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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-15023
THE YANKEE CANDLE COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2591416
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
102 CHRISTIAN LANE, WHATELY, MASSACHUSETTS 01093
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (413) 665-8306
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE WHERE REGISTERED)
Indicate by check mark whether the registrant (1) has filed all reports
required to 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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Based on the closing sale price of $14.88 on March 16, 2000, the aggregate
market value of the voting stock held by non-affiliates of the registrant was
215,526,399.
On March 16, 2000, there were outstanding 54,513,961 shares of the
Registrant's Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
(TO THE EXTENT INDICATED HEREIN)
REGISTRANT'S PROXY STATEMENT (SPECIFIED PORTIONS) WITH RESPECT TO THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 1, 2000 ARE INCORPORATED INTO
PART III.
This Annual Report on Form 10-K contains a number of forward-looking
statements. Any statements contained herein (including without limitation
statements to the effect that The Yankee Candle Company, Inc. or its management
"believes", "expects", "anticipates", "plans" and similar expressions) that are
not statements of historical fact 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. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. There are a number of important factors that could cause
The Yankee Candle Company, Inc.'s actual results to differ materially from those
indicated by such forward-looking statements. These factors include, without
limitation, those set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Future Operating Results."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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PART I
<S> <C> <C>
1. Business .............................................................................................3
2. Properties ...........................................................................................8
3. Legal Proceedings ....................................................................................9
4. Submission of Matters to a Vote of Security Holders...................................................9
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters................................11
6. Selected Financial Data .............................................................................11
7. Management's Discussion and Analysis of Financial Condition and Results of Operations................14
7a. Quantitative and Qualitative Disclosures About Market Risks..........................................22
8. Financial Statements and Supplementary Data .........................................................23
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................45
PART III
10. Directors and Executive Officers of the Registrant ..................................................45
11. Executive Compensation ..............................................................................45
12. Security Ownership of Certain Beneficial Owners and Management ......................................45
13. Certain Relationships and Related Transactions ......................................................45
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....................................46
</TABLE>
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PART I
ITEM 1. BUSINESS
The Yankee Candle Company, Inc. and subsidiaries ("Yankee Candle" or "the
Company") is the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. The Company has a
30-year history of offering its distinctive products and marketing them as
affordable luxuries and consumable gifts. Yankee Candle products are available
in more than 160 fragrances and include a wide variety of jar candles,
Samplers(R), pillars, tapers, Wax Potpourri Tarts(R) and other candle products,
marketed as Yankee Candle(R) branded products primarily under the trade names
Housewarmer(R), Country Kitchen(R), Aroma Formula(TM), Flickers(TM) and Frosted
Favorites(TM). The Company sells its products through several channels including
wholesale customers who operate approximately 12,500 gift store locations
nationwide, 102 Company-operated retail stores in 30 states as of January 1,
2000, direct mail catalogs, its Internet website (www.yankeecandle.com),
international distributors and its distribution center located in the United
Kingdom. The Company has grown significantly during the last five years, with
net sales increasing from $94.8 million in 1995 to $256.6 million for the
fifty-two weeks ended January 1, 2000 ("1999"), a compound annual growth rate of
28%.
INDUSTRY OVERVIEW
Yankee Candle operates in the rapidly growing scented candle segment of the
giftware industry. The giftware industry has grown consistently since the early
1990's and generated U.S. sales of $50.9 billion in 1998, according to
independent market research data. Industry sources also estimate that the
domestic market for candles has grown on average 10% to 15% per year since the
early 1990's to reach $2.1 billion in 1998. Scented candles represent the
fastest growing part of the candle and home fragrancing industry and are
expected to continue to grow based on several positive industry factors:
- Favorable consumer trends, including the aging of baby boomers and
increased spending on home decor. Consumers are drawn to candles because
they create a relaxing home environment.
- Consumers are increasingly buying candles as an attractive gift item.
According to independent market research data, 77% of candle customers
also bought candles as gifts in 1998.
- Consumers are increasingly burning candles year round because of their
affordable prices and broad range of scents and styles.
The Company believes consumers are becoming increasingly sophisticated about the
quality and fragrance of candles they purchase. According to independent market
research data, the prime consumer market for candles consists of women between
the ages of 25 and 54 with annual household incomes of over $25,000. The Company
believes that 85% of its candle consumers are women and that men represent a
growing and undeveloped consumer market segment.
PRODUCTS
The Company develops and introduces new products and fragrances throughout the
year. It currently offers over 1,000 SKU's of Yankee Candle manufactured
products. Most products are marketed as Yankee Candle(R) branded products
primarily under the trade names Housewarmer(R), Country Kitchen(R), Aroma
Formula(TM), Flickers(TM) and Frosted Favorites(TM)and include the following
product styles:
- Jar Candles--scented candles in decorative glass jars; available in
22 oz., 14.5 oz., 7.5 oz. and 3.7 oz. sizes and in various styles of
glass jars.
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- Samplers(R) -- votive candles, ideal for sampling different fragrances.
- Tapers -- the oldest candle style, dipped more than 30 times, available in
scented and unscented and in multiple sizes.
- Scented Ionic(R) Pillars (grooved) - available in multiple sizes.
- Standard Pillars (smooth) -- both scented and unscented, in multiple
styles and sizes.
- Wax Potpourri Tarts(R)-- scented wax without wicks that releases its
fragrance when melted and warmed in a potpourri pot.
- Scented Tea Lights--small, colored and scented candles in clear cups made
for home fragrancing.
- Tart(R) Warmers -- white unscented candles in aluminum cups made for
burning in potpourri pots.
- Kindle Candles(R)-- unscented wax in a paper cup for use in a fireplace or
campfire as a firestarter.
These candle products are available in a wide range of fragrances and colors.
Retail stores, depending on store size, generally offer between 120 - 150
fragrances, with over 60 of the best-selling fragrances available nationwide to
its wholesale customers. In addition to distinctive fragrances, the Company
promotes its brand through consistent product packaging and labeling and the use
of a distinctive trade dress. The Yankee Candle name is typically embossed on
the top of its glass containers and is displayed on every product. The Company
also packages its products in attractive gift baskets and holders for sale in
its retail stores. Glassware accessories and other candle-related accessories
are offered at its retail stores in a variety of sizes and shapes.
The Company seeks to maintain a moderate price for almost all of its products in
order to reinforce customers' perception of its products as highly affordable.
As a result, as of January 1, 2000 retail prices for most candle products range
from $0.89 for Wax Potpourri Tarts(R) to $19.50 for 22 oz. jar candles. Since
1995, the Company has only increased prices, on average, by 2.1% per year. There
were no price increases in 1998 and a 2.3% price increase in January, 1999.
WHOLESALE OPERATIONS
The Company's domestic wholesale operations serve an extensive base of retailers
primarily consisting of small, independent and credit-worthy gift store
retailers, that operated approximately 12,500 locations in 50 states at the end
of 1999. Almost 90% of these locations are not in malls. From 1997 to 1999,
sales to wholesale customers have grown at a compound annual growth rate of 25%
from $84.9 million to $133.4 million. Yankee Candle's strong brand name, the
popularity and profitability of its products, and its emphasis on customer
service and support programs have established Yankee Candle as the top selling
brand for many of its wholesale customers. Over 70% of them have been customers
for over five years.
