OnTable June 7, 2004, the Company acquired substantially all of the assets of GBI Marketing, Inc. (“GBI”), a privately owned and operated distributor of selected gift products, including Yankee Candle® products, to fundraising organizations. The total purchase price was approximately $14.5 million, $3.0 million of which is contingent and will be recorded as additional goodwill upon the achievement of certain performance objectives over the next three years. The cash purchase price was borrowed under the Company’s $200 million unsecured credit facility. Due to the proximity of the acquisition date to July 3, 2004, the allocation of the purchase price is subject to refinement. The following table provides a preliminary allocation of the purchase price for the acquired assets of GBI: Contents

Taxes Table of Contents

WeTable haveof 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 and new store openings. Contents

GENERALTable ANDof ADMINISTRATIVE EXPENSES Contents

LIQUIDITYTable ANDof CAPITAL RESOURCES Contents

AsTable of July 3, 2004, we were in compliance with all covenants under our new credit facility. Available borrowings under the revolving credit facility were approximately $63.3 million. Contents

WeTable expect that, as we 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 operating 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. 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. Contents

ApproximatelyTable 74% of our sales in 2003 were generated by products we manufacture 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. Contents

WeTable have never paid a cash dividend on our common stock as a public company. Instead, we have retained earnings to repurchase our common stock and for the future operation of our business. Under the terms of our new credit agreement, we may not declare or pay dividends on our common stock unless our net worth exceeds $75 million for the fiscal quarter ended July 3, 2004. Although we currently meet this requirement, we have no current plan to pay dividends. However, we intend to periodically evaluate the advisability of a dividend program. Any determination to pay dividends in the future will be at the discretion of our board of directors and will be dependent upon our results of operations, our financial condition, contractual and legal restrictions, and other factors deemed relevant by our board of directors. Contents

NotTable Applicable of Contents

Item 6.Table Exhibitsof and Reports on Form 8-K Contents

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: July 32, ~~2004~~ 2005

Commission File Number: 001-15023

THE YANKEE CANDLE COMPANY, INC.

(Exact name of registrant as specified in its charter)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x þ No o

The registrant had 4744,~~865~~202,~~808~~908 shares of Common Stock, par value $0.01, outstanding as of ~~August~~July 928, ~~2004~~ 2005.

THE YANKEE CANDLE COMPANY, INC.

FORM 10-Q —– Quarter Ended July 32, ~~2004~~2005

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 The Yankee Candle Company, Inc. 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.” Management undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

Item	Page		~~Page~~
PART I.	Financial Information
PART I. Financial Information
Item 1.	Financial Statements-Unaudited
Item 1. Financial Statements-Unaudited
	Condensed Consolidated Balance Sheets as of July 3, 2004 and January 3, 2004			3
Condensed Consolidated Balance Sheets as of July 2, 2005 and January 1, 2005		3
	Condensed Consolidated Statements of Income for the Thirteen and Twenty-Six weeks ended July 3, 2004 and June 28, 2003			4
Condensed Consolidated Statements of Income for the Thirteen and Twenty-Six weeks ended July 2, 2005 and July 3, 2004		4
	Condensed Consolidated Statements of Cash Flows for the Twenty-Six weeks ended July 3, 2004 and June 28, 2003			5
Condensed Consolidated Statements of Cash Flows for the Twenty-Six weeks ended July 2, 2005 and July 3, 2004		5
Notes to Condensed Consolidated Financial Statements	~~Notes to Condensed Consolidated Financial Statements~~	6		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		20
Item 4.	Controls and Procedures			19
Item 4. Controls and Procedures		20
PART II.	Other Information
PART II. Other Information
Item 1.	Legal Proceedings			20
Item 1. Legal Proceedings		21
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities			20
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		21
Item 3.	Defaults Upon Senior Securities			20
Item 3. Defaults Upon Senior Securities		21
Item 4.	Submission of Matters to a Vote of Security Holders			20
Item 4. Submission of Matters to a Vote of Security Holders		21
Item 5.	Other Information			20
Item 5. Other Information		22
Item 6.	Exhibits and Reports on Form 8-K			21
Item 6. Exhibits		22
Signatures		23		21
EX-10.14 FORM OF CREDIT AGREEMENT
EX-31.1 Certification of CEO pursuant to Section 302
Ex-31.1 Section 302 Certification of Chief Executive Officer
EX-31.2 Certification of CFO pursuant to Section 302
Ex-31.2 Section 302 Certification of Chief Financial Officer
EX-32.1 Certification of CEO pursuant to Section 906
Ex-32.1 Section 906 Certification of Chief Executive Officer
EX-32.2 Certification of CFO pursuant to Section 906
Ex-32.2 Section 906 Certification of Chief Financial Officer

PART I. Financial Information

Item 1. ~~Condensed Consolidated~~ Financial Statements

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	July 3,		January 3,
	July 2,		January 1,
	2004		2004
	2005		2005
ASSETS	(Unaudited)
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	910,~~064~~114	$	4036,~~730~~424
Accounts receivable, net		2532,~~032~~558		2428,~~251~~231
Inventory		5457,~~131~~291		4246,~~186~~901
Prepaid expenses and other current assets		1011,~~765~~390		68,~~608~~112
Deferred tax assets		34,~~128~~129		3,~~128~~876
TOTAL CURRENT ASSETS		~~102~~115,~~120~~482		~~116~~123,~~903~~544
PROPERTY, PLANT AND EQUIPMENT-NET		~~114~~125,~~913~~133		~~114~~126,~~774~~365
MARKETABLE SECURITIES		1,~~978~~913		1,~~604~~499
DEFERRED FINANCING COSTS		590		588
DEFERRED TAX ASSETS		79,939		84,697
DEFERRED TAX ASSETS		93,645		100,346
GOODWILL		3,939		3,939
OTHER ASSETS		10,604		466
INTANGIBLE ASSETS		6,122		5,860
TOTAL ASSETS	$	323,850	$	334,681
OTHER ASSETS		415		455
TOTAL ASSETS	$	332,943	$	346,359
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1619,~~940~~150	$	2320,~~527~~246
Accrued payroll		10,~~343~~658		1314,~~348~~492
Accrued income taxes		—		2226,~~025~~264
Other accrued liabilities		119,~~947~~812		1518,~~168~~435
Current portion of long-term debt		—		65,000
TOTAL CURRENT LIABILITIES		39,620		79,437
TOTAL CURRENT LIABILITIES		39,230		139,068
DEFERRED COMPENSATION OBLIGATION		1,998		1,659
DEFERRED COMPENSATION OBLIGATION		1,841		1,525
LONG-TERM DEBT		182,000		75,000
LONG TERM DEBT — Less current portion		136,436		—
DEFERRED RENT		11,297		10,600
DEFERRED RENT		4,595		3,815
STOCKHOLDERS’ EQUITY		98,028		179,663
STOCKHOLDERS’ EQUITY		141,748		190,273
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	332,943	$	346,359
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	323,850	$	334,681

See notes to Condensed Consolidated Financial Statements

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data) (Unaudited)

(Unaudited)


	For the Thirteen Weeks						For the Twenty-Six Weeks
	Ended						Ended
	July 2,			July 3,			July 2,			July 3,
	2005			2004			2005			2004
Sales	$	108,548		$	100,908		$	227,803		$	207,427
Cost of sales		46,694			43,895			101,118			91,266


Gross profit		61,854			57,013			126,685			116,161
Selling expenses		32,122			29,763			64,615			57,614
General and administrative expenses		13,742			12,312			27,274			25,552


Income from operations		15,990			14,938			34,796			32,995
Interest income		(6	)		(4	)		(12	)		(9	)
Interest expense		1,526			1,159			2,462			1,971
Other expense (income)		479			(134	)		697			(227	)


Income before provision for income taxes		13,991			13,917			31,649			31,260
Provision for income taxes		5,457			5,497			12,343			12,348


Net income	$	8,534		$	8,420		$	19,306		$	18,912


Basic earnings per share	$	0.19		$	0.17		$	0.42		$	0.38


Diluted earnings per share	$	0.19		$	0.17		$	0.42		$	0.38


Weighted average shares:
Basic		45,048			49,298			45,963			49,790


Diluted		45,594			49,671			46,453			50,182

	For the Thirteen Weeks						For the Twenty-Six Weeks
	Ended						Ended
	July 3,			June 28,			July 3,			June 28,
	2004			2003			2004			2003
Sales	$	100,908		$	92,393		$	207,427		$	189,446
Cost of sales		43,895			41,218			91,266			85,297
Gross profit		57,013			51,175			116,161			104,149
Selling expenses		29,763			26,839			57,614			51,540
General and administrative expenses		12,312			11,679			25,552			24,126
Income from operations		14,938			12,657			32,995			28,483
Interest income		(4	)		(24	)		(9	)		(27	)
Interest expense		1,159			815			1,971			1,600
Other (income) expense		(134	)		37			(227	)		163
Income before provision for income taxes		13,917			11,829			31,260			26,747
Provision for income taxes		5,497			4,672			12,348			10,565
Net income	$	8,420		$	7,157		$	18,912		$	16,182
Basic earnings per share	$	0.17		$	0.13		$	0.38		$	0.30
Diluted earnings per share	$	0.17		$	0.13		$	0.38		$	0.30
Weighted average shares:
Basic		49,298			54,304			49,790			54,249
Diluted		49,671			54,650			50,182			54,609

See notes to Condensed Consolidated Financial Statements

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

(Unaudited)


	For the Twenty-Six Weeks Ended
	July 2,			July 3,
	2005			2004
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income	$	19,306		$	18,912
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		12,095			10,557
Unrealized loss (gain) on marketable securities		6			(53	)
Stock-based compensation expense		1,707			573
Deferred taxes		4,504			6,700
Loss on disposal of fixed assets		62			182

Changes in assets and liabilities:
Accounts receivable, net		(4,671	)		(702	)
Inventory		(10,872	)		(10,856	)
Prepaid expenses and other assets		(3,367	)		(4,868	)
Investments in marketable securities		(419	)		(320	)
Accounts payable		(1,058	)		(6,594	)
Accrued income taxes		(25,609	)		(21,118	)
Accrued expenses and other liabilities		(10,415	)		(5,361	)


NET CASH USED IN OPERATING ACTIVITIES		(18,731	)		(12,948	)


CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(10,045	)		(9,785	)
Proceeds from sale of property and equipment		14			9
Purchase of intangible assets		(604	)		—
Business acquisition		—			(11,500	)


NET CASH USED IN INVESTING ACTIVITIES		(10,635	)		(21,276	)


CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net borrowings under bank credit agreements		107,000			90,436
Payments for deferred financing costs		(343	)		—
Payments for redemption of common stock		(100,000	)		(71,623	)
Principal payments on long-term debt		—			(19,000	)
Dividends paid		(5,757	)		—
Net proceeds from issuance of common stock		2,231			2,720


NET CASH PROVIDED BY FINANCING ACTIVITIES		3,131			2,533


EFFECT OF EXCHANGE RATE CHANGES ON CASH		(75	)		25


NET DECREASE IN CASH AND CASH EQUIVALENTS		(26,310	)		(31,666	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		36,424			40,730


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	10,114		$	9,064


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	1,706		$	649

Income taxes	$	35,321		$	28,043

	For the Twenty-Six Weeks Ended
	July 3,			June 28,
	2004			2003
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income	$	18,912		$	16,182
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		10,557			9,139
Unrealized gain on marketable securities		(53	)		(139	)
Stock-based compensation expense		573			43
Deferred taxes		6,700			6,000
Loss on disposal of fixed assets and classic vehicles		182			122
Changes in assets and liabilities:
Accounts receivable, net		(702	)		3,050
Inventory		(10,856	)		(9,723	)
Prepaid expenses and other assets		(4,868	)		(5,604	)
Accounts payable		(6,594	)		(1,032	)
Accrued expenses and other liabilities		(27,169	)		(22,409	)
NET CASH USED IN OPERATING ACTIVITIES		(13,318	)		(4,371	)
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Purchase of property and equipment		(9,785	)		(9,745	)
Investments in marketable securities		(320	)		(233	)
Proceeds from sale of property and equipment		9			63
Business acquisition		(11,500	)		—
NET CASH USED IN INVESTING ACTIVITIES		(21,596	)		(9,915	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net borrowings under bank credit agreements and other		90,220			4,487
Repurchases of common stock		(71,623	)		(9,765	)
Principal payments on long term debt		(19,000	)		(16,000	)
Net proceeds from issuance of common stock		3,627			298
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		3,224			(20,980	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		24			20
NET DECREASE IN CASH AND CASH EQUIVALENTS		(31,666	)		(35,246	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		40,730			43,689
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	9,064		$	8,443
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	649		$	811
Income taxes	$	28,043		$	27,505
Purchase of equipment by assumption of capital lease	$	—		$	57

See notes to Condensed Consolidated Financial Statements

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of The Yankee Candle Company, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). 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, cash flows and comprehensive income for such periods. 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 years.

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 accompanying unaudited condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company ~~for~~ for the year ended January 31, ~~2004~~2005 included in the Company’s Annual Report on Form 10-K.

2. INVENTORIES

The components of inventory were as follows (in thousands):

	July 3,			January 3,
	July 2,			January 1,
	2004			2004
	2005			2005
	(in thousands)
Finished goods	$	52,813		$	41,227
Finished goods	$	47,368		$	37,537
Work-in-process		384			284
Work-in-process		464			975
Raw materials and packaging		6,369			7,165
Raw materials and packaging		7,112			4,487
		59,566			48,676
		54,944			42,999
Less LIFO adjustment		(2,275	)		(1,775	)
Less LIFO adjustment		(813	)		(813	)
	$	57,291		$	46,901
	$	54,131		$	42,186

3. ~~INCOME~~GOODWILL ~~TAXES~~AND INTANGIBLE ASSETS

The ~~Company’s~~following ~~effective~~sets ~~tax~~forth ~~rate for~~ the ~~thirteen~~intangible ~~and twenty-six weeks ended July 3~~assets, ~~2004~~excluding ~~and June 28~~goodwill, ~~2003~~by ~~was~~major ~~39.5%.~~category ~~The Company has provided and expects to continue to provide~~ (in ~~2004 a valuation allowance against the deferred tax~~ ~~asset for its international operations. The valuation allowance has been~~thousands): considered in establishing the 39.5% effective tax rate. As a result, it is anticipated that the effective tax rate for 2004 will be approximately 39.5%. Management re-evaluates the Company’s effective tax rate on a quarterly basis.


