	)		1,239			(4,451	)
Prepaid expenses and other assets		—			(3,978	)		(15	)		(260	)		—			(4,253	)
Accounts payable		—			5,381			10			7			—			5,398
Accrued expenses and other liabilities		—			(17,301	)		(463	)		123			—			(17,641	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		—			(33,211	)		265			(2,999	)		7,053			(28,892	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		—			(3,841	)		—			(56	)		—			(3,897	)
Acquisition of the Company		—			(1,440,918	)		(1,834	)		(1,724	)		—			(1,444,476	)
NET CASH USED IN INVESTING ACTIVITIES		—			(1,444,759	)		(1,834	)		(1,780	)		—			(1,448,373	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayments of existing bank loan		—			(140,000	)		—			—			—			(140,000	)
Net proceeds from issuance of common stock		433,071			—			—			—			—			433,071
Borrowings under senior secured term loan facility		—			650,000			—			—			—			650,000
Deferred financing costs		—			(32,088	)		—			—			—			(32,088	)
Borrowings under senior secured revolving credit facility		—			35,000			—			—			—			35,000
Borrowings under senior notes and senior subordinated notes		—			525,000			—			—			—			525,000
Intercompany		(433,071	)		433,592			1,723			4,809			(7,053	)		—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		—			1,471,504			1,723			4,809			(7,053	)		1,470,983
EFFECT EXCHANGE RATE CHANGES ON CASH		—			—			—			3			—			3
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		—			(6,466	)		154			33			—			(6,279	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		—			10,781			2,156			1,847			—			14,784
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	4,315		$	2,310		$	1,880		$	—		$	8,505

- 21 -

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 income to net cash provided by (used in) 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			—			—			(357	)		—
Changes in assets and liabilities
Accounts receivable, net		(1,190	)		159			1,210			—			179
Inventory		(2,396	)		152			(1,029	)		534			(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	)		(999	)		78			(10,067	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(2,247	)		—			(3	)		—			(2,250	)
NET CASH USED IN INVESTING ACTIVITIES		(2,247	)		—			(3	)		—			(2,250	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Excess tax benefit from exercise of stock options		4,317			—			—			—			4,317
Intercompany		660			324			(906	)		(78	)		—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		4,977			324			(906	)		(78	)		4,317
EFFECT EXCHANGE RATE CHANGES ON CASH		—			—			11			—			11
NET DECREASE IN CASH AND CASH EQUIVALENTS		(5,886	)		(206	)		(1,897	)		—			(7,989	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		16,667			2,362			3,744			—			22,773
CASH AND CASH EQUIVALENTS, 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 constructing 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 could affect our operating results.

Other income statement accounts

Included within cost of sales on our 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 had designated certain derivative arrangements entered into on February 14, 2007 as cash flow hedges and recognizes the fair value of the instruments on the 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 this swap as of March 29, 2008 the Company recorded the fair value of the derivative liability of $18.0 million in other current liabilities, offset by $11.0 million and $7.0 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 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 arose at the time of our recapitalization in 1998 and reflects the tax benefit of future tax deductions for 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 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 share-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. Share-based compensation charges of $0.2 million, $8.6 million and $0.5 million were recorded in the accompanying condensed consolidated statements of operations for the thirteen weeks ended March 29, 2008 and the periods December 31, 2006 to February 5, 2007 and February 6, 2007 to March 31, 2007, respectively. The increase in share-based compensation charges during the period December 31, 2006 to February 5, 2007 was attributable to share–based compensation charges 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.

Impact of Merger and Transactions

The Transactions have been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations”, whereby the purchase price paid to effect the Transactions was preliminarily allocated to acquired assets and liabilities at fair value. The Transactions and the allocation of the purchase price have been recorded as of February 6, 2007.

Management determined the value of assets as well as liabilities acquired. The Company recorded purchase accounting adjustments to increase the carrying value of property and equipment and inventory, to establish intangible assets for tradenames, customer lists and favorable lease commitments and to revalue the Company’s long-term deferred rent obligation, among other items.