The Company actively seeks to increase the average size and frequency of
wholesale orders through its innovative display system, promotional programs,
new products and telemarketing activities. The Company's "Shop Within A Shop"
display system presents Yankee Candle products vertically by fragrance and
horizontally by color in a distinctive wood hutch. This display system enhances
Yankee Candle's brand recognition in the marketplace and the Company believes
that it positively impacts the Company's wholesale sales.
The Company employs a selective dealer approval process, designed to create
consistent standards for all of its wholesale customers. The Company also
utilizes a dedicated in-house direct sales force to service its wholesale
customers.
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The Company expanded its international wholesale business with the opening of a
Company-operated 27,000 square foot distribution center in Bristol, England in
January, 1999. By the end of 1999, business relationships had been established
with approximately 550 UK direct accounts, approximately 30 direct accounts on
the European continent and 14 distributors covering 17 countries. The size of
the European candle market has been estimated at $1 billion.
RETAIL OPERATIONS
Retail Stores
The Company's retail operations include retail stores, catalog and Internet
operations and Chandler's restaurant. From 1997 to 1999, retail sales have grown
at a 44% compound annual growth rate from $59.2 million to $123.2 million.
The Company opened 40 new retail stores and entered 10 new states during 1999
and ended the year with 102 retail stores in 30 states. Premium malls, and to a
lesser extent, strip centers and tourist destinations are targeted for new store
development. There were 73 mall and 29 non-mall locations at the end of 1999.
The Company currently plans to open 40 additional stores in 2000.
The non-mall store count includes the Company's flagship South Deerfield, MA
store, which is a unique store. This store is the world's largest candle and
Christmas store with over 90,000 square feet of retail and entertainment space.
This store promotes Yankee Candle's image and culture and is an important
testing ground for new product introductions. The store carries over 24,000
SKU's of gift items supplied by over 750 vendors, and generates 65% of its
revenues from the sale of Yankee Candle products. This store is a major tourist
destination, attracting an estimated 2.5 million visitors annually. It provides
visitors with a total shopping and entertainment experience and includes the
Yankee Candlemaking Museum, the Yankee Candle Car Museum and the 240-seat
Chandler's restaurant.
Excluding the Flagship store, the target size for retail stores is 1,500 to
2,000 square feet. The average store size for the 101 retail stores, excluding
the Flagship store, at the end of 1999 was 1,612 square feet. These stores are
designed with a warm, home-like atmosphere to attract customers and provide a
convenient and enjoyable shopping experience. Each store has candle displays
sorted by color, fragrance type and product category. The store design uses rich
wood and other traditional elements to convey a high quality image that
complements our product and company identity. The display fixtures hold
sufficient inventory to support fast turning sales at peak season. These stores,
depending on store size, generally offer between 120 - 150 fragrances. A typical
retail store has 1,000 SKU's of candles and 300 SKU's of candle accessories.
Superior customer service and a knowledgeable employee base are key elements of
Yankee Candle's retail store operations. The Company emphasizes formal employee
training, particularly with respect to product quality, candle manufacturing and
the heritage of Yankee Candle. The Company has a well developed, 14-day training
program for managers and assistant managers and an 8-hour training program for
sales associates. High customer service is an integral part of the Company's
ongoing success, and each store is responsible for implementing and maintaining
these customer service standards.
Direct Mail Catalog and Internet
The Company also markets its products through direct mail catalogs and its
Internet website. The direct mail catalog, which is currently only sent to
existing customers, features wholesale product, specialty retail product and
candle accessories. The Company has typically sent out five or six catalogs per
year. The Internet website, WWW.YANKEECANDLE.COM, was introduced as an
informational site in 1996 and upgraded for retail transactions in 1997. The
site provides information regarding the South Deerfield Flagship store, Yankee
Candle's history and
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on-line purchasing of Yankee Candle products. The Company plans to continue to
develop and enhance its Internet capabilities.
NEW PRODUCT DEVELOPMENT
Yankee Candle has a long history as a product and market innovator in the
premium candle segment of the giftware industry. The Company has a strong
in-house product design and development team comprised of artists, fragrance
specialists, designers, packagers and buyers who work collaboratively to design
new products that are attractive to customers and can be manufactured
cost-effectively. A typical new product introduction, from the initial fragrance
selection and label design to production and distribution, is completed in less
than one year. Yankee Candle introduced 14 new fragrances during 1999. Other new
product ideas include new product sizes, new packaging and variations of
existing fragrances.
MANUFACTURING
Approximately 90% of Yankee Candle's sales are generated by products
manufactured in the Company's 294,000 square foot facility in Whately,
Massachusetts. As a manufacturer, the Company is able to closely monitor product
quality and control production costs, which ensures high quality products and
maintains affordable pricing. Products are manufactured using filled, molded,
extruded, compressed or dipped manufacturing methods. Yankee Candle uses high
quality fragrances, premium grade, highly refined paraffin waxes, and superior
wicks and dyes to create premium products. The Company's manufacturing processes
are designed to ensure the highest quality and quantity of candle fragrance,
wick quality and placement, color, fill level, shelf life and burn rate. The
Company is continuously engaged in efforts to maximize quality and reduce costs
by using efficient production and distribution methods and technological
advancements.
SUPPLIERS
The Company maintains strong, established relationships with its principal
fragrance and petroleum-based wax suppliers. The Company believes it uses the
highest-quality suppliers in the industry and maintains back-up suppliers who
are able to provide services and materials of similar quality. Yankee Candle has
been in the business of manufacturing premium scented candles for many years and
is therefore knowledgeable about the different levels of quality of raw
materials used in manufacturing candles. The Company has developed, jointly with
its suppliers, several proprietary fragrances, which are exclusive to Yankee
Candle. Raw materials used in the manufacturing process, including wax,
glassware, hutches and packaging materials are readily available from multiple
sources at comparable prices. In 1999, no single supplier represented 10% or
more of Yankee Candle's total cost of goods sold, except for ARC International,
the Company's glassware vendor, which represented 14% of total cost of goods
sold.
DISTRIBUTION
Yankee Candle currently operates four distribution facilities to supply product
to wholesale and retail locations. Two are located within a four-mile radius in
Deerfield and Whately, Massachusetts, one in Salt Lake City, Utah and one in
Bristol, England. Computer systems are utilized in each facility for efficient
order processing and inventory management and accuracy. The Company's
distribution centers maintain inventory levels that allow for the timely
fulfillment of orders at high fill rates. Since the distribution centers
maintain backup inventory, store level inventory requirements at wholesale and
retail locations are reduced. Yankee Candle's square footage requirements for
its retail locations are therefore also lessened, which reduces rental costs.
Products sold by Yankee Candle in the United States are generally shipped by
freight carriers. The Company also operates a small number of trucks primarily
used to ship products to select Company-operated retail stores.
The Company plans to expand its Salt Lake City distribution center by 60,000
square feet during 2000 and open a new 250,000 square feet distribution center
in Deerfield, Massachusetts by early 2001. The new 250,000 square
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foot Deerfield, Massachusetts facility will allow the Company to subsequently
convert the approximately 100,000 square feet of existing distribution space in
Whately, Massachusetts to manufacturing use.