	July 2, 2005							January 1, 2005
	Gross							Gross
	Carrying		Accumulated			Net Book		Carrying		Accumulated			Net Book
	Amount		Amortization			Value		Amount		Amortization			Value
Indefinite life:
Tradename	$	1,960	$	—		$	1,960	$	1,960	$	—		$	1,960
Finite life:
Deferred financing costs		987		(326	)		661		644		(193	)		451
Customer list		3,160		(851	)		2,309		3,160		(456	)		2,704
Non-competes		963		(227	)		736		790		(114	)		676
Trademarks		231		(170	)		61		231		(162	)		69
Formulas		431		(36	)		395		—		—			—

		5,772		(1,610	)		4,162		4,825		(925	)		3,900

Total intangible assets	$	7,732	$	(1,610	)	$	6,122	$	6,785	$	(925	)	$	5,860

4The formulas are being amortized over their estimated useful lives of three years. ~~EARNINGS~~Amortization expense ~~PER~~related ~~SHARE~~to the formulas was $36 for the both the thirteen and twenty-six weeks ended July 2, 2005 as they were acquired during the first fiscal quarter. The non-compete agreements are being amortized over their estimated useful lives of three to four years. Amortization expense related to the non-compete agreements was $64 and $113 for the thirteen and twenty-six weeks ended July 2, 2005, respectively. The customer list asset is being amortized over its estimated useful life of four years. Amortization expense related to the customer list asset was $198 and $395 for the thirteen and twenty-six weeks ended July 2, 2005, respectively. The trademark asset is being amortized over 15 years. Amortization expense related to the trademark asset was $4 and $8 for the thirteen and twenty-six weeks ended July 2, 2005, respectively.

~~SFAS~~On ~~No.~~May ~~128~~18, ~~“Earnings Per Share~~2005,” ~~requires~~the ~~two~~Company ~~presentations~~entered ofinto ~~earnings~~a ~~per share,~~First ~~“basic”~~Amendment ~~and~~to ~~“diluted.”~~Revolving ~~Basic~~Credit ~~earnings~~Agreement ~~per~~(more fully ~~share~~discussed isbelow) ~~computed~~which byreplaced ~~dividing income~~the ~~available~~Company’s toexisting ~~common~~credit ~~stockholders~~facility ~~(the~~that ~~numerator)~~was byscheduled ~~the weighted-~~to ~~average~~expire ~~number~~on ofMay 19, ~~common~~2007. ~~shares~~As ~~outstanding~~a ~~(the~~result ~~denominator)~~of ~~for~~this ~~the~~transaction, ~~period. The~~approximately ~~computation~~$343 of ~~diluted~~deferred ~~earnings~~financing costs ~~per~~was ~~share~~recorded isduring ~~similar~~the tothirteen ~~basic~~weeks ~~earnings~~ended ~~per share~~July 2, ~~except~~2005. ~~that~~The ~~the~~deferred ~~denominator~~financing costs isare ~~increased~~being toamortized ~~include~~over the ~~number~~life of ~~additional~~ ~~common~~the ~~shares~~amended ~~that~~credit ~~would~~facility ~~have~~which ~~been~~expires ~~outstanding~~on ~~if the potentially~~May 18, ~~dilutive~~2010. ~~common~~Amortization ~~shares~~expense ~~had~~related ~~been~~to ~~issued.~~the ~~The~~deferred ~~denominator~~financing incosts ~~the~~was ~~calculation~~$55 ~~is based~~and on$132 for the thirteen ~~following~~and ~~weighted~~twenty-~~average~~six ~~number~~weeks ofended ~~common~~July 2, ~~shares:~~2005, respectively.

	For the Thirteen Weeks Ended				For the Twenty-Six Weeks Ended
	July 3, 2004		June 28, 2003		July 3, 2004		June 28, 2003
			(in thousands)
Basic		49,298		54,304		49,790		54,249
Add:
Shares issuable pursuant to stock option grants		373		346		392		360
Diluted		49,671		54,650		50,182		54,609

Amortization expense related to the trademark asset for the thirteen and twenty-six weeks ended July 3, 2004 was $4 and $8, respectively. Amortization expense related to the deferred financing costs for the thirteen and twenty-six weeks ended July 3, 2004 was $144 and $423, respectively. There was no amortization related to the formulas, non-compete agreements, and customer list assets for the thirteen and twenty-six weeks ended July 3, 2004.

~~For~~Aggregate ~~both~~amortization ~~the~~expense ~~thirteen~~related ~~and~~to ~~twenty-six~~intangible ~~weeks~~assets ~~ended~~at ~~June~~July 282, ~~2003,~~2005 ~~458,000 potential common shares which could dilute basic earnings per share~~ in the ~~future~~ ~~were~~remainder ~~excluded since their inclusion would have been antidilutive. For~~of ~~the~~fiscal ~~thirteen~~2005 and ~~twenty-six~~in ~~weeks~~each ~~ended~~of ~~July 3,~~the ~~2004,~~next ~~31,000~~five ~~and~~fiscal ~~28,000 potential~~years ~~common~~is ~~shares~~expected ~~which~~to ~~could~~be ~~dilute~~as ~~basic earnings per share in the~~follows: ~~future were excluded, respectively since their inclusion would have been antidilutive.~~

5. STOCK BASED COMPENSATION


2005	$	670
2006		1,340
2007		1,340
2008		619
2009		143
2010		50

Total	$	4,162

~~The Company sponsors stock option plans~~4. ~~Prior to the third quarter of fiscal 2003, the Company accounted for employee options or share awards under the intrinsic~~LONG-~~value~~TERM ~~method prescribed by Accounting Principles Board Opinion No. 25~~DEBT “Accounting for Stock Issued to Employees.” Compensation expense, if any, was recognized based on the difference between the fair value of the common stock and the exercise price of the option on the measurement date, as defined by Opinion No. 25. Pro forma disclosures of net earnings and earnings per share had been provided supplementally, as if the fair value method of accounting defined in SFAS No. 123 “Accounting for Stock Based Compensation” had been applied. Effective in the third quarter of fiscal 2003, the Company adopted the fair value recognition provisions of SFAS No. 123 using the prospective transition method provided by SFAS No. 148 “Accounting for Stock Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123.” Under the prospective transition method, the Company has valued all stock option grants beginning with grants made in fiscal 2003. These are being expensed over the vesting period based on the fair value at the date of the grant. The adoption of the fair value method of accounting for stock-based compensation resulted in a charge of $0.3 million and $0.6 million for the thirteen and twenty-six weeks ended July 3, 2004, respectively.

~~Awards~~On ~~under~~May 18, 2005, the Company’s ~~option~~entered ~~plan~~into ~~vest,~~a inFirst ~~general,~~Amendment ~~over~~to aRevolving ~~four~~Credit ~~year~~Agreement (“Amended ~~period.~~Credit ~~Therefore,~~Facility”) which amended certain terms of the ~~cost~~Revolving ~~related~~Credit toAgreement ~~stock-based~~dated ~~employee~~as ~~compensation~~of May 19, ~~included~~2004 in(“Credit ~~the~~Facility”) ~~determination~~among ofthe ~~net~~Company, ~~income~~Citizens ~~for~~Bank ~~all~~of ~~periods~~Massachusetts ~~presented~~(“Citizens inBank”) and the ~~Company’s~~other ~~historical~~lending ~~consolidated~~institutions ~~Statements~~named oftherein. ~~Income~~The Amended Credit Facility is ~~less~~being used by the ~~than~~Company ~~that~~for, ~~which~~among ~~would~~other ~~have~~things, ~~been~~working ~~recognized~~capital, ifletters ~~the~~of ~~fair~~credit, ~~value~~repurchase ~~based~~of ~~method~~the ~~had~~Company’s ~~been~~common ~~applied~~stock toand ~~all~~other ~~awards~~general ~~since~~corporate ~~the~~purposes. ~~original~~The ~~effective~~primary ~~date~~changes ofaffected ~~SFAS~~by ~~No. 123.~~the First Amendment are:

	•		While the original Credit Facility had two tranches – a $50 million tranche and a $150 million tranche – the Amended Credit Facility has a single $250 million tranche.

	•		The term of the Amended Credit Facility has been extended to May 18, 2010. Under the original Credit Facility, the $50 million tranche expired on May 18, 2005, and the $150 million tranche was to expire on May 19, 2007.

	•		Amounts outstanding under the Amended Credit Facility bear interest at a rate equal to, at the Company’s option, Citizens Bank prime rate or a Eurodollar rate that ranges from 0.50% to 0.85% above LIBOR. Under the original Credit Facility, the Eurodollar rate ranged from 0.70% to 1.05% above LIBOR.

	•		The Company is required to pay the lenders a quarterly commitment fee on the unused revolving loan commitment amount which ranges from 0.125% to 0.20%. Under the original Credit Facility, the commitment fee under Tranche A ranged from 0.15% to 0.25% and under Tranche B ranged from 0.10% to 0.20%.

The Amended Credit Facility requires that the Company comply with several financial and other covenants, including requirements that the Company maintain at the end of each fiscal quarter the following financial ratios as set forth in the Amended Credit Facility:

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.

	•		a consolidated total debt to consolidated EBITDA ratio of no more than 2.25 to 1.00 (at July 2, 2005 this ratio was 1.12 to 1.00 ).

	•		a fixed charge coverage ratio (the ratio of the sum of consolidated EBITDA plus rent expense, less cash taxes paid and capital expenditures to the sum of consolidated cash interest expense plus rent expense and dividends) of no less than 2.00 to 1.00 for fiscal 2005; and no less than 2.25 to 1.00 during fiscal 2006 and thereafter (at July 2, 2005 this ratio was 3.97 to 1.00).

	For the Thirteen Weeks				For the Twenty-Six Weeks
	Ended				Ended
	July 3,		June 28,		July 3,		June 28,
	2004		2003		2004		2003
	(in thousands, except for per share amounts)
Net income, as reported	$	8,420	$	7,157	$	18,912	$	16,182
Add: Stock compensation recorded under Opinion No. 25		—		21		—		43
Deduct: Total stock based employee compensation expense determined under fair value based method for awards granted prior to 2003, net of related tax effects		282		363		564		727
Pro forma net income	$	8,138	$	6,815	$	18,348	$	15,498
Earnings per share:
Basic-as reported	$	0.17	$	0.13	$	0.38	$	0.30
Basic-pro forma	$	0.17	$	0.13	$	0.37	$	0.29
Weighted average basic shares outstanding		49,298		54,304		49,790		54,249
Diluted-as reported	$	0.17	$	0.13	$	0.38	$	0.30
Diluted-pro forma	$	0.16	$	0.12	$	0.37	$	0.28
Weighted average diluted shares outstanding		49,671		54,650		50,182		54,609

The Credit Facility defines EBITDA as the Company’s consolidated net income, plus the amount of net interest expense, depreciation and amortization, income taxes, and certain non-cash compensation expenses.

~~The~~As ~~following~~of ~~weighted-average~~July 2, ~~assumptions~~2005, ~~were~~$182 million ~~used~~was tooutstanding ~~compute~~under the ~~pro~~Amended ~~forma results~~Credit ofFacility ~~operations~~and ~~for~~$1.8 million was ~~fiscal~~outstanding ~~2004~~for ~~and~~letters ~~2003~~of ~~and~~credit, ~~the~~leaving ~~stock~~$66.2 million ~~option~~in ~~expense that~~availability. ~~was~~As ~~recorded~~of inJuly 2, 2005, the ~~Condensed~~Company ~~Consolidated~~was ~~Statements~~in ofcompliance ~~Income~~with inall ~~the second~~covenants ~~quarter~~under ofthe ~~fiscal~~Amended ~~2004:~~Credit Facility.

	2004			2003
Volatility		23	%		44	%
Dividend yield		0	%		0	%
Risk free interest rate		3.25	%		2.85	%
Expected lives	4 years			4 years

5. INCOME TAXES

6The Company’s effective tax rate for the thirteen and twenty-six weeks ended July 2, 2005 was 39.0% and ~~STOCK~~was ~~REPURCHASE~~39.5% ~~PROGRAM~~for the comparable periods in 2004. The decrease from 39.5% is due to the deduction for domestic production activities available to the Company under the American Jobs Creation Act of 2004. The Company has provided and expects to continue to provide in 2005 a valuation allowance against the deferred tax asset for its international operations. As a result, it is anticipated that the effective tax rate for 2005 will be approximately 39.0%. Management re-evaluates the Company’s effective tax rate on a quarterly basis.

On February 18, 2004, the Company announced that its Board of Directors had approved a stock repurchase program authorizing the Company to repurchase up to $100 million of Yankee Candle common stock. During the thirteen and twenty-six weeks ended July 3, 2004, the Company repurchased a total of 1,704,000 and 2,510,100 shares of common stock for an aggregate purchase price of $48.8 million and $71.6 ~~million, respectively~~. ~~During~~EARNINGS ~~the~~PER ~~thirteen and twenty-six~~SHARE ~~weeks ended June 28, 2003 the Company repurchased a total of 426,100 shares of common stock for an aggregate purchase price of $9.8 million. All 426,100 shares were repurchased in June 2003.~~

SFAS No. 128, “Earnings Per Share,” requires two presentations of earnings per share, “basic” and “diluted.” Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted- average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. The denominator in the calculation is based on the following weighted-average number of common shares (in thousands):


	For the Thirteen Weeks Ended				For the Twenty-Six Weeks Ended
	July 2, 2005		July 3, 2004		July 2, 2005		July 3, 2004
Basic		45,048		49,298		45,963		49,790
Add:
Shares issuable pursuant to stock option grants		546		373		490		392


Diluted		45,594		49,671		46,453		50,182

For the thirteen and twenty-six weeks ended July 2, 2005, 107 and 67 potential common shares that could dilute basic earnings per share in the future were excluded, respectively, since their inclusion would have been antidilutive. For the thirteen and twenty-six weeks ended July 3, 2004, 31 and 28 potential common shares that could dilute basic earnings per share in the future were excluded, respectively since their inclusion would have been antidilutive.

7. STOCK BASED COMPENSATION

The Company sponsors stock option plans. Prior to the third quarter of fiscal 2003, the Company accounted for employee options or share awards under the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees.” Compensation expense, if any, was recognized based on the difference between the fair value of the common stock and the exercise price of the option on the measurement date, as defined by Opinion No. 25. Pro forma disclosures of net earnings and earnings per share had been provided supplementally, as if the fair value method of accounting defined in SFAS No. 123 “Accounting for Stock Based Compensation” had been applied. Effective in the third quarter of fiscal 2003, the Company adopted the fair value recognition provisions of SFAS No. 123 using the prospective transition method provided by SFAS No. 148 “Accounting for Stock Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123.” Under the prospective transition method, the Company has valued all stock option grants beginning with grants made in fiscal 2003. The fair value of these options is being expensed over the vesting period based on the fair value at the date of the grant. Stock-based compensation charges amounted to $1.0 million and $1.7 million for the thirteen and twenty-six

7weeks ended July 2, 2005, respectively, and $0.3 million ~~SEGMENTS~~and OF$0.6 million ~~ENTERPRISE~~for ~~AND~~the ~~RELATED~~thirteen ~~INFORMATION~~and twenty-six weeks ended July 3, 2004, respectively. In the first quarter of fiscal 2006 in accordance with SFAS No. 123(R), “Share-Based Payment,” the Company will be required to record the fair value of stock options for all unvested options granted prior to 2003. The Company estimates this will result in additional stock compensation expense of approximately $0.3 million during fiscal 2006.