Allocation of the purchase price for the acquisition of the Company was based on estimates of the fair value of net assets acquired. The purchase price has been allocated as follows (in thousands):

Cash consideration purchase price:
Paid to shareholders	$	1,413,527
Transaction costs		15,949
		1,429,476
Net assets acquired:
Inventory		107,357
Property and equipment		154,995
Trade receivables		33,614
Other assets		14,960
Record intangible assets acquired:
Tradenames		359,808
Customer lists		64,700
Favorable lease agreements		2,330
Unfavorable lease agreements		(8,652	)
Current liabilities assumed		(136,640	)
Tax impact of purchase accounting adjustments		(182,753	)
Net assets acquired at fair value		409,719
Goodwill	$	1,019,757

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Goodwill as a result of this transaction is not deductible for tax purposes. See Note 6, “Goodwill and Intangible Assets,” to the accompanying condensed consolidated financial statements for additional information.

In connection with the Transactions, the Company incurred significant additional indebtedness, including $650.0 million on the Senior Secured Term Loan Facility, $325.0 million of senior notes and $200.0 million of senior subordinated notes, which will increase the Company’s interest expense. In addition, amortization expense will increase significantly due to increases in the amortizable intangible assets acquired in the Merger.

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 may 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.

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 and 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 38–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 by 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 of March 29, 2008, we had 463 Company–owned and operated stores, including 28 Illuminations stores, and approximately 19,400 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 North America, we sell our products through international distributors and to an international wholesale customer network through our distribution center located in Bristol, England. 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 March 29, 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.

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 thirteen weeks ended March 31, 2007 as a single measurement period. Due to the Transactions, we believe that comparisons between the thirteen weeks ended March 29, 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 March 31, 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 thirteen

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weeks ended March 31, 2007. This combined presentation for the thirteen weeks ended March 31, 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 March 31, 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 thirteen week periods ended March 29, 2008 and March 31, 2007, notwithstanding the presentation in our condensed consolidated statements of operations for the thirteen 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 March 31, 2007 (Successor). We do not believe a discussion of the various periods presented for the thirteen 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 thirteen weeks of fiscal 2008 to the thirteen 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 March 31, 2007 (Successor).

The following table reconciles the thirteen weeks ended March 31, 2007 condensed consolidated statements of operations with the discussion of the results of operations that follows:

	Successor Period February 6, 2007 to March 31, 2007			Predecessor Period December 31, 2006 to February 5, 2007			Non-GAAP Combined Thirteen Weeks Ended March 31, 2007
Sales	$	89,617		$	53,382		$	142,999
Cost of sales		66,109			24,553			90,662
Gross profit		23,508			28,829			52,337
Selling expenses		29,443			16,201			45,644
General and administrative expenses		11,822			13,828			25,650
Income (loss) from operations		(17,757	)		(1,200	)		(18,957	)
Interest income		(12	)		(1	)		(13	)
Interest expense		15,863			986			16,849
Other income		(10	)		(15	)		(25	)
Loss before benefit from income taxes		(33,598	)		(2,170	)		(35,768	)
Benefit from income taxes		(12,866	)		(340	)		(13,206	)
Net loss	$	(20,732	)	$	(1,830	)	$	(22,562	)

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 March 29, 2008		Non-GAAP Combined Thirteen Weeks Ended March 31, 2007
Statements of Operations Data:
Sales:
Wholesale	48.3	%	51.5	%
Retail	51.7	%	48.5	%
Total net sales	100.0	%	100.0	%
Cost of sales	45.8	%	63.4	%
Gross profit	54.2	%	36.6	%
Selling expenses	35.1	%	31.9	%
General and administrative expenses	10.2	%	17.9	%
Restructuring charge	1.1	%	—	%
Income (loss) from operations	7.8	%	(13.2	)%%
Net other expense	16.8	%	11.8	%
Loss before benefit from income taxes	(9.0	)%	(25.0	)%
Benefit from income taxes	(3.5	)%	(9.2	)%
Net Loss	(5.5	)%	(15.8	)%

Thirteen weeks ended March 29, 2008 versus the Combined Thirteen weeks ended March 31, 2007

SALES

Sales decreased 1.5% to $140.9 million for the thirteen weeks ended March 29, 2008 from $143.0 million for the thirteen weeks ended March 31, 2007.