INTELLECTUAL PROPERTY
Yankee Candle has obtained 36 U.S. trademark registrations, including Yankee(R)
(for candles),Yankee Candle(R), Housewarmer(R), Samplers(R), Wax Potpourri
Tarts(R), Country Kitchen(R) and Kindle Candles(R), and has pending several
additional trademark applications with respect to its products. Trademark
registrations allow the Company to use those trademarks on an exclusive basis in
connection with its products. These registrations are in addition to various
copyright registrations and patents held by the Company, and all trademark,
copyright and other intellectual property rights of the Company under statutory
and common law, including those rights relating to the Company's distinctive
"trade dress." The Company believes its trademarks and intellectual property
rights are valuable assets and intends to maintain and renew its trademarks and
their registrations and vigorously defend them and all of the Company's
intellectual property rights from and against infringement. The Company also
registers certain of its trademarks in various foreign countries.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, local and foreign laws and
regulations governing the generation, storage, use, emission, discharge,
transportation and disposal of hazardous materials and the health and safety of
its employees. In addition, the Company is subject to environmental laws which
may require investigation and cleanup of any contamination at facilities it owns
or operates or at third party waste disposal sites it uses. These laws could
impose liability even if the Company did not know of, or was not responsible
for, the contamination.
Yankee Candle has in the past and will in the future incur costs to comply with
environmental laws. The Company is not, however, currently aware of any costs or
liabilities relating to environmental matters, including any claims or actions
under environmental laws or obligations to perform any cleanups at any of its
facilities or any third party waste disposal sites, that are expected to have a
material adverse effect on its operations, cash flow or financial condition. It
is possible, however, that material environmental costs or liabilities may arise
in the future.
COMPETITION
Yankee Candle competes generally for the disposable income of consumers with
other products in the giftware industry. The giftware industry is highly
competitive with a large number of both large and small participants. Yankee
Candle products compete with other scented and unscented candle products and
with other gifts within a comparable price range, like boxes of candy, flowers,
wine, fine soap and related merchandise. The principal bases of competition for
candles and other comparably priced giftware include brand loyalty, quality,
perceived value, design, product display, consumer appeal, service and price.
Yankee Candle's competitors include candle manufacturers and a variety of retail
formats such as specialty candle stores, gift and houseware retailers,
department stores, mass market stores and mail order houses. Some of these
competitors are part of large, diversified companies having greater financial
resources and a wider range of product offerings than Yankee Candle.
EMPLOYEES
As of January 1, 2000, Yankee Candle employed approximately 3,300 associates,
approximately 1,950 of whom were employed full-time. The Company is not subject
to any collective bargaining agreements and believes its relationship with its
associates to be good. The Company has also hired seasonal workers to supplement
its labor force during the peak selling season.
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ITEM 2. PROPERTIES
Yankee Candle owns facilities totaling 537,600 square feet, located on 82 acres,
within a four mile radius in Deerfield and Whately, Massachusetts, as described
in the table below:
<TABLE>
<CAPTION>
TYPE OF FACILITY LOCATION SIZE
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Manufacturing, distribution and offices Whately, Mass. 294,000 sq. ft.
Flagship retail store, car museum and restaurant South Deerfield, Mass. 90,000 sq. ft.
Warehouse and distribution center South Deerfield, Mass. 60,000 sq. ft.
Administrative offices South Deerfield, Mass. 48,000 sq. ft.
Marketing and design building Whately, Mass. 16,000 sq. ft.
Employee health and fitness center South Deerfield, Mass. 12,000 sq. ft.
Administrative offices South Deerfield, Mass. 11,000 sq. ft.
Wholesale telemarketing South Deerfield, Mass. 6,600 sq. ft.
</TABLE>
The Company leases a 27,000 square foot distribution facility in Bristol,
England and a 100,000 square foot distribution facility in Salt Lake City, Utah.
The Company intends to lease an additional 60,000 square feet of distribution
space at the Utah facility, which it expects to occupy in 2000.
In addition, the Company plans to expand into a new 75,000 square foot office
building and a 250,000 square foot distribution center near its flagship store
in South Deerfield, Mass. These facilities, which will be leased, are expected
to be completed by early 2001. When operational, the new distribution center
will allow the Company to convert the approximately 100,000 square feet of
existing distribution space in Whately, Massachusetts to manufacturing use.
The Company believes that these facilities are suitable and adequate and have
sufficient capacity to meet its current needs.
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Other than the South Deerfield flagship store and three smaller retail
locations, the Company leases its other retail stores. Initial store leases for
mall locations range from eight to ten years. For non-mall locations, most
leases are five years, with a five-year renewal option. Retail stores were
located in the following states as of January 1, 2000:
<TABLE>
<CAPTION>
STORE COUNT
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STATE MALL NON-MALL TOTAL
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<S> <C> <C> <C>
ARIZONA 1 1
CALIFORNIA 6 6
COLORADO 2 2
CONNECTICUT 5 2 7
FLORIDA 4 1 5
GEORGIA 2 2
ILLINOIS 1 1
INDIANA 1 1
KANSAS 1 1
KENTUCKY 1 1
MAINE 2 2
MARYLAND 3 3 6
MASSACHUSETTS 6 9 15
MICHIGAN 3 3
MINNESOTA 2 2
NEVADA 1 1
NEW HAMPSHIRE 2 1 3
NEW JERSEY 6 6
NEW YORK 10 1 11
NORTH CAROLINA 3 3
OHIO 4 4
PENNSYLVANIA 1 1 2
RHODE ISLAND 1 2 3
SOUTH CAROLINA 1 2 3
TENNESSEE 1 1
TEXAS 1 1
UTAH 1 1
VERMONT 2 2
VIRGINIA 3 1 4
WASHINGTON 2 2
TOTALS - 30 STATES 73 29 102
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in ordinary routine legal proceedings
relating to its business. In the opinion of the Company's management, existing
litigation will not have a material adverse effect on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting will be held on June 1, 2000. No matter was
submitted to a vote of security holders in the fourth quarter of the fiscal year
ended January 1, 2000.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of all executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
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<S> <C> <C>
Michael J. Kittredge 48 Chairman of the Board
Michael D. Parry 48 President, Chief Executive Officer
Robert R. Spellman 52 Senior Vice President of Finance and Chief Financial Officer
Gail M. Flood 40 Senior Vice President of Retail Operations
Stephen T. Williams 49 Senior Vice President of Wholesale Operations
</TABLE>
MICHAEL J. KITTREDGE is the Chairman of the Board. Mr. Kittredge is the founder
of Yankee Candle. He served as a Director until April 1998. Mr. Kittredge was
appointed a Director of Yankee Candle Holdings in July 1998 and reappointed a
Director of Yankee Candle in April 1999. He has been honored several times by
the United States Small Business Administration (S.B.A.), once in 1985 as the
winner of the "Entrepreneurial Success Award," and again in 1986 as the
"Businessman of the Year" for Massachusetts and the New England region. In 1996,
Mr. Kittredge received USA Today's and Ernst & Young's Retail Entrepreneur of
the Year Award.
MICHAEL D. PARRY is a Director, the President and Chief Executive Officer. Mr.
Parry joined Yankee Candle in 1982 as General Manager, and was appointed Vice
President in January 1989 and President in July 1996. Mr. Parry has served as a
Director of Yankee Candle since May 1998 and a Director of Yankee Candle
Holdings since July 1998. He was promoted to his current position of Chief
Executive Officer in November 1998. Since 1989, he has been in charge of all of
the Company's operations including general oversight of wholesale and retail
activities and manufacturing and distribution.