~~The~~Awards ~~Company~~under ~~has~~the ~~segmented~~Company’s ~~its~~option ~~operations~~plans vest, in general, over a ~~manner~~four ~~that~~year ~~reflects~~period. ~~how~~Therefore, ~~its~~the ~~chief~~cost ~~operating~~related ~~decision~~to stock-~~maker~~based ~~(the~~employee ~~“CEO”)~~compensation ~~currently~~included ~~reviews~~in the ~~results~~determination of ~~the Company~~net ~~and~~income ~~its~~for all ~~subsidiaries’~~periods ~~businesses.~~presented ~~The~~in the Company’s ~~has~~historical ~~two~~consolidated ~~reportable segments~~Statements ~~— retail and wholesale. The identification~~ of ~~these~~Income ~~segments~~is ~~results from~~less ~~management’s recognition~~ than that ~~while~~which ~~the~~would ~~product~~have ~~sold~~been isrecognized ~~similar,~~if the ~~type of~~fair ~~customer~~value ~~for~~based ~~the~~method ~~product~~had ~~and~~been ~~services~~applied ~~and~~to ~~methods~~all ~~used~~awards since tothe ~~distribute~~original ~~the product~~effective ~~are~~date ~~different~~of SFAS No. 123.

					(in thousands)
Thirteen Weeks					Unallocated/			Balance per
Ended					Corporate/			Consolidated
July 3, 2004	Retail		Wholesale		Other			Statements of Income
Sales	$	48,114	$	52,794	$	—		$	100,908
Gross Profit		31,985		25,028		—			57,013
Income from operations		5,509		21,741		(12,312	)		14,938
Other expense		—		—		(1,021	)		(1,021	)
Income before provision for income taxes		—		—		—			13,917

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding awards in each period (in thousands, except for per share amounts).

Thirteen Weeks					Unallocated/			Balance per
	For the Thirteen Weeks				For the Twenty-Six Weeks
~~Ended~~	Ended				~~Corporate/~~Ended			~~Consolidated~~
June 28, 2003	Retail		Wholesale		Other			Statements of Income
	July 2,		July 3,		July 2,			July 3,
Sales	$	45,265	$	47,128	$	—		$	92,393
	2005		2004		2005			2004
Gross Profit		29,859		21,316		—			51,175
Net income, as reported	$	8,534	$	8,420	$	19,306		$	18,912
Income from operations		5,784		18,552		(11,679	)		12,657
Add: Stock-based compensation expense included in reported net income, net of related tax effects		586		176		1,041			347
Other expense		—		—		(828	)		(828	)
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		715		458		1,299			911
Income before provision for income taxes		—		—		—			11,829
Pro forma net income	$	8,405	$	8,138	$	19,048		$	18,348
Earnings per share:
Basic-as reported	$	0.19	$	0.17	$	0.42		$	0.38
Basic-pro forma	$	0.19	$	0.17	$	0.41		$	0.37
Weighted average basic shares outstanding		45,048		49,298		45,963			49,790
Diluted-as reported	$	0.19	$	0.17	$	0.42		$	0.38
Diluted-pro forma	$	0.18	$	0.16	$	0.41		$	0.37
Weighted average diluted shares outstanding		45,594		49,671		46,453			50,182

Twenty-Six Weeks					Unallocated/			Balance per
Ended					Corporate/			Consolidated
July 3, 2004	Retail		Wholesale		Other			Statements of Income
Sales	$	94,018	$	113,409	$	—		$	207,427
Gross Profit		62,566		53,595		—			116,161
Income from operations		11,519		47,028		(25,552	)		32,995
Other expense		—		—		(1,735	)		(1,735	)
Income before provision for income taxes		—		—		—			31,260

The following weighted-average assumptions were used to compute the pro forma results of operations for the first two quarters of fiscal 2005 and for fiscal 2004, and the stock option expense that was recorded in the Condensed Consolidated Statements of Income in the thirteen and twenty-six weekend ended July 2, 2005 and July 3, 2004:

Twenty-Six Weeks							Unallocated/			Balance per
	2005			2004
Ended							Corporate/			Consolidated
Volatility		34	%		42	%
June 28, 2003	Retail			Wholesale			Other			Statements of Income
Dividend yield		0	%		0	%
Sales	$	89,281		$	100,165		$	—		$	189,446
Risk free interest rate		3.15	%		2.87	%
Gross Profit		58,357			45,792			—			104,149
Expected lives	4 years			4 years
Income from operations		12,088			40,521			(24,126	)		28,483
Other expense		—			—			(1,736	)		(1,736	)
Income before provision for income taxes		—			—			—			26,747

8. STOCK REPURCHASE PROGRAM

On December 7, 2004 the Company announced that its Board of Directors had approved a stock repurchase program authorizing the Company to repurchase up to $100.0 million of Yankee Candle common stock commencing in fiscal 2005. During the thirteen and twenty-six weeks ended July 2, 2005 the Company repurchased a total of 1,972,111 and 3,258,586 shares of common stock for an aggregate purchase price of $60.1 million and $100.0 million, respectively. During the thirteen and twenty-six weeks ended July 3, 2004, under a separate authorization from the Board of Directors, the Company repurchased a total of 1,704,000 and 2,510,100 shares of common stock for an aggregate purchase price of $48.8 million and $71.6 million, respectively.

8.On ~~RESTRUCTURING~~July 27, ~~RESERVE~~2005 the Company announced that its Board of Directors had authorized a new stock repurchase program for the repurchase of up to an additional $150 million of Yankee Candle common stock. The commencement of this program will be determined by the Company’s management based on their evaluation of market conditions and other factors.

~~A restructuring charge for $8 million was recorded in fiscal 2001 to record costs associated with the Company’s decision to consolidate and restructure its distribution and manufacturing operations~~9. ~~The~~SEGMENTS ~~Company~~OF ~~closed~~ENTERPRISE ~~its~~AND ~~Utah distribution~~RELATED ~~facility and restructured its distribution and manufacturing~~INFORMATION work-force during 2001. Included in the restructuring charge were severance and other employee related costs, $2.1 million of a non-cash write-down of non-recoverable leasehold improvements, fixture and equipment investments and estimated continuing occupancy expenses for abandoned facilities, net of anticipated sub-lease income. As a result of this consolidation and restructuring, the Company terminated approximately 450 manufacturing and logistics employees. An analysis of the activity within the remaining restructuring reserve was as follows at July 3, 2004:

	For the thirteen weeks ended							For the thirteen weeks ended
			April 3, 2004					July 3, 2004
	(in thousands)
	Accrued as of					Accrued as of				Accrued as of
	January 3, 2004			Costs paid		April 3, 2004		Costs paid		July 3, 2004
Occupancy	$	796		$	60	$	736	$	84	$	652

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, the methods used to distribute the product and the cost structures of the two segments are different.

During the second quarter of fiscal 2002, the Company was successful in subletting the facility for the remaining lease term. The sublet income does not fully offset the Company’s lease obligations, therefore the initial occupancy reserve remained unchanged after this sublet.


	(in thousands)
								Balance per
					Unallocated/			Consolidated
					Corporate/			Statements of
Thirteen Weeks Ended July 2, 2005	Retail		Wholesale		Other			Income
Sales	$	49,889	$	58,659	$	—		$	108,548
Gross Profit		34,191		27,663		—			61,854
Operating Margin		6,300		23,432		(13,742	)		15,990
Other expense		—		—		(1,999	)		(1,999	)
Income before provision for income taxes		—		—		—			13,991

9. LONG TERM DEBT


								Balance per
					Unallocated/			Consolidated
					Corporate/			Statements of
Thirteen Weeks Ended July 3, 2004	Retail		Wholesale		Other			Income
Sales	$	48,114	$	52,794	$	—		$	100,908
Gross Profit		31,985		25,028		—			57,013
Operating Margin		5,509		21,741		(12,312	)		14,938
Other expense		—		—		(1,021	)		(1,021	)
Income before provision for income taxes		—		—		—			13,917

On May 19, 2004, the Company entered into a new $200 million senior unsecured revolving credit facility (the “Credit Facility”) with Citizens Bank of Massachusetts and a syndicate of lenders. This new Credit Facility has two Tranches, a $150 million Tranche (“Tranche A”) that expires on May 19, 2007 and a $50 million Tranche (“Tranche B”) that expires on May 18, 2005. The new Credit Facility replaced the $150 million revolving credit facility that was scheduled to expire on July 7, 2004. This new Credit Facility will be used by the Company for, among other things, working capital, refinancing existing debt, letters of credit, repurchase of the Company’s common stock and other general corporate purposes. As a result of refinancing the existing debt, all of the Company’s debt has been classified as long term as of July 3, 2004.


								Balance per
					Unallocated/			Consolidated
					Corporate/			Statements of
Twenty-Six Weeks Ended July 2, 2005	Retail		Wholesale		Other			Income
Sales	$	101,709	$	126,094	$	—		$	227,803
Gross Profit		65,632		61,053		—			126,685
Operating Margin		9,402		52,668		(27,274	)		34,796
Other expense		—		—		(3,147	)		(3,147	)
Income before provision for income taxes		—		—		—			31,649

Amounts outstanding under the Credit Facility bear interest at a rate equal to, at the Company’s option, the Citizens Bank Base Rate, or Eurodollar Rate. Eurodollar borrowings under Tranche A of the Credit Facility include a margin rate ranging from 0.70% to 1.00% and borrowings under Tranche B include a margin rate ranging from 0.75% to 1.05%. These rates vary depending on the Company’s outstanding borrowings. In addition, the Company is required to pay the lenders a quarterly commitment fee on the unused revolving loan commitment amount. The commitment fee under Tranche A ranges from 0.15% to 0.25% and under Tranche B range from 0.10% to 0.20%. Fees for outstanding commercial and standby letters of credit range from 0.70% to 1.00%. The Company is also required to pay a utilization fee on the total Credit Facility of 0.125% once outstanding borrowings exceed $100 million. The Credit Facility requires that the Company comply with several financial and other covenants, including requirements that the Company maintain at the end of each fiscal quarter the following financial ratios as set forth in the credit agreement:


								Balance per
					Unallocated/			Consolidated
					Corporate/			Statements of
Twenty-Six Weeks Ended July 3, 2004	Retail		Wholesale		Other			Income
Sales	$	94,018	$	113,409	$	—		$	207,427
Gross Profit		62,566		53,595		—			116,161
Operating Margin		11,519		47,028		(25,552	)		32,995
Other expense		—		—		(1,735	)		(1,735	)
Income before provision for income taxes		—		—		—			31,260

	•		a consolidated total debt to consolidated EBITDA ratio of no more than 2.00 to 1.00 at July 3, 2004 and for subsequent fiscal quarters (at July 3, 2004 this ratio was 0.90 to 1.00 ).
	•		a fixed charge coverage ratio (the ratio of the sum of consolidated EBITDA plus rent expense, less cash taxes paid and capital expenditures to the sum of consolidated cash interest expense plus rent expense and dividends) of no less than 1.75 to 1.00 for fiscal 2004; no less than 2.00 to 1.00 for fiscal 2005; and no less than 2.25 to 1.00 during fiscal 2006 and thereafter (at July 3, 2004 this ratio was 4.75 to 1.00).

The Credit Facility permits the payment of cash dividends by the Company of up to 50% of the current fiscal year’s net income and the repurchase of the Company’s shares, so long as the Company’s Consolidated Net Worth (as defined in

~~the Credit Facility) is not less than $75 million for the second and third quarter of fiscal 2004, $100 million plus 25% of fiscal 2004 net income~~10. ~~Beginning~~ inRECENT ~~2005,~~ACCOUNTING ~~the Consolidated Net Worth will be the $100 million plus 25%~~PRONOUNCEMENTS ~~of 2004 net income, plus 25% of net income for each fiscal quarter thereafter.~~

~~Available~~In ~~borrowings~~March 2005, ~~under~~ the ~~revolving~~FASB ~~credit~~issued ~~facility~~Interpretation ~~were~~No. 47 ~~approximately~~(“ FIN 47”), “Accounting for Conditional Asset ~~$63~~Retirement Obligations – an interpretation of FASB Statement No.3 ~~million~~143” (“SFAS 143”). FIN 47 clarifies the term conditional asset retirement obligation as used in SFAS 143 and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. The types of asset retirement obligations that are covered by FIN 47 are those for which an entity has a legal obligation to perform an asset retirement activity; however the timing and/or method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than fiscal years ending after December 15, 2005. The Company is currently evaluating the impact of FIN 47 on its financial statements.

~~10. BUSINESS ACQUISITION~~11

	(in thousands)
Cash purchase price	$	11,500
Assets acquired:
Property, plant and equipment		250
Inventory		1,000
Customer relationships		3,450
Trade name		1,960
Goodwill		4,840
	$	11,500

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

~~The~~CRITICAL ~~customer~~ACCOUNTING ~~relationship~~POLICIES ~~asset~~AND is being amortized over its useful life of four years. The Company plans to operate a fundraising division using the name GBI Marketing (the “GBI Division”) and, accordingly, the trade name is deemed to have an indefinite life and will not be amortized. The goodwill is tax deductible over a 15 year period. For segment reporting purposes, the GBI Division will be included in the Wholesale segment. The GBI Division’s results of operations were immaterial to the Company’s operations during the thirteen weeks ended July 3, 2004. Historical pro forma results of operations have not been provided due to immateriality. ESTIMATES

~~ITEM~~“Management’s 2Discussion 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. ~~MANAGEMENT’S~~The ~~DISCUSSION~~preparation ~~AND~~of ~~ANALYSIS~~these OFfinancial statements ~~FINANCIAL~~requires ~~CONDITION~~management ~~AND~~to ~~RESULTS~~make OFestimates ~~OPERATIONS~~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 on-going basis, management evaluates its estimates and judgments, including those related to inventories, bad debts, intangible assets, income taxes 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.

~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES~~Sales/receivables

~~“Management’s~~We ~~Discussion~~sell ~~and~~our ~~Analysis~~products ofboth ~~Financial~~directly ~~Condition~~to ~~and~~retail ~~Results~~customers ~~of Operations”~~and ~~discusses~~through ~~our~~wholesale ~~consolidated~~channels. ~~financial~~Sales ~~statements, which have been~~to ~~prepared~~retail incustomers ~~accordance~~are ~~with~~recognized ~~accounting~~at ~~principles generally accepted in~~ the ~~United~~ ~~States~~time of ~~America.~~sale, ~~The~~while ~~preparation~~sales ofto ~~these~~wholesale ~~financial~~customers ~~statements~~are ~~requires~~recognized ~~management~~when torisk ~~make~~of ~~estimates~~loss ~~and~~has ~~judgments~~passed ~~that~~to ~~affect~~ the ~~reported amounts~~customers. ofWe ~~assets~~believe ~~and~~that ~~liabilities~~this ~~and~~is the ~~disclosure~~time ~~of contingent assets and~~that ~~liabilities~~persuasive atevidence ~~the~~of ~~date~~an ofagreement ~~the~~exists, ~~financial~~delivery ~~statements~~has ~~and~~occurred, the ~~reported~~price ~~amounts~~is offixed and ~~revenues~~determinable and ~~expenses~~collectability ~~during~~is ~~the~~reasonably ~~reporting period~~assured. OnSales anare ~~on-going~~recognized ~~basis, management~~net ~~evaluates~~of ~~its~~any ~~estimates~~applicable discounts and ~~judgments~~allowances. Customers, ~~including~~be ~~those~~they ~~related~~retail ~~to inventories,~~or ~~restructuring costs~~wholesale, ~~bad~~do ~~debts,~~have ~~intangible~~the ~~assets,~~right ~~income~~to ~~taxes,~~return ~~debt~~product ~~service~~to ~~and~~us ~~contingencies~~in ~~and~~certain ~~litigation~~limited situations. ~~Management~~Such ~~bases~~rights ~~its~~of ~~estimates and~~return ~~judgments~~have onnot ~~historical~~precluded ~~experience~~sales recognition ~~and~~because onwe ~~various~~have ~~other~~a ~~factors~~long ~~that~~history ~~are believed~~with tosuch ~~be reasonable under the circumstances~~returns, ~~the results of~~ which ~~form the~~we ~~basis~~use ~~for~~in ~~making~~constructing ~~judgments~~a reserve. ~~about~~This ~~operating~~reserve, ~~results~~however, ~~and~~is ~~the~~subject ~~carrying~~to ~~values of~~change. ~~assets~~In ~~and~~addition ~~liabilities~~to ~~that~~returns, ~~are~~we ~~not~~bear ~~readily~~credit ~~apparent from other sources.~~risk ~~Actual~~relative ~~results~~to ~~may~~our ~~differ~~wholesale ~~from~~customers. ~~these~~We ~~estimates~~have ~~under~~provided ~~different~~a ~~assumptions~~reserve ~~or conditions.~~for ~~Management~~bad ~~believes~~debts ~~the~~in ~~following~~our ~~critical~~financial statements ~~accounting~~based ~~policies, among~~on ~~others,~~our ~~involve~~estimates ~~its~~of ~~more~~the ~~significant~~creditworthiness ~~estimates~~of ~~and~~our ~~judgments~~customers. ~~and~~However, ~~are~~this reserve ~~therefore~~is ~~particularly~~also ~~important~~subject to anchange. ~~understanding~~Changes ofin ~~our~~these ~~results~~reserves ~~of operations~~could ~~and~~affect ~~financial~~our ~~position~~operating results.