Retail Sales

Retail sales increased 5.0% to $72.8 million for the thirteen weeks ended March 29, 2008 from $69.4 million for the thirteen weeks ended March 31, 2007. The increase in retail sales was achieved primarily through 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 $3.2 million, increased sales in our catalog and Internet division of approximately $1.5 million and the addition of seven new Yankee Candle retail stores and one new Illuminations store opened in 2008 which increased sales by approximately $0.2 million, offset in part by decreased comparable store sales of $1.5 million.

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Comparable store and catalog and Internet sales for our Yankee Candle stores increased 0.1% for the thirteen weeks ended March 29, 2008 compared to the thirteen weeks ended March 31, 2007. Yankee Candle retail comparable store sales for the thirteen weeks ended March 29, 2008 decreased 2.3% compared to the thirteen weeks ended March 31, 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 403 stores included in the Yankee Candle comparable store base as of March 29, 2008, and 26 of these stores were included for less than a full year. There were 463 retail stores open as of March 29, 2008 compared to 426 retail stores open as of March 31, 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 7.6% to $68.1 million for the thirteen weeks ended March 29, 2008 from $73.6 million for the thirteen weeks ended March 31, 2007. The decrease in wholesale sales was primarily from decreased sales to domestic wholesale locations in operation prior to March 31, 2007 of approximately $8.9 million, offset in part by increased sales in our European operations of approximately $2.2 million and increased sales to domestic wholesale locations opened during the last 12 months of approximately $1.2 million.

GROSS PROFIT

Gross profit is sales less cost of sales. Included within cost of sales are the cost of the merchandise we sell through our retail 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 45.9% to $76.4 million for the thirteen weeks ended March 29, 2008 from $52.3 million for the thirteen weeks ended March 31, 2007. As a percentage of sales, gross profit increased to 54.2% for the thirteen weeks ended March 29, 2008 from 36.6% for the thirteen weeks ended March 31, 2007. The effect of purchase accounting adjustments decreased gross profit in the prior year by approximately $27.5 million or 19.3% 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 57.9% to $45.4 million for the thirteen weeks ended March 29, 2008 from $28.7 million for the thirteen weeks ended March 31, 2007. The increase in gross profit dollars was primarily due to the absence of purchase accounting adjustments which decreased gross profit in the prior year by approximately $16.4 million and sales increases in our retail operations which contributed approximately $4.5 million, offset in part by increased costs in supply chain operations of approximately $0.8 million and increased promotional activity of $3.4 million.

As a percentage of sales, retail gross profit increased to 62.3% for the thirteen weeks ended March 29, 2008 from 41.4% for the thirteen weeks ended March 31, 2007. The increase in retail gross profit rate was primarily the result of the absence of purchase accounting adjustments which decreased gross profit in the prior year by approximately 23.5%, offset in part by decreased productivity in supply chain operations of approximately 0.9% and increased marketing and promotional activity of 1.7%.

Wholesale Gross Profit

Wholesale gross profit dollars increased 31.3% to $31.0 million for the thirteen weeks ended March 29, 2008 from $23.6 million for the thirteen weeks ended March 31, 2007. The increase in wholesale gross profit dollars was primarily attributable to the absence of purchase accounting adjustments which decreased gross profit in the prior year by approximately $11.2 million, offset in part by sales decreases within our domestic wholesale operations, which decreased gross profit by approximately $2.0 million, increased costs in our supply chain operations of approximately $1.1 million and an increased marketing and promotional activity of approximately $0.7 million.

As a percentage of sales, wholesale gross profit increased to 45.5% for the thirteen weeks ended March 29, 2008 from 32.1% for the thirteen weeks ended March 31, 2007. The increase in wholesale gross profit rate was primarily the result of the absence of purchase accounting adjustments which decreased gross profit in the prior year by approximately 15.2%, offset in part by decreased productivity in supply chain operations of 1.2% and increased marketing and promotional activity of 0.6%.