ROBERT R. SPELLMAN is the Senior Vice President of Finance and Chief Financial
Officer. Prior to joining Yankee Candle in November 1998, Mr. Spellman was
Senior Vice President of Finance of Staples, Inc. from 1988 through 1994, and
Chief Financial Officer of Star Markets Company, Inc. from 1994 through 1998.
GAIL M. FLOOD is the Senior Vice President of Retail Operations. Ms. Flood
joined Yankee Candle in 1982 as Retail Store Manager. Since 1988, she has been
in charge of the Company's retail operations. She was appointed Vice President
of Retail Operations in July 1996, and promoted to her current position in
November 1998.
STEPHEN T. WILLIAMS is the Senior Vice President of Wholesale Operations. Mr.
Williams joined Yankee Candle in 1982, and held a number of different positions
in a variety of areas including Production, Packaging and Shipping prior to
being appointed National Sales Manager in 1987. In July 1996, Mr. Williams was
made Vice President of Wholesale Operations, and was promoted to Senior Vice
President in November 1998. Since 1987, he has been in charge of the Company's
wholesale operations.
There are no family relationships among any of the executive officers.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is listed for trading on the New York Stock Exchange
under the symbol "YCC". For the fiscal periods indicated, the high and low sales
prices per share of the common stock as reported on the New York Stock Exchange
- - Composite Transaction Reporting System were as follows:
Fifty-two Weeks Ended January 1, 2000 High Low
- ------------------------------------- ---- ---
First Quarter N/A N/A
Second Quarter $24.25 $18.00
Third Quarter 24.63 16.50
Fourth Quarter 19.75 14.19
There were 165 holders of record of the Company's common stock as of March 16,
2000. The closing price per share of the Company's common stock as of March 16,
2000, as reported under the New York Stock Exchange - Composite Transaction
Reporting System, was $14.88.
DIVIDENDS
The Company does not intend to pay any cash dividends in the foreseeable future
but instead intends to retain earnings, if any, for the future operation of the
business. Any determination to pay dividends in the future will be at the
discretion of the board of directors and will be dependent upon results of
operations, financial condition, contractual restrictions, restrictions imposed
by applicable law and other factors deemed relevant by the board of directors.
It should further be noted that under the terms of the existing credit agreement
dated July 7, 1999, the Company is limited in its ability to declare or pay cash
dividends on its common stock. Future indebtedness may also prohibit or restrict
the Company's ability to pay dividends and make distributions to stockholders.
USE OF PROCEEDS
In July 1999, the Company sold 6 million shares of common stock at $18 per share
in an initial public offering and listed its stock on the New York Stock
Exchange under the symbol YCC. The net proceeds to the Company, after deducting
underwriting fees and other expenses, were approximately $97 million. On July 7,
1999, the Company used these proceeds, together with $220 million of bank
borrowings under a new credit facility (described below) and available cash, to
redeem $320 million aggregate principal amount of outstanding subordinated
debentures. All of the net proceeds were used.
SALES OF UNREGISTERED SECURITIES
None
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial and other data that follows should be read in
conjunction with the "Consolidated Financial Statements", the accompanying notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this Annual Report on Form 10-K. The
historical financial data as of December 31, 1997 and 1998 and for the fifty-two
weeks ended January 1, 2000 have been derived from the audited consolidated
financial statements and the accompanying notes included in this document at
Item 8. The
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historical financial data as of December 31, 1995 and 1996 have been derived
from audited financial statements for the corresponding period, which are not
contained in this document.
Before its recapitalization on April 27, 1998, the Company was an S corporation
for federal and state income tax purposes. As a result, taxable earnings were
taxed directly to the then existing sole stockholder. Since the 1998
recapitalization, the Company has been a C corporation subject to federal and
state income taxes.
The data set forth for the following items assumes that the Company was subject
to federal and state income taxes and was taxed as a C corporation at the
effective tax rates that would have applied for all periods:
- Pro forma provision (benefit) for income taxes,
- Pro forma net income (loss), and
- Pro forma earnings per share (basic and diluted).
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<TABLE>
<CAPTION>
FIFTY TWO
WEEKS ENDED
YEAR ENDED DECEMBER 31 JANUARY 1,
1995 1996 1997 1998 2000
STATEMENT OF OPERATIONS DATA (Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Net sales $94,777 $112,199 $144,103 $184,477 $256,573
Cost of goods sold 45,724 53,207 62,069 79,105 109,617
------- -------- -------- -------- --------
Gross profit 49,053 58,992 82,034 105,372 146,956
Selling expenses 19,789 23,224 26,935 30,546 44,547
General and administrative expenses 15,450 21,687 27,031 19,753 26,023
Bonus related to the Recapitalization -- -- -- 61,263 --
------- ------- -------- -------- --------
Income (loss) from operations 13,814 14,061 28,068 (6,190) 76,386
Interest income (49) (165) (151) (219) (627)
Interest expense 1,824 1,913 2,154 16,268 19,972
Other (income) expense 1,168 221 334 737 (116)
------- ------- -------- -------- --------
Income (loss) before provision for
income taxes 10,871 12,092 25,731 (22,976) 57,158
Provision for income taxes 316 410 1,360 9,656 22,863
------- ------- -------- -------- --------
Income (loss) before extraordinary loss on
early extinguishment of debt 10,555 11,682 24,371 (32,632) 34,295
Extraordinary loss on early extinguishment
of debt -- -- -- -- 3,162
------- -------- -------- -------- --------
Net income $10,555 $ 11,682 $ 24,371 $(32,632) $ 31,133
------- -------- -------- -------- --------
BASIC EARNINGS PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.11 $ 0.12 $ 0.25 $ (0.51) $ 0.69
======= ======== ======== ======== ========
NET INCOME (LOSS) $ 0.11 $ 0.12 $ 0.25 $ (0.51) $ 0.62
======= ======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.11 $ 0.12 $ 0.25 $ (0.51) $ 0.66
======= ======== ======== ======== ========
NET INCOME (LOSS) $ 0.11 $ 0.12 $ 0.25 $ (0.51) $ 0.60
======= ======== ======== ======== ========
Pro forma provision (benefit) from income
taxes 4,115 4,830 10,686 (8,731)
------- -------- -------- --------
Pro forma net income (loss) $ 6,756 $ 7,262 $ 15,045 $(14,245)
======= ======== ======== ========
Pro forma basic earnings (loss) per share $ 0.07 $ 0.07 $ 0.15 $ (0.22)
Pro forma diluted earnings (loss) per share $ 0.07 $ 0.07 $ 0.15 $ (0.22)
OTHER DATA
Number of retail stores (at period end) 26 34 47 62 102
Gross profit margin 51.8% 52.6% 56.9% 57.1% 57.3%
Adjusted EBITDA margin (1) 24.4% 24.5% 29.2% 32.1% 31.6%
Depreciation and amortization $ 2,186 $ 3,094 $ 3,581 $ 4,662 $ 6,709
Capital expenditures 10,845 10,076 9,173 9,433 22,749
CASH FLOW DATA
EBITDA (2) $14,832 $ 16,934 $ 31,315 $ (2,865) $ 82,237
Adjusted EBITDA (3) 23,156 27,451 42,139 59,251 83,150
Net cash flows from operating activities 9,298 17,230 30,035 (11,578) 55,430
Net cash flows from investing activities (11,214) (10,987) (9,961) (9,305) (22,676)
Net cash flows from financing activities 3,944 (9,112) (13,541) 43,917 (39,683)
BALANCE SHEET DATA
Cash and cash equivalents $ 3,713 $ 844 $ 7,377 $ 30,411 $ 23,569
Working capital (excluding cash and cash
equivalents) 4,977 1,817 (12,487) 594 (25,269)
Total assets 56,397 59,550 73,096 275,345 286,474
Total debt 18,018 12,045 25,264 320,000 187,568
Total stockholders' equity (deficit) 28,623 37,180 34,791 (68,591) 61,435
</TABLE>
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<PAGE> 14
(1) Adjusted EBITDA margin reflects adjusted EBITDA as a percentage of net
sales.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. For this purpose, amortization does not include amortization
of deferred financing costs of $974 in 1999 and $600 in 1998, which amounts
are included in interest expense. EBITDA is presented because it is a
widely accepted financial indicator used by certain investors and analysts
to analyze and compare companies on the basis of operating performance.