~~Revenue/receivables~~Inventory

We ~~sell~~write down our ~~products~~inventory ~~both~~for ~~directly~~estimated toobsolescence ~~retail~~or ~~customers~~unmarketable ~~and~~inventory ~~through~~in ~~wholesale channels.~~an ~~Revenue~~amount ~~from~~equal to the ~~sale~~difference ofbetween ~~merchandise~~the tocost ~~retail~~of ~~customers~~inventory ~~is recognized~~and at the ~~time~~estimated ofmarket ~~sale~~value, ~~while~~based ~~revenue from wholesale customers is~~upon ~~recognized~~assumptions ~~when~~about ~~risk~~future ofdemand ~~loss~~and ~~has~~market ~~passed~~conditions. toIf ~~the~~actual ~~customers.~~future Wedemand ~~believe~~or ~~that~~market ~~this~~conditions isare ~~the~~less ~~time~~favorable ~~that~~than ~~persuasive~~those ~~evidence~~projected ofby ~~an agreement exists~~management, ~~delivery~~additional ~~has occurred,~~inventory ~~the~~write-downs ~~price~~may isbe required. ~~fixed~~In ~~and~~addition, ~~determinable~~our ~~and~~inventory ~~collectability~~ is ~~reasonably assured.~~stated ~~Revenue~~at isthe ~~recognized~~lower ~~net~~ of ~~any~~cost ~~applicable~~or ~~discounts~~market ~~and~~on ~~allowances.~~a last-in ~~Customers,~~first-out be(“LIFO”) ~~they~~basis. ~~retail~~Fluctuations orin ~~wholesale,~~inventory dolevels ~~have~~along with the ~~right~~cost toof ~~return~~raw ~~product to~~materials uscould inimpact ~~certain~~the ~~limited~~carrying ~~situations.~~value ~~Such rights~~ of ~~return~~our ~~have~~inventory. ~~not~~Changes ~~precluded revenue~~in ~~recognition~~the ~~because~~carrying wevalue ~~have~~of ainventory ~~long history with such returns, which we~~could ~~use~~affect inour ~~constructing~~operating ~~a reserve~~results. ~~This reserve,~~

11Taxes

~~Table~~We have a significant deferred tax asset recorded on our financial statements. This asset arose at the time of ~~Contents~~our recapitalization in 1998 and is a future tax benefit for us. The realization of this future tax benefit 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 benefit 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.

~~however,~~Value ~~is subject to change. 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~~long-lived ~~creditworthiness of our customers. However~~assets, ~~this~~including ~~reserve is also subject to change. Changes in these reserves~~intangibles ~~could affect our operating results.~~

~~Inventory~~Long-lived assets on our balance sheet consist primarily of property, plant and equipment, customer list, tradename, goodwill and trademarks. We periodically review the carrying value of all of these assets based, in part, upon our projections of anticipated undiscounted future cash flows. 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 tradename and goodwill. Any impairment charge that we record reduces our earnings. While we believe that our future estimates are reasonable, different assumptions regarding items such as future cash flows and the volatility inherent in markets which we serve could affect our evaluations and result in impairment charges against the carrying value of those assets.

~~We write down our inventory for estimated obsolescence or unmarketable~~12 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. In addition, our inventory is stated at the lower of cost or market on a last-in first-out (“LIFO”) 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.

WeOperating ~~have a significant deferred tax asset recorded on our financial statements.~~Leases This asset arose at the time of our recapitalization in 1998 and is a future tax benefit for us. The realization of this future tax benefit 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 benefit 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.

~~Restructuring~~Rent ~~reserve~~expense is recognized on a straight-line basis, including consideration of rent holidays and applicable rent escalations over the term of the lease. We begin to recognize rent expense on the earlier of the date when we become legally obligated for the rent payments or the date when we take possession of the leased premises or have rights to use the property for construction purposes. Straight-line rent recorded during the construction period is capitalized as a component of the historical cost of leasehold improvements included in property and equipment. The capitalized rent is amortized over the useful life of the related asset or the lease term, whichever is shorter. Straight-line rent incurred during our pre-opening period (generally from the date of construction completion through store open date) is expensed in that period.

InStock ~~fiscal~~based ~~2001, we closed our distribution facility in Utah, recorded a~~compensation restructuring charge and established a reserve for future expenses related to the restructuring. Part of the restructuring charge related to the lease commitment that we have through 2005. In connection with the restructuring, we did not record the entire lease commitment as a liability because we believed we would be able to sublet the facility. During the second quarter of fiscal 2002, we were successful in subletting the facility for the remaining lease term. If the facility were to be vacated by the current tenant in breach of its sublease, this would negatively affect our results of operations and cash flows.

~~Value~~Effective in 2003, we adopted the fair value recognition provisions of ~~long~~SFAS No. 123 “Accounting for Stock Based Compensation.” Under the prospective transition method selected by us, as described in SFAS No. 148, “Accounting for Stock-~~lived~~Based ~~assets~~Compensation-Transition and Disclosure, ~~including~~an ~~intangibles~~amendment of SFAS No. 123,” all stock option grants beginning with grants made in fiscal 2003 are being expensed over the vesting period, based on the fair value at the date of the grant. Fair value is determined based on a variety of factors, all of which are estimates subject to judgment. Changes in estimated lives of options, risk free interest rates or exercise patterns could impact our results of operations. We recorded a charge of approximately $1.0 million and $1.7 million for the thirteen and twenty-six weeks ended July 2, 2005, respectively, and a charge of approximately $0.3 million and $0.6 million for the thirteen and twenty-six weeks ended July 3, 2004. In the first quarter of fiscal 2006 in accordance with SFAS No. 123(R), “Share-Based Payment,” we will be required to record the fair value of stock options for all unvested options granted prior to 2003. We estimate this will result in additional stock compensation expense of approximately $0.3 million during fiscal 2006.

~~Long~~Self-~~lived assets on our balance sheet consist primarily of property, plant and~~insurance equipment, customer relationships, trade name, goodwill and trademarks. We periodically review the carrying value of all of these assets based, in part, upon our projections of anticipated undiscounted future cash flows. We undertake this review when facts and circumstances suggest that cash flows emanating from those assets may be diminished. Any impairment charge that we record reduces our earnings. While we believe that our future estimates are reasonable, different assumptions regarding items such as future cash flows and the volatility inherent in markets which we serve could affect our evaluations and result in impairment charges against the carrying value of those assets.

~~Stock~~We ~~based~~are ~~compensation~~self-insured for certain losses related to health insurance, 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.

~~Effective~~PERFORMANCE ~~in 2003, we adopted the fair value recognition provisions of SFAS No.~~MEASURES 123 “Accounting for Stock Based Compensation.” Under the prospective transition method selected by us, as described in SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123,” all stock option grants beginning with grants made in fiscal 2003 are being expensed over the vesting period, based on the fair value at the date of the grant. Fair value is determined based on a variety of factors, all of which are estimates subject to judgment. Changes in estimated lives of options, risk free interest rates or exercise patterns could impact our results of operations. We recorded a charge of approximately $0.3 million and $0.6 million for the thirteen and twenty-six weeks ended July 3, 2004.

~~Self-insurance~~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 selling costs and expenses specifically related to each segment.

WeFLUCTUATIONS ~~are~~IN ~~self-insured~~QUARTERLY ~~for~~OPERATING ~~certain losses related to health insurance, although we~~RESULTS 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.

12We 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.

~~Table~~Seasonality. We have historically realized higher revenues and operating income in our fourth quarter, particularly in our retail business. We believe that this has been due to the increase in the number of ~~Contents~~our retail stores and to increased sales in the giftware industry during the holiday season of the fourth quarter.

~~PERFORMANCE~~New ~~MEASURES~~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.

WeNew ~~measure~~Wholesale ~~the~~Accounts. ~~performance~~The timing of ~~our~~new ~~retail and~~ wholesale ~~segments~~accounts ~~through~~may ~~a segment~~have ~~margin~~an ~~calculation,~~impact ~~which~~on ~~specifically~~our ~~identifies~~quarterly results ~~not~~due ~~only~~to ~~gross profit on~~ the ~~sales~~size of ~~products~~initial ~~through~~opening ~~the two channels but also costs and expenses specifically related to each segment~~orders.

~~FLUCTUATIONS IN QUARTERLY OPERATING RESULTS~~13

~~Seasonality.~~RESULTS WeOF ~~have historically realized higher revenues and operating~~OPERATIONS income in our fourth quarter, particularly in our retail business. We believe that this has been due primarily to the increase in the number of our retail stores and 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 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. Overview

~~RESULTS~~We OFare ~~OPERATIONS~~the —leading ~~Thirteen~~designer, manufacturer and ~~Twenty~~branded marketer of premium scented candles, based on sales, in the giftware industry. We have a 35-~~six~~year ~~weeks~~history ~~ended~~of offering our distinctive products and marketing them as affordable luxuries and consumable gifts. Our candle products include 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 coordinated candle and home décor accessories and have extended our brand into the growing premium home fragrance market segment with products such as our Housewarmer® electric home fragrancers, Yankee Candle® branded potpourri, sachets, room sprays and linen sprays, Yankee Candle Car Jars® air fresheners and Yankee Candle™ Bath personal care products. We have a vertically integrated business model that enables us to manufacture and distribute high quality products, provide excellent customer service and achieve cost efficiencies. 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, primarily in non-mall locations, and through our growing retail store base located primarily in malls. As of July 32, ~~2004~~2005, ~~versus~~we had 359 Company-owned and operated stores. In ~~June 28~~addition, ~~2003~~we own and operate a 90,000 square foot flagship store in South Deerfield, Massachusetts, a major tourist destination in Massachusetts. We also sell our products directly to consumers through our catalogs and our Internet web site at www.yankeecandle.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.

~~SALES~~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.

~~Sales~~Executive ~~increased 9.2% to $100.9 million for the thirteen weeks ended July 3,~~Summary 2004 from $92.4 million for the thirteen weeks ended June 28, 2003; and increased 9.5% to $207.4 million for the twenty-six weeks ended July 3, 2004 from $189.4 million for the twenty-six weeks ended June 28, 2003.

~~Wholesale~~For ~~sales,~~the ~~including~~thirteen ~~European~~weeks ~~operations~~ended July 2, ~~increased~~2005, ~~12.0%~~we toreported net earnings of $~~52.~~8 .5 million ~~for~~and ~~the~~diluted earnings ~~thirteen~~per ~~weeks~~share ~~ended~~of ~~July 3,~~$0.19 ~~2004~~compared ~~from~~to net earnings of $478.14 million and diluted earnings per share of $0.17 for the thirteen weeks ended ~~June~~July 283, ~~2003;~~2004. ~~and~~Net sales increased 137.26% to $~~113~~108.45 million for the ~~twenty-six~~thirteen weeks ended July 32, ~~2004~~2005 from $100.29 million for the ~~twenty-six~~ thirteen weeks ended ~~June~~July 283, ~~2003. This growth was achieved primarily by increasing~~ ~~sales to existing customers and to a lesser extent by increasing the number of wholesale locations~~2004.

~~Retail~~For ~~sales increased 6.3% to $48.1 million for~~ the ~~thirteen~~twenty-six weeks ended July 3 2, ~~2004 from $45.3 million for the thirteen weeks ended June 28~~2005, ~~2003;~~we ~~and increased~~reported ~~5.3%~~net toearnings ~~$94.0 million~~of ~~for the twenty-six weeks ended July 3, 2004 from~~ $8919.3 million ~~for~~and ~~the~~diluted earnings ~~twenty-six~~per ~~weeks~~share ~~ended~~of ~~June 28, 2003~~$0.42 ~~The increase in retail sales for the thirteen and twenty-six weeks ended July 3, 2004~~ compared to ~~the~~net ~~prior~~earnings ~~year,~~of ~~was~~$18.9 million ~~due~~and ~~primarily~~diluted toearnings ~~increased sales attributable~~per toshare ~~the 49 stores opened in 2003 (which in 2003 were open for less than a full year), and to a lesser extent to the addition~~ of ~~new stores opened in 2004~~$0. ~~The~~38 ~~increase~~ for the ~~thirteen and~~ twenty-six weeks ended July 3, 2004 ~~was partially offset by a decrease in retail comparable store and catalog and Internet sales~~. ~~Comparable store~~Net ~~and catalog and Internet~~ sales ~~for~~increased ~~the thirteen and twenty-six weeks ended July 3, 2004 decreased 4~~9.08% ~~compared~~ to ~~the thirteen and twenty-six weeks~~$227.8 ~~ended~~million ~~June 28, 2003. Retail comparable store sales~~ for the ~~thirteen and~~ twenty-six weeks ended July 32, ~~2004~~2005 ~~decreased~~from 3$207.0%4 million ~~compared~~for to the ~~thirteen and~~ twenty-six weeks ended June 28, 2003. The major factor contributing to the decrease in comparable store sales was the decrease in sales at our 90,000 square foot South Deerfield, Massachusetts flagship store. We believe our flagship store was negatively impacted by a decline in tourism traffic, perhaps influenced by higher gasoline prices. Comparable store sales represent a comparison of the sales, during the corresponding fiscal periods of the two fiscal years compared, of the stores included in our comparable store sales base. A store first enters our comparable store sales base in the first fiscal period that begins after the first full year of operation. There were 263 stores included in the comparable store base as of July 3, 2004~~, and 47 of these stores were included for less than a full year~~. ~~There were 319 retail~~ ~~stores open as of July 3, 2004 compared to 269 retail stores open as of June 28, 2003 and 286 retail stores open as of January 3, 2004.~~

13We enhanced our business by continuing to introduce innovative new products through our retail and wholesale channels, continued investments in the modernization of existing stores and the introduction of new stores, and investing in information systems and supply chain operations.