SELLING EXPENSES

Selling expenses increased 8.5% to $49.5 million for the thirteen weeks ended March 29, 2008 from $45.6 million for the thirteen weeks ended March 31, 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 $3.7 million and $2.5 million related to additional occupancy costs is included in selling expense for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively. As a percentage of sales, selling expenses were 35.1% and 31.9% for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively.

Retail Selling Expenses

Retail selling expenses increased 6.2% to $41.1 million for the thirteen weeks ended March 29, 2008 from $38.7 million for the thirteen weeks ended March 31, 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 seven new Yankee Candle retail stores opened in 2008 and the 27 new Yankee Candle retail stores opened in 2007 which together contributed approximately $1.6 million and increased expenses in our Illuminations stores of approximately $0.8 million.

As a percentage of retail sales, retail selling expenses were 56.5% and 55.8% for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively. The increase in selling expense rate was primarily due to higher selling expense associated with the Illuminations stores of 0.2%, the de-leveraging of selling expenses by 0.3% as a result of decreased comparable retail sales and the selling expenses of our two most recent store classes of 0.2%. These two store classes are considered immature stores, which are generally stores that are less than three years old. Immature stores typically generate higher selling expenses as a percentage of sales than stores that have been open for more than three years since fixed costs, as a percent of sales, are higher in the early sales maturation period.

Wholesale Selling Expenses

Wholesale selling expenses increased 21.5% to $8.4 million for the thirteen weeks ended March 29, 2008 from $6.9 million for the thirteen weeks ended March 31, 2007. These expenses relate to payroll, advertising and other operating costs. As a percentage of wholesale sales, wholesale selling expenses were 12.3% and 9.4% for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively. The increase in wholesale selling expenses in dollars and rate was primarily the result of amortization related to customer lists valued as part of the transaction. Amortization increased wholesale selling expenses by approximately $1.2 million or 1.9%.

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SEGMENT PROFITABILITY

Segment profitability is sales less cost of sales and selling expenses.

Retail Operations

Segment profitability for our retail operations was $4.2 million or 5.8% of retail sales for the thirteen weeks ended March 29, 2008 compared to a loss of approximately $10.0 million or 14.4% of retail sales for the thirteen weeks ended March 31, 2007. The increase in retail segment profitability in dollars was primarily due to the absence of purchase accounting adjustments which decreased segment profit in the prior year by approximately $16.2 million and sales increases in our retail operations which contributed approximately $4.5 million, offset in part by increased promotional activity of approximately $3.4 million, increased selling expenses in our Yankee Candle and Illuminations retail stores of approximately $2.3 million and increased costs in supply chain operations of approximately $0.8 million.

The increase in retail segment profit rate was primarily due to the absence of purchase accounting adjustments which decreased segment profit in the prior year by approximately 23.3%, offset in part by increased selling expenses in our Yankee Candle and Illuminations retail stores of approximately 0.5%, increased productivity in our supply chain operations of 0.9% and increased marketing and promotional activity of 1.7%.

Wholesale Operations

Segment profitability for our wholesale operations, including Europe, was approximately $22.6 million or 33.2% of wholesale sales for the thirteen weeks ended March 29, 2008 compared to $16.7 million or 22.7% of wholesale sales for the thirteen weeks ended March 31, 2007. The increase in wholesale segment profitability in dollars was primarily attributable to the absence of purchase accounting adjustments which decreased segment profit in the prior year by approximately $10.0 million, offset in part by decreased sales in our domestic wholesale operations which decreased segment profit by approximately $2.0 million, increased costs in our supply chain operations of $1.1 million, increased marketing and promotional activity of approximately $0.7 million and an increase in selling expenses of approximately $0.3 million.

The decrease in wholesale segment profit rate was primarily the result of the absence of purchase accounting adjustments which decreased segment profit in the prior year by 13.3%, offset in part by decreased productivity in supply chain operations of 1.2%, increased selling expenses of 1.0% and increased marketing and promotional activity of 0.6%.