EBITDA as presented may not be comparable to similarly titled measures
reported by other companies since not all companies necessarily calculate
EBITDA in an identical manner and therefore is not necessarily an accurate
means of comparison between companies. EBITDA is not intended to represent
cash flows for the period or funds available for management's discretionary
use nor has it been represented as an alternative to operating income as an
indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(3) Adjusted EBITDA reflects adjustments to eliminate (a) the bonus of $61,263
in 1998 related to the 1998 recapitalization, (b) other (income) expense,
(c) non-cash stock based compensation, and (d) compensation and benefits,
net of current annual compensation and benefits of $338 paid to the former
sole stockholder of the S corporation of $10,296 and $10,490 for 1996 and
1997, respectively. The comparable amount was $7,156 in 1995. Adjusted
EBITDA does not reflect adjustments to eliminate commissions paid through
March 1998 to independent manufacturer representatives, which were replaced
by a direct sales force. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further discussion.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 ("1999") COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998 ("1998")
NET SALES. Net sales increased 39.1% to $256.6 million in 1999 from $184.5
million in 1998. This growth was achieved by increasing the number of retail
stores, from 62 to 102, and increasing sales in existing retail stores and to
wholesale customers.
Wholesale sales, including European operations, increased 29.1% to $133.4
million from $103.3 million for 1998. This growth was achieved primarily by
increasing sales to existing customers. The Company believes this wholesale
sales growth has been and will continue to be positively impacted by increased
promotional spending, the addition of new wholesale locations and the continued
growth of its European operations.
Retail sales increased 51.7% to $123.2 million in 1999 from $81.2 million for
1998. This growth was achieved through the addition of 40 new stores, increased
sales in existing stores and increased sales in mailorder operations. Comparable
store sales in 1999 increased 14.8% over 1998. There were 60 stores included in
our comparable store base at the end of 1999, and 13 of these stores were
included for less than a full year.
GROSS PROFIT. Gross profit increased 39.5% to $147.0 million in 1999 from $105.4
million in 1998. This increase was almost entirely attributable to the increase
in sales. As a percentage of sales, gross profit was relatively consistent from
year to year, increasing slightly to 57.3% in 1999 from 57.1% in 1998. The
Company continued to make significant investments in manufacturing operations in
1999 and anticipates benefits from these investments in 2000 and future years.
SELLING EXPENSES. Selling expenses increased 45.9% to $44.5 million in 1999 from
$30.5 million in 1998. These expenses are related to both wholesale and retail
operations and consist of payroll, advertising, occupancy and other operating
costs. The 1998 amount also includes approximately $2 million of commissions
paid to independent manufacturer representatives which amount was paid in the
first quarter of 1998 and concluded the Company's relationships with independent
manufacturer representatives. Excluding the commissions paid to independent
manufacturer representatives, selling expenses increased 56.1% to $44.5 million
in 1999 from $28.5 million in 1998. As a percentage of sales, selling expenses,
excluding commissions paid to independent manufacturer representatives, were
17.3% in 1999 and 15.4% in 1998. The primary factor behind the increase in
selling expense in dollars and as a percentage of sales was the increase in the
number of retail stores operated by
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<PAGE> 15
the Company. Retail sales, which have higher selling expenses as a percentage of
sales than wholesale sales, represented 48.0% of total sales in 1999 compared to
44.0% in 1998. The number of retail stores increased from 62 in 1998 to 102 in
1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses, which
consist primarily of personnel-related costs incurred in support functions,
increased 31.3% to $26.0 million in 1999 from $19.8 million in 1998. This
increase was primarily caused by investments in building the organizational
infrastructure. The Company also had non-cash compensation expenses of $1.0
million in 1999 compared to $116,000 in 1998 related to certain share and option
awards. The Company anticipates that such non-cash compensation charges will
diminish in the future as these below-market awards fully amortize. The Company
does not intend to issue such below-market awards in the future.
INCOME (LOSS) FROM OPERATIONS. Income from operations was $76.4 million for
1999. This compares to a loss from operations of $6.2 million in 1998. The 1998
figure includes a non-recurring bonus charge of $61.3 million related to the
1998 recapitalization. Excluding this charge, the Company would have reported
operating income of $55.1 million in 1998.
OPERATING MARGINS. Operating margins for wholesale operations, including Europe,
were $59.4 million or 44.5% of wholesale sales in 1999 compared to $45.1 million
or 43.7% of wholesale sales in 1998. The wholesale operating margin increase was
largely attributable to the leveraging of selling expenses on the higher 1999
sales. Operating margins for retail operations were $43.1 million or 35.0% of
retail sales in 1999 compared to $29.7 million or 36.6% of retail sales in 1998.
The retail operating margin decrease was primarily attributable to the lower
operating margin contribution rate of the 40 new stores opened during 1999. New
stores typically generate lower operating margin contribution rates than stores
that have been open for more than one year since fixed costs, as a percentage of
sales, are higher during the early sales maturation period and since preopening
costs are fully expensed in the year of opening. The 40 new stores opened during
1999 exceeded the number of new stores opened during the prior three years
combined.
NET OTHER INCOME (EXPENSE). Net other expense was $19.2 million in 1999 compared
to $16.8 million in 1998. The primary component of this expense was interest
expense, which was $20.0 million in 1999 compared to $16.3 million in 1998.
Interest expense is higher in 1999 because borrowings made pursuant to the 1998
Recapitalization did not occur until April, 1998. Management anticipates that
interest expense for 2000 will be something less than that seen in 1999 because
the Company used proceeds from the 1999 public offering together with $220
million of bank borrowings under a new credit facility and available cash to
redeem $320 million aggregate principal amount of outstanding subordinated
debentures. The new credit agreement provides for a maximum borrowing of $300
million and consists of a revolving credit facility for $150 million and a term
loan for $150 million.
INCOME TAXES. The income tax provision for 1999 was $22.9 million compared to
$9.7 million for 1998. The 1999 tax provision reflects the Company's current
effective tax rate of approximately 40%. The effective tax rate in 1998 is quite
different. The Company was an S corporation until the 1998 recapitalization and
was only required to pay taxes at the state level. All other income taxes were
paid directly by the sole stockholder. In 1998, the Company reported a pre-tax
loss because of the bonus related to the 1998 recapitalization. The sole
stockholder received the benefit of that deduction. Starting in May 1998, The
Company was taxed as a regular corporation. The tax provision of $9.7 million
applies to pre-tax income from the date of the 1998 recapitalization to the end
of the year.