~~Table~~We ofopened ~~Contents~~16 new retail stores during the twenty-six weeks ended July 2, 2005, bringing our total retail store count to 359. We added 95 net new wholesale doors during the twenty-six weeks ended July 2, 2005.

~~GROSS~~We ~~PROFIT~~ended the first quarter with $182.0 million of outstanding borrowings under our Amended Credit Facility as compared to $75.0 million at January 1, 2005. The increase was primarily due to using the Amended Credit Facility to fund share repurchases, capital expenditures and our seasonal borrowing requirements. Excess borrowing availability totaled $66.2 million at July 2, 2005.

~~Gross~~Thirteen ~~profit increased 11.4% to $57.0 million for the thirteen weeks ended July 3, 2004 from $51.2 million for the thirteen weeks ended June 28, 2003;~~ and ~~increased~~ ~~11.5% to $116.2 million for the twenty~~Twenty-six weeks ended July 32, ~~2004 from~~2005 ~~$104.1 million~~versus ~~for the twenty-six weeks ended June 28, 2003. As a percentage of sales, gross profit increased to 56.5% for the thirteen weeks ended~~ July 3, 2004 ~~from 55.4% for the thirteen weeks ended June 28, 2003; and~~ increased to 56.0% for the twenty-six weeks ended July 3, 2004 from 55.0% for the twenty-six weeks June 28, 2003. The increase in gross profit dollars was primarily attributable to an increase in sales. The improvement in gross profit rate for the thirteen and twenty-six weeks ended July 3, 2004 compared to June 28, 2003 was primarily the result of improved productivity in supply chain operations and the benefit of cost reduction initiatives.

~~SELLING EXPENSES~~ SALES

~~Selling~~Sales ~~expenses~~ increased 107.96% to $29108.85 million for the thirteen weeks ended July 32, ~~2004~~2005 from $26100.8 9 million for the thirteen weeks ended ~~June~~July 283, ~~2003~~2004; and increased 119.8% to $57227.68 million for the twenty-six weeks ended July 32, ~~2004~~ 2005 from $51207.54 million for the twenty-six weeks ended June 28, 2003. 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. As a percentage of sales, selling expenses increased to 29.5% for the thirteen weeks ended July 3, ~~2004~~ ~~from 29.0% for the thirteen weeks ended June 28, 2003; and increased to 27.8% for the twenty-six weeks ended July 3,~~ 2004 ~~from 27~~.~~2% for the twenty-six weeks~~ ended June 28, 2003. The increase in selling expenses in dollars for the thirteen and twenty-six weeks ended July 3, 2004 was primarily related to the continued growth in the number of retail stores, from 269 as of June 28, 2003 to 319 as of July 3, 2004. The increase in selling expenses as a percentage of sales for the thirteen weeks ended July 3, 2004 was primarily related to the continued growth in the number of retail stores, from 269 as of June 28, 2003 to 319 as of July 3, 2004 and to a lesser extent a decline in retail comparable store sales. The increase in selling expenses as a percentage of sales for the twenty-six weeks ended July 3, 2004 was primarily related to a decline in retail comparable store sales since the fixed components of labor and occupancy do not decrease with negative retail comparable store sales.

~~SEGMENT~~Wholesale ~~PROFITABILITY~~sales, including European operations, increased 11.1% to $58.7 million for the thirteen weeks ended July 2, 2005 from $52.8 million for the thirteen weeks ended July 3, 2004; and increased 11.2% to $126.1 million for the twenty-six weeks ended July 2, 2005 from $113.4 million for the twenty-six weeks ended July 3, 2004. This growth was achieved primarily by increasing the number of wholesale locations.

~~Segment~~Retail ~~profitability is~~ sales ~~less~~increased ~~cost of goods sold and selling expenses~~3. ~~Segment~~7% ~~profitability~~to ~~for our wholesale operations, including Europe, was~~ $2149.7 9 million, ~~or 41.2% of wholesale sales,~~ for the thirteen weeks ended July 32, ~~2004 compared~~2005 tofrom $1848.6 1 million, ~~or 39.4% of wholesale sales,~~ for the thirteen weeks ended ~~June~~July 283, ~~2003.~~2004; ~~The increase in wholesale segment profitability was primarily attributable to increased wholesale sales~~ and increased ~~wholesale gross profit dollars and rate~~8. ~~Segment profitability for the Company’s retail operations was $5.5 million or 11.4~~2% ~~of retail sales for the thirteen weeks ended July 3, 2004 compared~~ to $5101.87 million ~~or 12.8% of retail sales~~ for the ~~thirteen~~ twenty-six weeks ended ~~June~~July 282, ~~2003. The decrease in retail segment profitability in~~2005 dollars and as a percentage of sales was primarily attributable to lower profitability in our Catalog and Internet operations, and to a lesser extent the decrease in comparable store sales. We also incurred lease buyout and asset impairment charges of $0.2 million related to a planned store closing.

~~Segment profitability for our wholesale operations, including Europe, was $47.0~~14 million, or 41.5% of wholesale sales, for the twenty-six weeks ended July 3, 2004 compared to $40.5 million, or 40.5% of wholesale sales, for the twenty-six weeks ended June 28, 2003. The increase in wholesale segment profitability was primarily attributable to increased wholesale sales and increased wholesale gross profit dollars and rate. Segment profitability for the Company’s retail operations was $11.5 million or 12.3% of retail sales for the twenty-six weeks ended July 3, 2004 compared to $12.1 million or 13.5% of retail sales for the twenty-six weeks ended June 28, 2003. The decrease in retail segment profitability for the twenty-six weeks ended July 3, 2004 compared to June 28, 2003 was primarily attributable to lower profitability in our Catalog and Internet operations.

~~General~~from ~~and~~$94.0 million ~~administrative~~for ~~expenses~~the twenty-six weeks ended July 3, ~~which~~2004. ~~consist~~The ~~primarily~~increase ofin retail sales for ~~personnel-related~~the ~~costs~~thirteen ~~incurred~~and intwenty-six ~~support~~weeks ~~functions~~ended July 2, ~~increased~~2005 ~~5.4%~~compared to ~~$12.3~~the prior year, was due primarily ~~million~~to ~~for~~increased sales attributable to the ~~thirteen~~60 ~~weeks~~stores ~~ended~~opened ~~July 3,~~in 2004 ~~from~~(which ~~$11.7 million~~in 2004 were open for ~~the~~less than a full year), and to a lesser extent to the addition of 13 and 16 new stores in the thirteen and twenty-six weeks ended ~~June~~July 282, ~~2003;~~2005, ~~and~~respectively. ~~increased~~We ~~5.9%~~closed totwo ~~$25.6 million~~underperforming ~~for~~stores ~~the~~during the twenty-six weeks ended July 32, ~~2004~~2005. ~~from~~The ~~$24.1 million~~increase for the thirteen and twenty-six weeks ~~ended~~ ~~June~~ended July 282, ~~2003.~~2005 Aswas partially offset by a ~~percentage~~decrease ofin ~~sales,~~retail ~~general~~comparable store and ~~administrative~~catalog and Internet ~~expenses~~sales. ~~decreased~~Comparable tostore ~~12.2%~~and catalog and Internet sales for the thirteen and twenty-six weeks ended July 32, ~~2004~~2005 ~~from 12.~~decreased 6.0% ~~for~~and 2.0%, respectively, compared to the thirteen ~~weeks~~and twenty-six weeks ended ~~June~~July 283, ~~2003;~~2004. ~~and~~Retail ~~decreased~~comparable tostore ~~12.3%~~sales for the thirteen and twenty-six weeks ended July 3 2, ~~2004~~2005 ~~from~~decreased ~~12.~~7.0% ~~for~~and 3.0%, respectively, compared to the thirteen and twenty-six weeks ~~ended~~ ~~June~~ended July 283, ~~2003~~2004. ~~The~~Comparable ~~increase~~store insales ~~general~~represent ~~and~~a ~~administrative~~comparison ~~expense~~of ~~was~~the sales, during the corresponding ~~primarily~~fiscal ~~attributable~~periods toof ~~labor~~the ~~costs~~two fiscal years compared, of the stores included in our comparable store sales base. ~~The~~A ~~increase~~store first enters our comparable store sales base in the fourteenth fiscal month of operation. There were 314 stores included in the comparable store base as of July 2, 2005, and 48 of these stores were included for less than a full year. There were 359 retail stores open as of July 2, 2005 compared to 319 retail stores open as of July 3, 2004 and 345 retail stores open as of January 1, 2005.

14During the thirteen weeks ended July 2, 2005, we recognized $0.9 million of revenue related to gift card breakage. The gift card breakage amount recognized was based upon historical redemption patterns and represents the remaining balance of gift cards for which we believe the likelihood of redemption by the customer is remote. The thirteen weeks ended July 2, 2005 was the first period in which we recognized gift card breakage and therefore the amount recognized includes the breakage revenue related to gift cards sold since the inception of our gift card program. This revenue is recorded as retail store revenue in the Condensed Consolidated Statements of Income. While we will continue to recognize gift card breakage revenue each quarter, the amounts in future quarters will be significantly less than the amount recognized this quarter due to the one-time multi-year inclusion this quarter.

~~Table~~GROSS ~~of Contents~~PROFIT

~~labor~~Gross ~~costs~~profit isincreased ~~due~~8.5% ~~primarily~~ to ~~new~~$61.9 million ~~hires~~for ~~made~~the ~~subsequent~~thirteen weeks ended July 2, 2005 from $57.0 million for the thirteen weeks ended July 3, 2004; and increased 9.1% to $126.7 million for the twenty-six ~~second~~weeks ~~quarter~~ended July 2, 2005 from $116.2 million for the twenty-six weeks ended July 3, 2004. As a percentage of ~~2003~~sales, gross profit increased to 57.0% for the thirteen weeks ended July 2, 2005 from 56.5% for the thirteen weeks ended July 3, 2004; and decreased to 55.6% for the ~~stock~~twenty-six ~~option~~weeks ~~expense~~ended July 2, ~~which~~2005 ~~were~~from ~~not~~56.0% ~~expensed~~for the twenty-six weeks July 3, 2004. The increase in gross profit dollars was primarily attributable to an increase in sales. The improvement in gross profit rate for the ~~same~~thirteen ~~period~~weeks ~~last~~ended ~~year~~July 2, 2005 compared to July 3, 2004 was primarily the result of continued productivity in supply chain, product sourcing initiatives, improved retail product mix and discount levels and gift card breakage income, offset, in part, by a greater mix of home fragrance and accessories versus higher margin candles in wholesale. The decline in gross profit rate for the twenty-six weeks ended July 2, 2005 compared to July 3, 2004 was primarily the result of discounts associated with the sell through of holiday and discontinued merchandise in the retail business during our extended January clearance program, offset, in part, by improved productivity in supply chain operations.

InSELLING ~~the third quarter of 2003, we adopted the fair value recognition provisions~~EXPENSES of SFAS No. 123. Under the prospective transition method selected by us as described in SFAS No. 148, all stock option grants beginning with grants made in fiscal 2003 are being expensed over the vesting period, based on the fair value at the date of the grant. This resulted in $0.3 million of incremental stock compensation expense in the thirteen weeks ended July 3, 2004 and $0.6 million of incremental stock compensation expense in the twenty-six weeks ended July 3, 2004.

~~NET~~Selling ~~OTHER~~expenses ~~EXPENSE~~increased 7.9% to $32.1 million for the thirteen weeks ended July 2, 2005 from $29.8 million for the thirteen weeks ended July 3, 2004; and increased 12.2% to $64.6 million for the twenty-six weeks ended July 2, 2005 from $57.6 million for the twenty-six weeks ended July 3, 2004. 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. As a percentage of sales, selling expenses increased to 29.6% for the thirteen weeks ended July 2, 2005 from 29.5% for the thirteen weeks ended July 3, 2004; and increased to 28.4% for the twenty-six weeks ended July 2, 2005 from 27.8% for the twenty-six weeks ended July 3, 2004. The increase in selling expenses in dollars for the thirteen and twenty-six weeks ended July 2, 2005 was primarily related to the continued growth in the number of retail stores, from 319 as of July 3, 2004 to 359 as of July 2, 2005. These new stores 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. The increase in selling expenses as a percentage of sales for the thirteen and twenty-six weeks ended July 2, 2005 was primarily related to the decline in comparable store sales since the fixed components of labor and occupancy do not decrease with negative retail comparable store sales.

~~Net~~SEGMENT ~~other expense was $1.0 million for the thirteen weeks ended July 3, 2004,~~PROFITABILITY compared to $0.8 million for the thirteen weeks ended June 28, 2003; and was $1.7 million for the twenty-six weeks ended July 3, 2004 and June 28, 2003. The primary component of the expense in each of these periods was interest expense, which was $1.1 million for the thirteen weeks ended July 3, 2004 compared to $0.8 million for the thirteen weeks ended June 28, 2003; and was $2.0 million for the twenty-six weeks ended July 3, 2004 compared to $1.6 million for the twenty-six weeks ended June 28, 2003. The average daily debt outstanding increased in the thirteen and twenty-six weeks ended July 3, 2004 compared to the thirteen and twenty-six weeks ended June 28, 2003 primarily due to repurchases of our common stock, the impact of which was offset in part by a reduction in our borrowing rates under our credit facility.

~~PROVISION~~Segment ~~FOR~~profitability ~~INCOME~~is ~~TAXES~~sales less cost of goods sold and selling expenses. Segment profitability for our wholesale operations, including Europe, was $23.4 million, or 39.9% of wholesale sales, for the thirteen weeks ended July 2, 2005 compared to $21.7 million, or 41.2% of wholesale sales, for the thirteen weeks ended July 3, 2004. The increase in

~~The effective tax rate for the thirteen and twenty-six weeks ended July 3, 2004~~15 and June 28, 2003 was 39.5%. We have provided and expect to continue to provide in 2004 a valuation allowance against the deferred tax asset for our international operations. The valuation allowance has been considered in establishing the 39.5% effective tax rate. As a result, it is anticipated that our effective tax rate for 2004 will be approximately 39.5%. We re-evaluate our effective tax rate on a quarterly basis.