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 43.8% to $14.4 million for the thirteen weeks ended March 29, 2008 from $25.7 million for the thirteen weeks ended March 31, 2007. As a percentage of sales, general and administrative expenses were 10.2% and 17.9% for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively. The decrease in general and administrative expense in dollars and rate was primarily due to absence of purchase accounting adjustments which increased general and administrative expenses in the prior year approximately $9.9 million or 6.9%.

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 have been closed. The Company anticipates no further accruals related to this restructuring.

The following is a summary of restructuring charge activity (in thousands):

	Thirteen Weeks Ended March 29, 2008						Accrued as of March 29, 2008
	Expense		Costs Paid		Non-Cash Charges
Occupancy related	$	632	$	201	$	—	$	431
Fixed asset impairment and other		493		—		451		42
Employee related		350		94		—		256
Total	$	1,475	$	295	$	451	$	729

OTHER EXPENSE, NET

Other expense, net was $23.7 million for the thirteen weeks ended March 29, 2008 compared to $16.8 million for the thirteen weeks ended March 31, 2007. The primary component of this expense was interest expense, which was $23.8 million and $16.8 million for the thirteen weeks ended March 29, 2008 and March 31, 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 of $1,125.0 million, subsequent drawings on the senior secured revolving credit facility of $45.0 million, offset in part by decreased borrowing rates as a result of a decrease in bank lending rates. Amortization of deferred financing costs was $1.0 million and $0.7 million for the thirteen weeks ended March 29, 2008 and March 31, 2007, respectively.

PROVISION FOR INCOME TAXES

The income tax benefit for the thirteen weeks ended March 29, 2008 was $4.9 million compared to $13.2 million for the thirteen weeks ended March 31, 2007. The effective tax rates for the thirteen weeks ended March 29, 2008 and March 31, 2007 were 38.3% and 36.9%, respectively. The change in the effective tax rate is primarily the net result of non-recurring effects of the merger in the prior year quarter.

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 and the $200.0 million 9.75% senior subordinated notes. As of March 29, 2008 the Company had outstanding debt of $1,170.1 million.

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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 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.

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.

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 senior secured 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 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 March 29, 2008, the consolidated total secured debt to consolidated EBITDA ratio was 3.33 to 1.00.

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.

As a result of the Transactions, the cash flow results for the thirteen week period ended March 31, 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 March 31, 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 March 31, 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 accurate 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 March 31, 2007 cash flows with the discussion of cash flows that follows:

	Successor Period February 6, 2007 to March 31, 2007			Predecessor Period December 31, 2006 to February 5, 2007			Non-GAAP Combined Thirteen Weeks Ended March 31, 2007
Net cash used in operating activities	$	(28,892	)	$	(10,067	)	$	(38,959	)
Net cash used in investing activities		(1,448,373	)		(2,250	)		(1,450,623	)
Net cash provided by financing activities		1,470,983			4,317			1,475,300

Cash and cash equivalents as of March 29, 2008 was $3.3 million as compared to $5.6 million as of December 29, 2007. Cash used in operating activities for the

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thirteen weeks ended March 29, 2008 was $39.0 million as compared to $34.6 million, net of excess tax benefit from the exercise of stock options, for the combined thirteen weeks ended March 31, 2007. Cash used in operating activities for the thirteen weeks ended March 29, 2008 includes total payments of $13.6 million of corporate income taxes for fiscal 2007 and cash paid for interest of $34.1 million. Cash used in operating activities for the combined thirteen weeks ended March 31, 2007 includes total payments of $25.1 million of corporate income taxes for fiscal 2006 and cash paid for interest of $5.2 million.

Net cash used in investing activities for the thirteen weeks ended March 29, 2008 includes purchases of property and equipment of $2.9 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 thirteen weeks ended March 31, 2007 was $1,450.6 million and includes the acquisition of the Company for $1,444.5 million and purchases of property and equipment of $6.1 million primarily due to new stores.