NET INCOME BEFORE EXTRAORDINARY ITEM. Net income before extraordinary item for
1999 was $34.3 million compared to a net loss of $32.6 in 1998, which included
the $61.3 million non-recurring bonus charge for which no tax benefit could be
realized. Excluding this charge, net income before extraordinary item for 1998
would have been $28.7 million.
NET INCOME. Net income for 1999 was $31.1 million compared to a net loss of
$32.6 in 1998. Excluding the non-recurring bonus charge, net income for 1998
would have been $28.7 million.
15
<PAGE> 16
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
NET SALES. Net sales increased 28.0% to $184.5 million in 1998 from $144.1
million in 1997. This growth was achieved by increasing the number of retail
stores, from 47 to 62, and increasing sales in existing retail stores and to
wholesale customers.
Wholesale sales increased 21.7% to $103.3 million in 1998 from $84.9 million in
1997. This growth was achieved primarily by increasing sales to existing
customers. The Company believes that this wholesale sales growth was also
positively impacted by increased promotional spending, the addition of new
wholesale locations and the transition from independent manufacturer
representatives to an in-house direct sales force.
Retail sales increased 37.2% to $81.2 million in 1998 from $59.2 million in
1997. This growth was achieved through the addition of 15 new stores, increased
sales in existing stores and increased sales in mailorder operations. Comparable
store sales in 1998 increased 16.5% over 1997. There were 47 stores included in
the comparable store base at the end of 1998, and 13 of these stores were
included for less than a full year.
GROSS PROFIT. Gross profit increased 28.5% to $105.4 million in 1998 from $82.0
million in 1997. This increase was almost entirely attributable to the increase
in sales. As a percentage of sales, gross profit was relatively consistent from
year to year, increasing slightly to 57.1% in 1998 from 56.9% in 1997. The
Company made significant investments in its manufacturing operations in 1998.
SELLING EXPENSES. Selling expenses increased 13.4% to $30.5 million in 1998 from
$26.9 million in 1997. These expenses are related to both the wholesale and
retail operations and consist of payroll, advertising, occupancy and other
operating costs. These expenses also included commissions paid to independent
manufacturer representatives. The Company commenced the transition from
independent manufacturer representatives to an in-house direct sales force in
1997. Excluding the commission paid to independent manufacturer representatives,
selling expenses increased 44.7% to $28.5 million in 1998 from $19.7 million in
1997 to support the Company's direct sales efforts on the wholesale side of the
business as well as new retail stores. As a percentage of sales, selling
expenses, excluding commissions paid to independent manufacturer
representatives, were 15.4% in 1998 and 13.7% in 1997. The increase in selling
expense in dollars and as a percentage of sales was primarily related to
investment in the Company's in-house direct wholesale sales force and to the
continued growth in the number of retail stores, which increased from 47 in 1997
to 62 in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses, which
consist primarily of personnel-related costs incurred in support functions,
decreased 26.7% to $19.8 million in 1998 from $27.0 million in 1997. The
decrease is entirely attributable to a decrease in compensation paid to the
former sole stockholder. Excluding this compensation, general and administrative
expenses increased 22.2% to $19.8 million, or 10.7% of sales, in 1998 from $16.2
million, or 11.2% of sales, in 1997. This increase was primarily caused by
post-recapitalization consulting expenses of $1.8 million related to systems and
growth strategy, and to investments in building the organizational
infrastructure. The Company also had non-cash compensation expenses of $116,000
in 1998 related to certain share and option awards.
BONUS RELATED TO 1998 RECAPITALIZATION. Bonus payments are reflected as a
separate cost within operating expenses and totaled $61.3 million. These
payments were made to selected members of management and were wholly related to
the 1998 recapitalization and are non-recurring in nature.
INCOME (LOSS) FROM OPERATIONS. Due to the non-recurring bonus charge, the
Company incurred a loss from operations of $6.2 million for 1998. This compares
to income from operations of $28.1 million in 1997. Excluding the non-recurring
bonus charge, the Company would have reported operating income of $55.1 million
in 1998.
OPERATING MARGINS. Operating margins for wholesale operations were $45.1 million
or 43.7% of wholesale sales in 1998 compared to $31.2 million or 36.7% of
wholesale sales in 1997. The wholesale operating
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<PAGE> 17
margin increase was primarily attributable to the expense savings realized from
the transition from independent manufacturer representatives to an in-house
direct sales force. Operating margins for retail operations were $29.7 million
or 36.6% of retail sales in 1998 compared to $23.9 million or 40.4% of retail
sales in 1997. The retail operating margin decrease was primarily attributable
to the lower operating margin contribution rate of the 15 new stores opened
during 1998. New stores typically generate lower operating margin contribution
rates than stores that have been open for more than one year since fixed costs,
as a percentage of sales, are higher during the early sales maturation period
and since preopening costs are fully expensed in the year of opening.
NET OTHER INCOME (EXPENSE). Net other expense was $16.8 million in 1998 compared
to $2.3 million in 1997. The primary component of this expense was interest
expense which was $16.3 million in 1998 and $2.2 million in 1997. In connection
with the 1998 recapitalization, the Company borrowed $320.0 million, which
resulted in significantly higher interest expense in 1998.
INCOME TAXES. The income tax provision for 1998 was $9.7 million despite the
pre-tax loss. This contrasts to a provision of $1.4 million on significant
financial statement profits in 1997. The Company was an S corporation until the
1998 recapitalization and was only required to pay taxes at the state level. All
other income taxes were paid directly by the sole stockholder. In 1998, the
Company reported a pre-tax loss because of the bonus charge described above
under "--Bonus related to 1998 recapitalization." The sole stockholder received
the benefit of that deduction. Starting in May 1998, the Company was taxed as a
regular corporation. The tax provision of $9.7 million applies to pre-tax income
from the date of the 1998 recapitalization to the end of the year.
NET INCOME. The net loss for 1998 was $32.6 million, which included the $61.3
million non-recurring bonus charge for which no tax benefit could be realized.
Excluding this charge, net income for 1998 would have been $28.7 million. If the
1997 net income of $24.4 million were restated to reflect pro forma income tax,
net income for 1997 would have been $15.0 million.
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<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company has consistently generated positive cash flow from operations,
excluding the $61.3 million non-recurring bonus charge in 1998. This positive
cash flow has been sufficient, in the past, to allow the Company to grow its
business. In 1997 and the first four months of 1998, the Company was an S
corporation. Any excess cash was distributed to the sole stockholder either in
the form of compensation or S corporation distributions. Those outflows totaled
approximately $37.6 million in 1997 and $17.5 million in 1998, with the 1998
outflows occurring in the first four months. Subsequent to the C corporation
conversion, no such distributions have been made. The absence of those
distributions, combined with positive cash flow from operations, has facilitated
the Company's growth and is expected to continue to do so.
Cash flow from operations totaled $30.0 million, ($11.6) million and $55.4
million in the years ended December 31, 1997 and 1998 and the fifty-two weeks
ended January 1, 2000, respectively. The Company believes that the liquidity
provided by operating cash flow can be better understood by reference to the
Company's adjusted EBITDA. Adjusted EBITDA reflects the elimination of various
items, unrelated to the Company's fundamental operating cash flow, from EBITDA.