Wewholesale ~~have~~segment ~~consistently~~profitability ~~generated~~in ~~positive~~dollars ~~cash~~was ~~flow~~primarily ~~from~~attributable ~~operations~~to increased wholesale sales. ~~Specifically,~~The ~~over~~decrease ~~the~~in ~~last~~wholesale ~~three~~segment ~~fiscal~~profitability ~~years~~as wea ~~have~~percentage ~~generated~~of asales ~~total~~was ~~cash~~primarily ~~flow~~attributable ofto ~~approximately~~GBI ~~$292 million~~Marketing, ~~including~~our ~~approximately~~fundraising ~~$113 million~~division, ~~in 2003.~~which ~~These~~has ~~amounts~~a ~~have~~higher ~~exceeded~~selling ~~net~~expense structure ~~income~~than inour ~~the~~core ~~last~~wholesale ~~three~~business ~~fiscal years~~and ~~due~~ to ~~two~~a ~~factors.~~lesser ~~First,~~extent weby ~~have~~a ~~incurred~~greater ~~non-cash~~mix ~~charges~~of ~~for depreciation~~home fragrance and ~~amortization.~~accessories ~~Second,~~versus ~~income~~higher ~~tax~~margin ~~expense~~candles. ~~has~~Segment ~~significantly~~profitability ~~exceeded~~for ~~taxes~~our retail ~~actually~~operations ~~paid~~was ~~owing~~$6.3 million toor ~~the~~12.6% ~~tax~~of ~~deduction~~retail ~~that~~sales wefor ~~continue to utilize that arose from~~ the ~~1998~~thirteen ~~recapitalization.~~weeks ~~This~~ended ~~tax~~July 2, ~~deduction~~2005 compared ~~is expected~~ to ~~continue~~$5.5 million ~~to provide~~or an11.4% ~~annual~~of ~~cash~~retail ~~benefit~~sales for the ~~next~~thirteen ~~ten~~weeks ~~years.~~ended OnJuly 3, an2004. ~~annual basis,~~The ~~this~~increase ~~results~~ in ~~tax~~retail ~~savings~~segment ofprofitability ~~approximately~~in ~~$11.7 million~~dollars ~~per~~and ~~year~~as ~~through 2013~~a ~~assuming~~percentage ~~sufficient income to realize the full benefit~~ of ~~this~~sales ~~deduction.~~was primarily ~~These~~attributable ~~internally~~to ~~generated~~continued ~~cash~~productivity ~~flows~~in ~~have~~supply ~~been~~chain, ~~sufficient~~product tosourcing ~~fund~~initiatives, ~~necessary~~improved ~~capital~~retail ~~expenditures~~product ~~for~~mix ~~our~~and ~~expansion~~discount ~~plans~~levels and ~~other~~gift ~~working~~card ~~capital~~breakage ~~needs~~income.

~~Cash~~Segment ~~and~~profitability ~~cash~~for ~~equivalents~~our aswholesale ~~of July 3~~operations, ~~2004~~including ~~decreased~~Europe, bywas $3152.7 million ~~compared to January 3~~, ~~2004~~or 41.8% of ~~This~~wholesale ~~decrease~~sales, ~~was~~for ~~due~~the ~~primarily~~twenty-six toweeks ~~cash~~ended ~~used~~July 2, ~~in operating~~2005 ~~activities~~compared ofto $1347.30 million, ~~which~~or ~~includes total payments of $28~~41.05% ~~million~~ of ~~corporate~~wholesale ~~income~~sales, ~~taxes~~ for ~~fiscal 2003 and fiscal 2004. Capital expenditures for~~ the twenty-six weeks ended July 3, 2004. ~~were~~The ~~$9.8 million, primarily~~increase ~~related~~in towholesale ~~the~~segment profitability ~~capital~~was ~~requirements~~primarily attributable to ~~open~~increased 33wholesale ~~new~~sales ~~stores~~and asincreased ~~well~~wholesale asgross ~~investments~~profit indollars ~~information systems~~ and ~~supply chain operations~~rate. OnSegment ~~June 7, 2004,~~profitability wefor ~~acquired~~our ~~substantially~~retail ~~all~~operations ofwas ~~the~~$9.4 million ~~assets~~or ~~of GBI Marketing, Inc~~9.2% ~~(“GBI”),~~of aretail ~~privately~~sales ~~owned~~for ~~and~~the ~~operated~~twenty-six ~~distributor~~weeks ofended ~~selected gift products~~July 2, ~~including~~ ~~Yankee~~2005 ~~Candle®~~compared ~~products,~~ to ~~fundraising organizations. The total cash purchase price was approximately~~ $11.5 million or 12.3% ~~Net~~of retail ~~cash~~sales ~~provided~~for ~~by financing~~the ~~activities~~twenty-six ~~was~~weeks $ended July 3, 2004.~~2 million~~ The decrease in retail segment profitability for the twenty-six weeks ended July 2, 2005 compared to July 3, 2004, ~~which~~was ~~includes~~primarily attributable ~~net~~to ~~borrowings~~discounts ofassociated ~~$71.2 million~~with ~~under~~the ~~our~~sell ~~credit~~through ~~facility~~of holiday and discontinued merchandise ~~used~~in tothe ~~fund~~retail ~~operations~~business ~~and~~during ~~repurchase~~our ~~common~~extended ~~stock~~January clearance program.

OnGENERAL ~~February 18,~~AND ~~2004,~~ADMINISTRATIVE ~~we announced that our Board of Directors had approved a~~EXPENSES stock repurchase program authorizing us to repurchase up to $100 million of Yankee Candle common stock. During the fiscal 2004 second quarter ended July 3, 2004 we repurchased a total of 1,704,000 shares of common stock for an aggregate purchase price of $48.8 million. On a cumulative basis during fiscal 2004, we have repurchased a total of 2,510,100 shares of our common stock for an aggregate purchase price of $71.6 million.

WeGeneral ~~opened~~and 33administrative ~~new~~expenses, ~~stores~~which ~~during~~consist primarily of personnel-related costs incurred in support functions, increased 11.6% to $13.7 million for the thirteen weeks ended July 2, 2005 from $12.3 million for the thirteen weeks ended July 3, 2004; and increased 6.7% to $27.3 million for the twenty-six weeks ended July 32, 2005 from $25.6 million for the twenty-six weeks ended July 3, 2004. As a percentage of sales, general and ~~we expect~~administrative expenses increased to ~~open~~12.7% ~~approximately~~for the thirteen weeks ended July 2, 2005 from 12.2% for the thirteen weeks ended July 3, 2004; and decreased to 1512.0% ~~additional~~for ~~stores~~the ~~during~~twenty-six weeks ended July 2, 2005 from 12.3% for the ~~last~~twenty-six ~~two~~weeks ~~quarters~~ended ofJuly 3, ~~fiscal~~ 2004. WeThe ~~expect~~increase toin ~~meet~~general ~~our~~and ~~cash~~administrative ~~requirements~~expense ~~through~~was aprimarily attributable ~~combination~~to oflabor ~~available~~costs. ~~cash,~~The ~~operating~~increase ~~cash~~in ~~flow~~labor ~~and~~costs ~~borrowings~~is ~~under~~due ~~our~~primarily to an increase in stock compensation ~~credit~~expense ~~facility~~and to a lesser extent new hires made subsequent to the second quarter of 2004.

OnNET ~~May 19,~~OTHER ~~2004, we entered into a new $200 million senior unsecured revolving~~EXPENSE ~~credit facility (the “Credit Facility”) with Citizens Bank of Massachusetts and a syndicate of lenders. This new Credit Facility has two Tranches, a $150~~

15Net other expense was $2.0 million for the thirteen weeks ended July 2, 2005, compared to $1.0 million for the thirteen weeks ended July 3, 2004; and was $3.1 million for the twenty-six weeks ended July 2, 2005, compared to $1.7 million for the twenty-six weeks ended July 3, 2004. The primary component of the expense in each of these periods was interest expense, which was $1.5 million for the thirteen weeks ended July 2, 2005 compared to $1.2 million for the thirteen weeks ended July 3, 2004; and was $2.5 million for the twenty-six weeks ended July 2, 2005 compared to $2.0 million for the twenty-six weeks ended July 3, 2004. The primary factor in increased interest expense was the increase in our average borrowing rates and to a lesser extent the increase in our average daily debt outstanding for the thirteen and twenty-six weeks ended July 2, 2005 compared to July 3, 2004. .

~~Table~~PROVISION ofFOR ~~Contents~~INCOME TAXES

~~million~~The ~~Tranche~~effective ~~(“Tranche~~tax ~~A”)~~rate ~~that~~for ~~expires~~the onthirteen ~~May 19, 2007~~ and atwenty-six ~~$50 million Tranche~~weeks ~~(“Tranche~~ended ~~B”) that expires on May~~July 182, 2005. ~~The~~was ~~new~~39.0% ~~Credit~~and ~~Facility~~was ~~replaced~~39.5% for the ~~$150 million~~comparable ~~revolving~~periods ~~credit~~in ~~facility~~2004. ~~that~~The ~~was~~decrease ~~scheduled~~from 39.5% is due to the deduction for ~~expire~~domestic onproduction ~~July 7,~~activities ~~2004.~~available ~~This~~to ~~new~~us ~~Credit~~under ~~Facility~~the ~~will~~American beJobs ~~used~~Creation byAct usof ~~for,~~2004. ~~among~~We ~~other~~have ~~things,~~provided ~~working~~and ~~capital,~~expect ~~refinancing~~to ~~existing~~continue ~~debt,~~to ~~letters~~provide ofin ~~credit, repurchase~~2005 ofa ~~our~~valuation ~~common~~allowance ~~stock~~against ~~and~~the ~~other~~deferred tax ~~general~~asset ~~corporate~~for ~~purposes~~our international operations. As a result, ofit ~~refinancing~~is anticipated that our ~~existing~~effective ~~debt,~~tax rate ~~all~~for of2005 ~~our~~will ~~debt~~be ~~has~~approximately ~~been~~39.0%. ~~classified~~We ~~as long~~re-evaluate ~~term~~our aseffective oftax ~~July 3,~~rate ~~2004~~on a quarterly basis.

~~Amounts~~LIQUIDITY ~~outstanding~~AND ~~under~~CAPITAL ~~the Credit Facility bear interest at a rate equal to,~~RESOURCES at our option, the Citizens Bank Base Rate, or Eurodollar Rate. Eurodollar borrowings under Tranche A of the Credit Facility include a margin rate ranging from 0.70% to 1.00% and borrowings under Tranche B include a margin rate ranging from 0.75% to 1.05%. These rates vary depending on our outstanding borrowings. In addition, we are required to pay the lenders a quarterly commitment fee on the unused revolving loan commitment amount. The commitment fee under Tranche A ranges from 0.15% to 0.25% and under Tranche B range from 0.10% to 0.20%. Fees for outstanding commercial and standby letters of credit range from 0.70% to 1.00%. We are also required to pay a utilization fee on the total Credit Facility of 0.125% once outstanding borrowings exceed $100 million. The Credit Facility requires that we comply with several financial and other covenants, including requirements that we maintain at the end of each fiscal quarter the following financial ratios as set forth in the credit agreement:

	•		a consolidated total debt to consolidated EBITDA ratio of no more than 2.00 to 1.00 at July 3, 2004 and for subsequent fiscal quarters (at July 3, 2004 this ratio was 0.90 to 1.00 ).
	•		a fixed charge coverage ratio (the ratio of the sum of consolidated EBITDA plus rent expense, less cash taxes paid and capital expenditures to the sum of consolidated cash interest expense plus rent expense and dividends) of no less than 1.75 to 1.00 for fiscal 2004; no less than 2.00 to 1.00 for fiscal 2005; and no less than 2.25 to 1.00 during fiscal 2006 and thereafter (at July 3, 2004 this ratio was 4.75 to 1.00).

Cash and cash equivalents as of July 2, 2005 decreased by $26.3 million compared to January 1, 2005. This decrease was due primarily to cash used in operating activities of $18.7 million, which includes total payments of $35.3 million of corporate income taxes for fiscal 2004 and fiscal 2005. Capital expenditures for the twenty-six weeks ended July 2, 2005 were $10.0 million, primarily related to the capital requirements to open 16 new stores as well as investments in information systems and supply chain operations. Net cash provided by financing activities was $3.1 million for the twenty-six weeks ended July 2, 2005, which includes net borrowings of $107.0 million under our credit facility used to repurchase common stock and fund operations.

~~The Credit Facility permits the payment of cash dividends by us of up to 50% of~~16 the current fiscal year’s net income and the repurchase of our shares, so long as our Consolidated Net Worth (as defined in the Credit Facility) is not less than $75 million for the second and third quarter of fiscal 2004, $100 million plus 25% of fiscal 2004 net income. Beginning in 2005, the Consolidated Net Worth will be the $100 million plus 25% of 2004 net income, plus 25% of net income for each fiscal quarter thereafter.

WeOn ~~expect~~December 7, ~~that~~2004, ~~the~~we ~~principal~~announced ~~sources~~that ~~of funding for~~ our ~~planned~~Board ~~store~~of ~~openings and~~Directors ~~other~~had ~~working~~approved ~~capital~~a ~~needs, capital expenditures, debt service obligations and~~ stock repurchase program ~~will~~authorizing beus ato ~~combination~~repurchase ofup ~~our~~to ~~available~~$100.0 million ~~cash~~of ~~and cash~~Yankee ~~equivalents,~~Candle ~~funds~~common ~~generated~~stock ~~from operations, and borrowings under our~~commencing ~~credit~~in ~~facility~~fiscal 2005. WeDuring ~~believe~~the ~~that~~thirteen ~~our current funds~~ and ~~sources~~twenty-six ofweeks ~~funds~~ended ~~will be sufficient to fund our liquidity needs for at least the next 12~~July ~~months. However~~2, ~~there~~2005 ~~are~~we repurchased a ~~number~~ total of ~~factors~~1,972,111 ~~that~~and ~~may~~3,258,586 ~~negatively~~shares ~~impact our available sources~~ of ~~funds.~~common ~~The~~stock ~~amount~~for ofan ~~cash~~aggregate ~~generated~~purchase ~~from~~price ~~operations will be dependent upon factors such as the successful execution~~ of ~~our business plan~~$60.1 million and ~~general economic conditions~~$100. ~~In addition~~0 million, ~~borrowings~~respectively. ~~under~~This ~~our~~stock ~~credit facility~~repurchase ~~are~~program ~~dependent~~expired ~~upon~~when ~~our~~we ~~continued~~reached ~~compliance with~~ the ~~financial and~~$100.0 ~~other~~million ~~covenants contained therein~~threshold.

~~BUSINESS~~On ~~ACQUISITION~~July 27, 2005 we announced that our Board of Directors had authorized a new stock repurchase program for the repurchase of up to an additional $150 million of our common stock. The commencement of this program will be determined by management based on their evaluation of market conditions and other factors.

OnWe ~~June 7,~~opened ~~2004,~~16 westores ~~acquired~~during ~~substantially all of~~ the ~~assets~~twenty-six ofweeks ~~GBI~~ended ~~Marketing~~July 2, ~~Inc.~~ ~~(“GBI”)~~2005, ~~a privately owned~~ and ~~operated~~we ~~distributor~~expect ~~of selected gift products, including Yankee Candle® products,~~ to ~~fundraising organizations.~~open ~~The total purchase price was~~ approximately ~~$14.5 million,~~30 ~~$3.0 million of which is contingent and will be recorded as~~ additional ~~goodwill~~stores ~~upon~~during the ~~achievement of~~last ~~certain~~two ~~performance~~quarters ~~objectives~~of ~~over~~fiscal ~~the next three years~~2005. ~~The~~We ~~cash~~expect ~~purchase price~~to ~~was borrowed under~~ meet our ~~$200 million~~cash ~~unsecured~~requirements ~~credit~~through ~~facility.~~a ~~Due~~combination ~~to the proximity~~ of ~~the~~available ~~acquisition date to July 3~~cash, ~~2004,~~operating ~~the~~cash ~~allocation~~flow ofand ~~the~~borrowings ~~purchase~~under ~~price~~our iscredit ~~subject to refinement~~facility. ~~The following table provides a~~ ~~preliminary allocation of the purchase price for the acquired assets of GBI:~~

	(in thousands)
Cash purchase price	$	11,500
Assets acquired:
Property, plant and equipment		250
Inventory		1,000
Customer relationships		3,450
Trade name		1,960
Goodwill		4,840
	$	11,500

As of July 2, 2005, we were in compliance with all covenants under our Amended Credit Facility. We had $182.0 million outstanding under the revolving credit facility and $1.8 million of outstanding letters of credit, leaving $66.2 million in availability.