Net cash provided by financing activities for the thirteen weeks ended March 29, 2008 consists of $40.0 million of borrowings under the revolving credit facility as compared to net cash provided by financing activities of $1,471.0 million, net of excess tax benefit from the exercise of stock options, for the combined thirteen weeks ended March 31, 2007. The combined thirteen weeks ended March 31, 2007 includes borrowings to finance the acquisition of $1,175.0 million, $35.0 million of borrowings under the revolving credit facility, net proceeds of $433.1 million from the issuance of common stock, partially offset by the payment of deferred financing fees of $32.1 million and repayment of $140.0 million of existing bank debt.

As March 29, 2008, we were in compliance with all covenants under our Credit Facility. We had $45.0 million outstanding under the revolving credit facility and $1.5 million of outstanding letters of credit, leaving $78.5 million in availability.

We expect that the principal sources of funding for our planned store openings and other working capital needs, capital expenditures and debt service obligations will be a combination of our available cash and cash equivalents, funds generated from operations, and borrowings under our credit facility. We believe that our current funds and sources of funds will be sufficient to fund our liquidity needs for at least the next 12 months. However, there are a number of factors that may negatively impact our available sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan and general economic conditions. In addition, borrowings under our credit facility are dependent upon our continued compliance with the financial and other covenants contained therein.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks relate primarily to changes in interest rates. At March 29, 2008, we had $645.1 million of floating rate debt, offset in part by the interest rate swap described below, and $525.0 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 $645.1 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 March 29, 2008, the weighted–average interest rate on outstanding borrowings under our Credit Facility was 4.63%. 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 March 29, 2008 borrowing levels, a 1.00% increase or decrease in current market interest rates would have the effect of causing an approximately $2.3 million additional annual pre–tax charge or credit to the statement of operations.

The variable nature of our obligations under the Credit Facility creates interest rate risk. In order to mitigate this risk, 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 “Swap”). 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. See Note 9, “Derivative Financial Instruments” to the accompanying condensed consolidated financial statements for additional information.

The second component of interest rate risk involves the short-term investment of excess cash. This risk impacts fair values, earnings and cash flows. Excess cash is primarily invested in interest bearing accounts that fluctuate with market interest rates. Based on March 29, 2008 cash equivalents, a 1.00% increase or decrease in current market interest rates would have an immaterial effect to the annual statements of operations.

We buy a variety of raw materials for inclusion in our products. The only raw material that is considered to be of a commodity nature is wax. Wax is a petroleum based product. Its market price has not historically fluctuated with the movement of oil prices and has instead generally moved with inflation. However, in the past several years the price of wax has increased at a rate significantly above the rate of inflation. 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 March 29, 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 March 29, 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 March 29, 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 common stock.

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;

• 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.

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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 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. 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

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

In the past several years, including 2007, 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.

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 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.

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. Future significant increases in wax prices could have an adverse affect on our cost of goods sold and could lower our margins.

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 Bankruptcy Code. As noted in Note 16 to the condensed consolidated financial statements we have an outstanding receivable with Linens ‘N Things and are an unsecured creditor with respect to that receivable. We do not at this time have sufficient information to make a reasonably informed judgment as to the collectability of that receivable, and it is subject to a reconciliation with Linens ‘N Things that has not yet taken place. We preliminarily estimate that our potential credit exposure is anywhere from $0 to $6 million. While we are not yet able to predict with any reasonable level of certainty the likely outcome of the bankruptcy proceedings or the impact to our business, Linens has indicated its intention to remain as an operating company. Any significant 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.

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, 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;

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• 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

Item 6. Exhibits

31.1	Certification of Craig W. Rydin Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated May 8, 2008
31.2	Certification of Bruce L. Hartman Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated May 8, 2008.
32.1	Certification of Craig W. Rydin Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated May 8, 2008.
32.2	Certification of Bruce L. Hartman Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated May 8, 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.
		/s/ Bruce L. Hartman
Date: May 8, 2008	By:	Bruce L. Hartman
		Senior Vice President, Finance and Chief Financial Officer
		(Principal Financial Officer)

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