These items include the one-time special bonus paid at the time of the 1998
recapitalization and the significant amounts of compensation and benefits, net
of current annual compensation and benefits, paid to the sole stockholder in
years and periods prior to the 1998 recapitalization. It also eliminates
non-cash stock based compensation and other income/expense items, which
generally include gains or losses from sales of fixed assets and other
discretionary non-operating cash flow items. Adjusted EBITDA totaled $42.1
million, $59.3 million and $83.2 million in the years ended December 31, 1997
and 1998 and the fifty-two weeks ended January 1, 2000, respectively.
The 1998 recapitalization resulted in a step up in basis of the Company's assets
for tax purposes of approximately $462.0 million. This step up will reduce taxes
after April 1998 by approximately $175.7 million. On an annual basis, this
results in tax savings of approximately $11.7 million per year through 2013
assuming sufficient income to realize the full benefit of this deduction.
Capital expenditures in 1999 were $22.7 million, which included $10.1 million
to open 40 new stores, $5.6 million for new manufacturing equipment to increase
production volume and improve efficiency, $3.2 million in distribution
operations, $1.6 million in information systems and $2.2 million in all other
areas. The average capital expenditure for each new retail store was
approximately $250,000. Total capital expenditures in 1997 and 1998 were $9.2
million and $9.4 million, respectively. There were 15 store openings in 1998 and
13 store openings in 1997.
The Company anticipates that capital expenditures in 2000 will total
approximately $30.3 million. These funds will be spent primarily to open the 40
new stores currently planned for 2000, for new information systems, new
manufacturing equipment and in distribution operations.
In July 1999, the Company sold 6 million shares of common stock at $18 per share
in an initial public offering and listed its stock on the New York Stock
Exchange under the symbol YCC. The proceeds to the Company, after deducting
underwriting fees and other expenses, were approximately $97 million. On July 7,
1999, the Company used these proceeds, together with $220 million of bank
borrowings under a new credit facility (described below) and available cash, to
redeem $320 million aggregate principal amount of outstanding subordinated
debentures. The redemption of these subordinated debentures resulted in an
extraordinary charge to the statement of operations of $3.2 million, net of tax.
These charges related to the write-off of financing fees that had previously
been deferred.
In July 1999, the Company entered into a new credit agreement with a consortium
of banks (the "New Credit Agreement"). The New Credit Agreement provides for a
maximum borrowing of $300 million and consists of a revolving credit facility
for $150 million and a term loan for $150 million. The weighted-average interest
rate at January 1, 2000 was 7.62%.
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<PAGE> 19
The New Credit Agreement matures on July 7, 2004, with any outstanding amounts
due on that date; no payments of principal are due on the revolving credit
facility until this maturity date. The term loan is payable in quarterly
installments ranging from $7.5 million to $9.5 million in March, June, September
and December of each year commencing on December 31, 1999. As of January 1,
2000, $45,068,000 was outstanding under the revolving credit facility, thus
leaving $104,932,000 in availability under the New Credit Agreement.
The Company believes that cash flow from operations and funds available under
the New Credit Agreement will be sufficient for its working capital needs,
planned capital expenditures and debt service obligations for at least the next
twelve months.
IMPACT OF INFLATION
The Company does not believe inflation has a significant impact on its
operations. The prices of its products have not varied based on the movement of
the consumer price index. The majority of the Company's material and labor costs
are not materially affected by inflation.
FUTURE ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt the provision of Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" beginning December 31, 2000. This accounting standard requires the
Company to identify derivative financial statements according to a complex
definition and account for these instruments at fair value. The Company is
beginning to assess the impact of this accounting standard on its financial
statements, but, at this time, does not expect it to have a material impact on
financial results.
YEAR 2000
The Company successfully implemented its Year 2000 ("Y2k") remediation plan for
all affected information and non-information systems before December 31, 1999 at
a cost of approximately $128,000. There were no material systems issues reported
during the year 2000 transition. Based upon the foregoing, the Company does not
believe that it will incur material costs or experience material disruptions to
its business operations as a result of the Y2k issue.
FUTURE OPERATING RESULTS
As referenced above, there are a number of factors that might cause the
Company's actual results to differ significantly from the results reflected by
the forward-looking statements contained herein. In addition to factors
generally affecting the political, economic and competitive conditions in the
United States and abroad, such factors include those set forth below.
THE COMPANY MAY NOT BE ABLE TO GROW ITS BUSINESS AS PLANNED.
Yankee Candle intends to continue to pursue a business strategy of increasing
sales and earnings by expanding its retail and wholesale operations both in the
United States and internationally. The Company's retail growth strategy depends
in large part on its ability to open new stores in both existing and new
geographic markets. Since Yankee Candle's ability to implement its growth
strategy successfully will be dependent in part on factors beyond its control,
including changes in consumer preferences and in its competitive environment,
the Company may not be able to achieve its planned growth or sustain its
financial performance. Yankee Candle's ability to anticipate changes in the
candle and giftware industries, and identify industry trends will be critical
factors in its ability to remain competitive. The Company expects that, as it
grows, it will become more difficult to maintain the Company's growth rate. The
Company cannot give assurances that it will continue to grow at a rate
comparable to Yankee Candle's historic growth rate or that its historic
financial performance will continue as the Company grows.
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<PAGE> 20
THE COMPANY FACES SIGNIFICANT COMPETITION IN THE GIFTWARE INDUSTRY, WHICH COULD
ADVERSELY AFFECT ITS FUTURE OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY
AND ITS ABILITY TO CONTINUE TO GROW ITS BUSINESS.
Yankee Candle competes generally for the disposable income of consumers with
other producers in the approximately $51 billion giftware industry. The giftware
industry is highly competitive with a large number of both large and small
participants. Yankee Candle's products compete with other scented and unscented
candle products and with other gifts within a comparable price range, like boxes
of candy, flowers, wine, fine soap and related merchandise. The Company's retail
stores compete with franchised candle store chains, specialty candle stores and
gift and houseware retailers. Some of the Company's competitors are part of
large, diversified companies which have greater financial resources and a wider
range of product offerings than Yankee Candle does. This competitive environment
could adversely affect the Company's future revenues and profits, financial
condition and liquidity and its ability to continue to grow its business.
YANKEE CANDLE INCURRED INDEBTEDNESS IN CONNECTION WITH ITS 1998
RECAPITALIZATION, AND SERVICING ITS INDEBTEDNESS COULD REDUCE FUNDS AVAILABLE TO
GROW ITS BUSINESS.
Although Yankee Candle believes that its cash flow from operations and its
available financing should be sufficient to meet our anticipated requirements
for growing the Company's business and servicing its debt, the Company's level
of long-term indebtedness could reduce funds available to grow its business in
the future.
YANKEE CANDLE'S SUCCESS DEPENDS ON ITS SENIOR EXECUTIVE OFFICERS, THE LOSS OF
WHOM COULD DISRUPT THE COMPANY'S BUSINESS.
The Company's success is substantially dependent upon the retention of its
senior executive officers. Yankee Candle does not have employment agreements
with any of its senior executive officers, except its Chief Financial Officer.
If the Company's senior executive officers become unable or unwilling to
participate in the business of Yankee Candle, its future business and financial
performance could be materially affected.
BECAUSE YANKEE CANDLE IS NOT A DIVERSIFIED COMPANY AND IS DEPENDENT UPON ONE
INDUSTRY, YANKEE CANDLE HAS LESS FLEXIBILITY IN REACTING TO UNFAVORABLE CONSUMER
TRENDS, ADVERSE ECONOMIC CONDITIONS OR BUSINESS CYCLES.