16On February 14, 2005 we announced that our Board of Directors authorized us to initiate an annual cash dividend at the annual rate of $0.25 per share of outstanding common stock. The first semi-annual payment of $0.125 per share was paid on June 1, 2005, to shareholders of record on May 11, 2005. Under the terms of the Amended Credit Facility, we may not declare or pay dividends on common stock unless our Consolidated Net Worth (as defined in the Amended Credit Facility) is more than one dollar. As of July 2, 2005, our Consolidated Net Worth was approximately $98.0 million, in excess of the one dollar required under the Amended Credit Facility for the declaration or payment of dividends. While it is our current intention to pay annual cash dividends in years following 2005, any decision to pay future cash dividends will be made by our Board of Directors and will depend upon our earnings, financial condition and other factors.

~~Table~~We expect that the principal sources of ~~Contents~~funding for our planned store openings and other working capital needs, capital expenditures, debt service obligations, payment of dividends and stock repurchase program 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.

~~CONTRACTUAL~~FUTURE ~~OBLIGATIONS~~OPERATING ~~AND OTHER COMMERCIAL COMMITMENTS~~RESULTS

~~The~~As ~~only~~referenced ~~off-balance~~above, ~~sheet~~there ~~contractual~~are ~~obligations~~a ~~and~~number ~~commercial~~of ~~commitments as~~factors ofthat ~~July 3,~~might ~~2004~~cause ~~relate~~our actual results to ~~operating~~differ significantly ~~lease~~from ~~obligations~~the ~~and~~results ~~letters~~reflected ofby ~~credit~~the forward-looking statements contained herein. In Weaddition ~~have~~to ~~excluded~~factors ~~these~~generally ~~items~~affecting ~~from~~ the ~~balance~~political, ~~sheet~~economic inand ~~accordance~~competitive ~~with~~conditions in the ~~generally~~United ~~accepted~~States ~~accounting~~and ~~principles~~abroad, such factors include those set forth below.

~~FUTURE~~If ~~OPERATING~~we ~~RESULTS~~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.

AsWe ~~referenced~~intend ~~above,~~to ~~there~~continue ~~are~~to pursue a ~~number~~business strategy of ~~factors~~increasing ~~that~~sales ~~might~~and ~~cause~~earnings ~~our~~by ~~actual~~expanding ~~results~~our toretail ~~differ~~and ~~significantly~~wholesale ~~from~~operations both in the ~~results~~United ~~reflected~~States byand ~~the~~internationally. Because our ~~forward-looking~~ability ~~statements~~to ~~contained~~implement ~~herein.~~our Ingrowth ~~addition~~strategy tosuccessfully will be dependent in part on factors ~~generally~~beyond ~~affecting~~our ~~the~~control, ~~political~~including consumer preferences, macro-economic ~~and~~conditions, the competitive ~~conditions~~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 ~~United~~candle, home ~~States~~fragrance and ~~abroad~~giftware industries, ~~such~~and identify industry trends, will be critical factors ~~include~~in ~~those~~our ability ~~set~~to ~~forth~~grow ~~below~~as planned and remain competitive.

IfWe expect that, as we ~~fail~~continue to grow, ~~our~~it ~~business~~will asbecome ~~planned,~~more difficult to maintain our ~~business~~historical growth rate, which could ~~suffer~~negatively impact our operating margins and ~~financial~~ results ~~could~~of ~~decline~~operations. AsNew stores wetypically ~~grow~~generate itlower ~~will~~operating bemargin ~~difficult~~contributions tothan ~~maintain~~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 ~~historical~~retail ~~growth~~sales ~~rates~~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

~~We intend to continue to pursue a business strategy of increasing sales and~~17 earnings by expanding our retail and wholesale operations both in the United States and internationally. Our current plans are to grow internally and not by acquisition, although from time to time we do consider possible acquisition candidates. In particular, our retail growth strategy depends in large part on our ability to open new stores in both existing and new geographic markets. Since our ability to implement our growth strategy successfully will be dependent in part on factors beyond our control, including consumer preferences and the competitive environment, we may not be able to achieve our planned growth or sustain our financial performance. Our ability to anticipate changes in the candle and giftware industries, and identify industry trends, will be critical factors in our ability to remain competitive.

Wesome ~~face~~of ~~significant~~these ~~competition~~new inchannels may, for competitive reasons within the ~~giftware~~channels, ~~industry.~~generate ~~This~~lower ~~competition~~margins ~~could~~than ~~cause~~do our ~~revenues~~existing orwholesale ~~margins~~sales. toSimilarly, ~~fall~~as ~~short~~we ofcontinue ~~expectations~~to ~~which~~broaden ~~could~~our product offerings ~~adversely~~in ~~affect~~order ~~our~~to ~~future~~meet ~~operating~~consumer ~~results~~demand, ~~financial~~we ~~condition~~may ~~and~~do so in part by adding products that, while still very ~~liquidity~~profitable, ~~and~~have lower product margins than those of our ~~ability~~extremely toprofitable core candle products. We cannot assure you that we will continue to grow at a rate comparable to our ~~business~~historic growth rate or that our historic financial performance will continue as we grow.

We ~~compete~~may ~~generally~~be ~~for~~unable the disposable income of consumers with other producers in the giftware industry. The giftware industry is highly competitive with a large number of both large and small participants. Our products compete with other scented and unscented candle 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 with franchised candle store chains, specialty candle stores and gift and houseware retailers. 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. This competitive environment could adversely affect our future revenues and profits, financial condition and liquidity and our ability to continue to ~~grow~~open ~~our~~new ~~business~~stores successfully.

AOur ~~material~~retail ~~decline~~growth strategy depends in ~~consumers’~~large ~~discretionary~~part ~~income~~on ~~could~~our ~~cause~~ability to successfully open new stores in both existing and new geographic markets. For our ~~sales~~growth strategy to be successful, we must identify and lease favorable store sites on favorable economic terms, hire and train managers and ~~income~~associates and adapt management and operational systems to ~~decline~~meet the needs of our expanded operations. These tasks may be difficult to accomplish successfully. 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. 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.

~~Our~~We ~~results~~face ~~depend~~significant oncompetition ~~consumer~~in ~~spending, which is influenced by general economic conditions and~~ the ~~availability~~giftware ~~of discretionary income~~industry. ~~Accordingly, we~~This ~~may~~competition ~~experience~~could ~~declines~~cause inour ~~sales~~revenues or ~~during~~margins ~~economic~~to ~~downturns~~fall orshort ~~during periods~~ of ~~uncertainty~~expectations ~~like that~~ which ~~followed~~could ~~the~~adversely ~~September 11,~~affect ~~2001~~our ~~terrorist~~future ~~attacks~~operating ~~on the United States~~results, ~~the outbreak of the war in Iraq or the~~ ~~possibility~~financial ofcondition ~~further~~and ~~terrorist~~liquidity ~~attacks.~~and ~~Any~~our ~~material~~ability ~~decline~~to incontinue ~~the~~to ~~amount of~~grow ~~discretionary spending could have a material adverse effect on~~ our ~~sales and income~~business.

17We 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 décor 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.

~~Table~~A ofmaterial ~~Contents~~decline in consumers’ discretionary income could cause our sales and income to decline.

~~Because~~Our weresults ~~are~~depend ~~not~~on aconsumer ~~diversified~~spending, ~~company~~which ~~and~~is ~~are~~influenced ~~effectively~~by ~~dependent~~general ~~upon~~economic ~~one~~conditions and the ~~industry~~availability of discretionary income. Accordingly, we ~~have~~may ~~less~~experience ~~flexibility~~declines in ~~reacting~~sales toduring economic ~~unfavorable~~downturns ~~consumer~~or ~~trends~~during periods of uncertainty like that which followed the September 11, 2001 ~~adverse~~terrorist ~~economic~~attacks ~~conditions~~on the United States or ~~business~~which ~~cycles~~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.

WeBecause ~~rely~~we ~~primarily~~are onnot ~~the~~a ~~sale~~diversified ofcompany ~~premium scented candles~~ and ~~related~~are ~~products in~~effectively ~~the~~dependent ~~giftware~~upon ~~industry.~~one ~~In the event that sales of these products decline or do not meet our expectations~~industry, we ~~cannot rely on the sales of other products to~~have ~~offset~~less ~~such~~flexibility ain ~~shortfall.~~reacting ~~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~~cycles.

IfWe 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 ~~lose~~rely on the sales of other products to offset such a shortfall. As a significant portion of our ~~senior~~expenses ~~executive~~is ~~officers~~comprised of fixed costs, such as lease payments, our ability to decrease expenses in response to adverse business ~~could~~conditions beis ~~disrupted~~limited ~~and~~in the short term. As a result, unfavorable ~~our~~consumer ~~financial~~trends, ~~performance~~adverse economic conditions or changes in the business cycle could ~~suffer~~have a material and adverse impact on our earnings.

~~Our~~If ~~success~~we islose ~~substantially dependent upon the retention of~~ our senior executive officers., Ifor ~~one~~are orunable ~~more~~to ofattract ~~our~~and ~~senior~~retain ~~executive~~the ~~officers~~talent ~~become~~required ~~unable~~for ~~or unwilling to participate in~~ our business, our ~~future~~ business could be disrupted and our financial performance could ~~be materially affected~~suffer.

~~Many aspects of our manufacturing and distribution facilities are customized~~18 ~~for our business; as a result, the loss of one of these facilities would disrupt our operations.~~

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

~~Our~~Many ~~sales~~aspects 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.~~ Wemanufacturing believe that this has been due primarily to an increase in giftware industry sales during the holiday season of the fourth quarter. As a result of this seasonality, we believe that quarter to quarter comparisons of our operating results are not necessarily meaningful and ~~that~~distribution ~~these~~facilities 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, 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~~customized ~~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; aas ~~particular quarter could be adversely affected by competition, 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~~loss ~~sales, operating results or comparable store sales that do not match the expectations~~ of ~~market~~one ~~analysts and investors. This could cause the trading price~~ of ~~our~~these ~~common~~facilities ~~stock~~would todisrupt ~~decline. In addition, broad market and industry fluctuations may adversely affect the price of~~ our ~~common stock, regardless of our operating performance~~operations.

~~Public~~Approximately ~~health~~74% ~~epidemics~~of ~~such~~our assales ~~Severe~~in ~~Acute~~2004 ~~Respiratory~~were ~~Syndrome~~generated ~~may~~by ~~affect~~products we manufacture at our manufacturing facility in Whately, Massachusetts and we rely primarily on our ~~operating~~distribution facilities ~~results~~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.

~~Approximately~~Seasonal, ~~11%~~quarterly ofand ~~our~~other ~~sales~~fluctuations in ~~2003 were generated by products, primarily accessories, that we purchased overseas. Substantially all of these products were purchased from East Asia. A sustained interruption of the operations of~~ our ~~suppliers~~business, asand ageneral ~~result~~industry ofand ~~the impact of Severe Acute Respiratory Syndrome~~market ~~or other similar health epidemics~~conditions, could ~~have~~affect anthe ~~adverse~~market ~~effect~~for on our ~~ability to~~common ~~receive timely shipments of certain of our products and could result in scrutiny or embargoing of goods produced in infected areas~~stock.

18Our 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. 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 market analysts and investors. This could cause the trading price of our common stock to decline. In addition, broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance.

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

~~Provisions~~Approximately in11% of our ~~corporate~~sales ~~documents~~in ~~and~~2004 ~~Massachusetts~~were ~~law~~generated ~~could~~by ~~delay~~products, orprimarily accessories, that we ~~prevent~~purchased overseas. Substantially all of these products were purchased from East Asia. A sustained interruption of the operations of our suppliers, as a ~~change~~result inof ~~control~~the impact of ~~Yankee~~health ~~Candle.~~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.

~~Our~~Provisions ~~Articles~~in ofour ~~Organization~~corporate documents and ~~By-Laws~~Massachusetts ~~may~~law ~~discourage,~~could delay or prevent a ~~merger~~ orchange ~~acquisition~~in control ~~involving~~of Yankee Candle ~~that our stockholders may~~. ~~consider favorable, by:~~

•Our ~~authorizing~~Articles ~~the issuance~~ of ~~preferred~~Organization ~~stock,~~and ~~the~~By-Laws ~~terms of which~~ may ~~be determined at the sole discretion of the board of directors~~discourage, •delay ~~providing~~or ~~for~~prevent a ~~classified~~merger ~~board of directors, with staggered three-year terms, and • establishing advance notice requirements for nominations for election to the board of directors~~ or ~~for~~acquisition involving ~~proposing~~Yankee ~~matters~~Candle that ~~can~~our bestockholders ~~acted~~may onconsider byfavorable, ~~stockholders at meetings.~~by:

~~Massachusetts~~• ~~law~~authorizing the issuance of preferred stock, the terms of which may ~~also~~be ~~discourage~~determined at the sole discretion of the board of directors, ~~delay~~• orproviding ~~prevent~~for ~~someone~~a ~~from~~classified ~~acquiring or~~board ~~merging~~of directors, with usstaggered three-year terms, and • establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at meetings.

~~We do not currently intend to pay dividends on our capital stock.~~19

~~Item~~Massachusetts 3.law ~~Quantitative~~may ~~and~~also ~~Qualitative~~discourage, ~~Disclosures~~delay ~~About~~or ~~Market~~prevent ~~Risk~~someone from acquiring or merging with us.

~~Our market risks relate primarily to changes in interest rates.~~ We ~~bear~~are ~~this risk~~subject ~~in our outstanding bank debt. At July 3, 2004, there was $136.4 million of bank debt outstanding. Because this bank debt carries a variable interest rate pegged~~ to ~~market indices, our results of operations and cash flows are exposed to changes in interest rates. Based on July 3, 2004 borrowing levels,~~ a ~~1.00%~~ ~~increase~~class oraction ~~decrease~~lawsuit in ~~current market interest rates would have the effect of causing an approximately $1~~California.~~3 million additional annual pre-tax~~ ~~charge or credit to the statements of income.~~

~~The~~A ~~second~~class ~~component~~action oflawsuit ~~interest~~has ~~rate~~been ~~risk~~filed ~~involves~~against ~~the~~us ~~short-term~~for ~~investment of~~alleged ~~excess~~violations ~~cash.~~of ~~This~~certain ~~risk~~California ~~impacts~~state wage ~~fair~~and ~~values,~~hour ~~earnings~~ and ~~cash~~employment ~~flows. Excess~~laws ~~cash~~with isrespect ~~primarily~~to ~~invested~~certain employees in ~~interest~~our ~~bearing~~California ~~accounts that fluctuate~~retail ~~with~~stores. ~~market~~This ~~interest~~complaint ~~rates.~~was ~~Based~~filed onin ~~July~~February 3,2005. ~~2004~~While ~~cash~~we ~~equivalents,~~intend ato ~~1.00% increase~~vigorously ordefend ~~decrease~~ourselves against inthe ~~current~~allegations, ~~market~~it ~~interest~~is ~~rates~~too ~~would~~early ~~have~~in the ~~effect~~litigation ~~of causing~~process anfor ~~approximately~~us ~~$0.1 million~~to ~~additional~~fully ~~pre-tax~~evaluate ~~credit~~ or ~~charge to~~ predict the ~~annual~~outcome ~~statements~~ of ~~income~~the litigation.

~~We buy a variety of raw materials for inclusion in our products~~Item 3. ~~The~~Quantitative ~~only~~and ~~raw material~~Qualitative ~~that~~Disclosures weAbout ~~consider~~Market ~~to be of a commodity nature is wax. Wax is a~~Risk ~~petroleum-based product; however, its market price has not historically fluctuated with the movement of oil prices. Rather, over the past five years wax prices have moved with inflation.~~

AtOur market risks relate primarily to changes in interest rates. We bear this ~~point~~risk in ~~time~~two specific ways. First, we have debt outstanding. At July 2, 2005, we had $182.0 million outstanding under our ~~operations~~Credit ~~outside~~Facility, ofwhich bears interest at variable rates. At July 2, 2005, the ~~United~~weighted-average interest ~~States~~rate ~~are~~on outstanding borrowings was 4.07%. This facility is intended to fund operating ~~immaterial~~needs and stock repurchases if necessary. ~~Accordingly~~Because this facility carries a variable interest rate pegged to market indices, weour ~~are~~results ~~not~~of operations and cash flows will be exposed to ~~substantial~~changes ~~risks~~in interest ~~arising~~rates. ~~from foreign~~Based ~~currency~~on ~~exchange~~July 2, 2005 borrowing levels, a 1.00% increase or decrease in current market interest rates would have the effect of causing an approximately $1.8 million additional annual pre-tax charge or credit to the statement of income.

~~Item~~The 4second component of interest rate risk involves the short-term investment of excess cash. ~~Controls~~This risk impacts fair values, earnings and ~~Procedures~~cash flows. Excess cash is primarily invested in interest bearing accounts that fluctuate with market interest rates. Based on July 2, 2005 cash equivalents, a 1.00% increase or decrease in current market interest rates would have the effect of causing an approximately $0.1 million additional pre-tax credit or charge to the annual statements of income.

~~Our~~We ~~management,~~buy ~~with~~a ~~the~~variety ~~participation~~ of ~~our~~raw ~~chief~~materials ~~executive~~for ~~officer~~inclusion ~~and~~in ~~chief financial~~our ~~officer,~~products. ~~evaluated~~The ~~the~~only ~~effectiveness~~raw ofmaterial ~~our~~that ~~disclosure controls and~~is ~~procedures~~considered ~~(as~~to ~~defined~~be inof ~~Rules 13a-15(e)~~a ~~and~~commodity ~~15d-15(e)~~nature ~~under~~is ~~the~~wax. ~~Securities Exchange~~Wax ~~Act~~is ofa ~~1934~~petroleum-based ~~(the~~product. ~~“Exchange Act”)) as of July 3~~However, ~~2004. Based on this~~its ~~evaluation,~~market ~~our~~price ~~chief~~has ~~executive~~not ~~officer~~historically ~~and~~fluctuated ~~chief~~with ~~financial~~the ~~officer~~movement ~~concluded that, as~~ of ~~July 3,~~oil ~~2004,~~prices ~~our disclosure controls~~ and ~~procedures~~has ~~were (1)~~instead ~~designed~~generally tomoved ~~ensure~~with ~~that~~inflation. ~~material~~In ~~information relating to us~~2004, ~~including our consolidated subsidiaries~~however, issignificant ~~made~~increases ~~known~~in tothe ~~our~~price ~~chief~~of ~~executive~~crude ~~officer and~~oil ~~chief~~resulted ~~financial~~in ~~officer~~corresponding byincreases ~~others~~in ~~within those entities, particularly during~~ the ~~period~~price inof ~~which~~petroleum-based ~~this~~wax. ~~report~~This ~~was~~trend ~~being~~has ~~prepared~~continued to ~~and~~date ~~(2) effective,~~ in ~~that they~~2005. ~~provide~~These ~~reasonable~~crude ~~assurance~~oil ~~that~~price ~~information~~increases ~~that~~also wenegatively ~~are~~impacted ~~required~~our totransportation ~~disclose~~costs. inFuture ~~the~~significant ~~reports~~increases ~~that~~in wewax ~~file~~prices orcould ~~submit~~have ~~under~~an ~~the~~adverse ~~Exchange~~affect ~~Act~~on ~~is recorded,~~our ~~processed,~~cost ~~summarized and reported within the time periods specified~~of ingoods ~~the~~sold ~~SEC’s~~and ~~rules~~could ~~and~~lower ~~forms~~our margins.

NoAt ~~change~~this inpoint ~~our internal control over financial reporting (as defined~~ in ~~Rules 13a-15(f)~~time, ~~and~~operations ~~15d-15(f)~~outside ~~under~~of the ~~Exchange~~United ~~Act)~~States ~~occurred~~are ~~during~~immaterial. ~~the fiscal quarter ended July 3~~Accordingly, ~~2004~~we ~~that has materially affected, or is reasonably~~are ~~likely~~not exposed to ~~materially~~substantial ~~affect,~~risks ~~our~~arising ~~internal~~from ~~control~~foreign ~~over~~currency ~~financial~~exchange ~~reporting~~rates.

19Item 4. Controls and Procedures

~~Table~~Our management, with the participation of ~~Contents~~our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of July 2, 2005. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of July 2, 2005, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information that we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

~~PART~~No ~~II.~~change ~~OTHER~~in ~~INFORMATION~~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 July 2, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Item 1. Legal Proceedings~~20

~~Item 2~~PART II. ~~Changes~~OTHER ~~in Securities, Use of Proceeds and Issuer Purchases of Equity Securities~~INFORMATION

~~The~~Item 1. ~~following~~Legal ~~table provides information about purchases by us of our common stock during the twenty-six weeks ended July 3, 2004.~~Proceedings

					Total Number of Shares		Remaining Funds Available
					Purchased as Part of		to Repurchase Shares
	Total Number of		Average Price		Publicly Announced		Under the Plans
Period	Shares Purchased (1)		Paid per Share		Plans or Programs (2)		or Programs
1/4/04-2/7/04		—	$	—		—	$	100,000,000
2/8/04-3/6/04		500,200		28.52		500,200	$	85,734,296
3/7/04-4/3/04		305,900		28.05		305,900	$	77,153,659
4/4/04-5/8/04		—		—		—	$	77,153,659
5/9/04-6/5/04		866,500		27.45		866,500	$	53,368,234
6/6/04-7/3/04		837,500		29.84		837,500	$	28,377,234
Total		2,510,100	$	28.53		2,510,100

Not Applicable

~~(1)~~Item ~~All~~2. ~~repurchases~~Unregistered bySales us of ~~our~~Equity ~~common stock during the twenty-six weeks ended July 3~~Securities, ~~2004~~Use ~~were~~of ~~done~~Proceeds ~~pursuant~~and toIssuer ~~the~~Purchases ~~repurchase~~of ~~program~~Equity ~~that we~~Securities ~~publicly announced on February 18, 2004 (the “Program”).~~

As noted in our most recent Quarterly Report on Form 10-Q filed on May 12, 2005, we discovered that shares of our common stock offered and sold as one of several investment options under The Yankee Candle Company, Inc. 401(2k) ~~Our~~ ~~Board~~and Profit Sharing Plan (the “Plan”) may have been offered and sold in contravention of ~~Directors~~the ~~approved~~registration requirements of Section 5 of the ~~repurchase~~Securities Act of up1933. toWhen ~~$100~~our management discovered this situation,~~000,000~~ ofwe promptly suspended the right of Plan participants to buy our common stock ~~pursuant~~under tothe Plan until such time as the ~~Program~~appropriate documentation, including a Registration Statement on Form S-8, could be filed. ~~There~~On isJune 14, ~~currently~~2005 nowe filed a Registration Statement on Form S-8 ~~expiration~~registering ~~date~~the ~~for~~shares of our common stock that are acquired in connection with the ~~Program.~~Plan ~~Unless~~as well as interests in the ~~terminated~~Plan. ~~earlier~~We bysent ~~resolution~~notices ofto ~~our~~all ~~Board~~participants of ~~Directors,~~the Plan informing them that the ~~Program~~above-referenced ~~will~~temporary ~~expire~~suspension ~~when~~had been welifted ~~have~~and ~~reached~~that the ~~$100,000,000 threshold~~Company stock is once again available as an investment option under the Plan.

~~Item 3.~~The ~~Defaults~~following ~~Upon~~table ~~Senior~~provides ~~Securities~~information about purchases by us of our common stock during the twenty-six weeks ended July 2, 2005.

Not Applicable


							Remaining Funds
					Total Number of Shares		Available to
					Purchased as Part of		Repurchase Shares
	Total Number of		Average Price		Publicly Announced		Under the Plans
Period	Shares Purchased (1)		Paid per Share		Plans or Programs (2)		or Programs
1/1/05-2/5/05		—	$	—		—	$	100,000,000
2/6/05-3/5/05		871,475		30.92		871,475	$	73,053,993
3/6/05-4/2/05		415,000		31.23		415,000	$	60,093,543
4/3/05-5/7/05		1,949,300		30.45		1,949,300	$	737,358
5/8/05-6/4/05		22,811		32.32		22,811	$	—
6/5/05-7/2/05		—		—		—	$	—


Total		3,258,586	$	30.69		3,258,586

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


(1)		All repurchases by us of our common stock during the twenty-six weeks ended July 2, 2005 were done pursuant to the repurchase program that we publicly announced on December 7, 2004 (the “Program”).

(2)		Our Board of Directors approved the repurchase of up to $100 million of our common stock pursuant to the Program. There was no expiration date for the Program, and it expired when we reached the $100 million threshold.

~~At our 2004 Annual Meeting of Stockholders held on June 16, 2004, our stockholders elected Messrs~~Item 3. ~~Dale~~Defaults F.Upon ~~Frey,~~Senior Michael F. Hines and Ronald L. Sargent to serve as Class II Directors of the Company for a term of three years or until their respective successors are duly elected and qualified. According to the report by the Inspector of Elections, Messrs. Frey, Hines and Sargent were elected by the following vote:Securities

Nominee	Votes For		Votes Withheld
Dale F. Frey		47,553,462		259,426
Michael F. Hines		47,556,121		256,767
Ronald L. Sargent		47,298,921		513,967

Not Applicable

~~In addition to the above Directors, the following individuals currently serve as members of the Board of Directors: Sandra J~~Item 4. ~~Horbach,~~Submission ~~Jamie C. Nicholls, Robert J. O’Connell, Michael B. Polk, Craig W. Rydin, Robert R. Spellman, Doreen A. Wright. Stockholders also ratified the selection by the Audit Committee~~ of ~~our~~Matters ~~Board~~to ~~of Directors of Deloitte & Touche LLP as our independent auditor for the current fiscal year by~~ a ~~vote~~Vote of ~~47,647,495~~Security ~~in favor, 152,066 opposed and 513,967 abstaining~~Holders.

~~Item~~At our 2005 Annual Meeting of Stockholders held on June 52, 2005, our stockholders elected Sandra J. ~~Other~~Horbach, ~~Information~~Robert J. O’Connell, Craig W. Rydin and Doreen A. Wright to serve as Class III Directors of the Company for a term of three years or until their respective successors are duly elected and qualified. According to the report by the Inspector of Elections, the above-named Directors were elected by the following vote:

Not Applicable


Nominee	Votes For		Votes Withheld
Sandra J. Horbach		25,953,560		17,946,377
Robert J. O’Connell		43,705,988		193,949
Craig W. Rydin		43,418,397		481,540
Doreen A. Wright		43,709,158		190,779

Mr. O’Connell resigned from the Board of Directors, effective as of June 20, 2005.

~~Table of Contents~~21

~~MASSACHUSETTS~~

MASSACHUSETTS

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

~~(a)~~In ~~Exhibits~~addition to the above Directors, the following individuals currently serve as members of the Board of Directors: Michael G. Archbold, Dale F. Frey, Michael F. Hines, Carol M. Meyrowitz, Michael B. Polk, Ronald L. Sargent and Vijay Vishwanath.

10.14		Form of Credit Agreement among The Yankee Candle Company, Inc., Citizens Bank of Massachusetts, as sole administrative agent, and the banks and other financial institutions party thereto.
31.1		Certification of Craig W. Rydin Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated August 9, 2004.
31.2		Certification of Robert R. Spellman Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated August 9, 2004.
32.1		Certification of Craig W. Rydin Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated August 9, 2004.
32.2		Certification of Robert R. Spellman Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated August 9, 2004.

Stockholders also ratified (i) the adoption by the Company of its 2005 Stock Option and Award Plan by a vote of 25,219,466 in favor, 14,371,633 opposed, and 776,919 abstaining and (ii) the selection by the Audit Committee of our Board of Directors of Deloitte & Touche, LLP as our independent auditor for the current fiscal year by a vote of 43,812,269 in favor, 81,836 opposed and 5,732 abstaining.

~~(b)~~Item 5. ~~Reports~~Other ~~on Form 8-K We furnished a current report on Form 8-K dated April 28, 2004 pursuant to which we furnished, under Items 7 and 9, our earnings release for the period ended April 3, 2004.~~Information

~~SIGNATURES~~ Not Applicable

~~Pursuant~~Item 6. ~~to the requirements of the Securities Exchange Act of 1934, as~~Exhibits ~~amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

			THE YANKEE CANDLE COMPANY, INC.
	3.1	Amended and Restated By-Laws of The Yankee Candle Company, Inc. (2)
			/s/ Robert R. Spellman
	10.1	First Amendment to Revolving Credit Agreement, among The Yankee Candle Company, Inc., Citizens Bank of Massachusetts and other participating lenders. (1)
Date: August 9, 2004			By: Robert R. Spellman
	10.2	2005 Stock Option and Award Plan (2)
			Senior Vice President, Finance
	10.3	Form of Nonqualified Stock Option Agreement (2)
			and Chief Financial Officer
	10.4	Form of Indemnification Agreement between The Yankee Candle Company, Inc. and each of its directors and executive officers. (2)
			(Principal Financial Officer)
	31.1	Certification of Craig W. Rydin Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated July 28, 2005.
	31.2	Certification of Bruce H. Besanko Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, dated July 28, 2005.
	32.1	Certification of Craig W. Rydin Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated July 28, 2005.
	32.2	Certification of Bruce H. Besanko Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, dated July 28, 2005.
	(1)	Incorporated by reference from the Company’s Current Report on Form 8-K dated May 24, 2005.
	(2)	Incorporated by reference from the Company’s Current Report on Form 8-K dated June 8, 2005.

2122

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.


		THE YANKEE CANDLE COMPANY, INC.

		/s/ Bruce H. Besanko

Date: July 28, 2005		By: Bruce H. Besanko
		Senior Vice President, Finance
		and Chief Financial Officer
		(Principal Financial Officer)

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