THE LOSS OF THE COMPANY'S MANUFACTURING FACILITY WOULD DISRUPT ITS OPERATIONS.
Yankee Candle relies exclusively on its manufacturing facility in Whately,
Massachusetts to produce its candle products. Because most of its machinery is
designed or customized by Yankee Candle to manufacture its products, and because
the Company has strict quality control standards for its products, the loss of
its manufacturing facility, due to natural disaster or otherwise, would
materially affect the Company's operations. Although Yankee Candle's
manufacturing facility is adequately insured, the Company believes it would take
a minimum of nine months to replace the plant and machinery to a level
equivalent to their current level of production and quality control standards.
THE COMPANY MAY EXPERIENCE A DECLINE IN ITS RETAIL COMPARABLE STORE SALES, WHICH
COULD CAUSE THE PRICE OF ITS COMMON STOCK TO DROP.
Comparable store sales from the Company's retail business have contributed
significantly to Yankee Candle's overall sales growth. The Company's retail
comparable store sales could be adversely impacted by competition or Yankee
Candle's inability to execute its business strategy. If the Company's retail
comparable store sales declined for any reason, Yankee Candle could experience a
loss in its revenues and income, which could lower the price of the Company's
common stock.
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<PAGE> 21
SEASONAL AND QUARTERLY FLUCTUATIONS IN THE COMPANY'S BUSINESS COULD AFFECT THE
MARKET FOR ITS COMMON STOCK.
Yankee Candle's revenues and operating results vary from quarter to quarter. The
Company has historically realized higher revenues and operating income in its
fourth quarter, particularly in its retail business, which is becoming a larger
portion of the Company's sales. Yankee Candle believes 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, the Company believes that
quarter to quarter comparisons of its operating results are not necessarily
meaningful and that these comparisons cannot be relied upon as indicators of
future performance. In addition, Yankee Candle may also experience quarterly
fluctuations in its revenues and income depending on how many new retail stores
the Company opens in a particular quarter. These quarterly fluctuations that
Yankee Candle may report in the future may not match the expectations of market
analysts and investors. This could cause the trading price of the Company's
common stock to fluctuate.
YANKEE CANDLE IS CONTROLLED BY FORSTMANN LITTLE & CO. AND THE COMPANY'S
MANAGEMENT, WHOSE INTERESTS MAY CONFLICT WITH THOSE OF OTHER STOCKHOLDERS.
Partnerships affiliated with Forstmann Little & Co. and Yankee Candle's
management together own approximately 74% of the Company's outstanding common
stock and control the Company. Accordingly, they are able to:
- - elect the Company's entire board of directors,
- - control the Company's management and policies, and
- - determine, without the consent of the Company's other stockholders, the
outcome of any corporate transaction or other matter submitted to the
Company's stockholders for approval, including mergers, consolidations and
the sale of all or substantially all of the Company's assets.
They are also able to prevent or cause a change in control of Yankee Candle and
are able to amend the Company's Articles of Organization and By-Laws at any
time. The interests of the Forstmann Little partnerships and the Company's
management also may conflict with the interests of the other holders of common
stock.
21
<PAGE> 22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's market risks relate primarily to changes in interest rates. It
bears this risk in two specific ways. First, it has debt outstanding. At the end
of 1999, the Company had $187.6 million outstanding under its New Credit
Agreement, which bears interest at variable rates. Because the new facility
carries a variable interest rate pegged to market indices, the Company's
statement of operations and statement of cash flows will be exposed to changes
in interest rates. A 1.00% increase or decrease in current market interest rates
would have the effect of causing a $1.9 million additional pre-tax charge or
credit to the statement of operations. This facility is intended to fund
operating needs if necessary.
The second component of interest rate risk involves the short-term investment of
excess cash. This risk impacts fair values, earnings and cash flows. Excess cash
is primarily invested in overnight repurchase agreements backed by U.S.
Government securities. These are considered to be cash equivalents and are shown
that way on the Company's balance sheet. The balance of such securities at
January 1, 2000 was approximately $18.2 million. Earnings from cash equivalents
totaled $627,000 for the fifty-two weeks ended January 1, 2000. A 1.00% increase
or decrease in current market interest rates would have the effect of causing a
$182,000 additional pre-tax charge or credit to the statement of operations.
The Company buys a variety of raw materials for inclusion in its products. The
only raw material that is considered to be of a commodity nature is wax. Wax is
a 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 generally moved with inflation.
At this point in time, operations outside of the United States are immaterial.
Accordingly, the Company is not exposed to substantial risks arising from
foreign currency exchange rates.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Yankee Candle Company, Inc.
Whately, Massachusetts
We have audited the accompanying consolidated balance sheets of The Yankee
Candle Company, Inc. and subsidiaries as of December 31, 1998 and January 1,
2000, the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year ended December 31, 1998 and the fifty-two
weeks ended January 1, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). The financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Yankee Candle Company, Inc. and
subsidiaries as of December 31, 1998 and January 1, 2000 and the results of
their operations and their cash flows for the year ended December 31, 1998 and
the fifty-two weeks ended January 1, 2000 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche, LLP
Boston, Massachusetts
February 14, 2000
23
<PAGE> 24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
The Yankee Candle Company, Inc.
We have audited the accompanying statements of operations, stockholders' equity
(deficit) and cash flows of The Yankee Candle Company, Inc. for the year ended
December 31, 1997. Our audit also included the financial statement schedule
listed in the index at Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The Yankee
Candle Company, Inc. for the year ended December 31, 1997 in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Boston, Massachusetts
March 6, 1998, except as to the fourth and fifth paragraphs of Note 1, as to
which the date is June 30, 1999.
24
<PAGE> 25
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
ASSETS DECEMBER 31, JANUARY 1,
1998 2000
CURRENT ASSETS:
Cash and cash equivalents $ 30,411 $ 23,569
Accounts receivable, less allowance of $450
at December 31, 1998 and $325 at
January 1, 2000 8,546 13,311
Inventory 12,482 21,994
Prepaid expenses and other current assets 855 3,176
Deferred tax assets 1,542 1,852
-------- --------
Total current assets 53,836 63,902
PROPERTY, PLANT AND EQUIPMENT - NET 48,315 65,217
MARKETABLE SECURITIES 856 816
CLASSIC VEHICLES 874 874
DEFERRED FINANCING COSTS 6,566 5,093
DEFERRED TAX ASSETS 164,474 150,249
OTHER ASSETS 424 323
-------- --------
TOTAL ASSETS $275,345 $286,474
======== ========
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31, JANUARY 1,
(DEFICIT) 1998 2000
CURRENT LIABILITIES:
Accounts payable $ 13,287 $ 14,662
Accrued interest 1,895 3,186
Accrued payroll 4,768 6,508
Accrued income taxes -- 5,635
Other accrued liabilities 2,881 5,611
Current portion of long-term debt -- 30,000
--------- ---------
Total current liabilities 22,831 65,602
DEFERRED COMPENSATION OBLIGATION 1,004 927
LONG-TERM DEBT Less current portion 320,000 157,568
DEFERRED RENT 101 942
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01, par value, 300,000
shares authorized; 104,059 issued;
48,445 and 54,499 shares
outstanding at December 31, 1998 and
January 1, 2000, respectively 980 1,041
Additional paid-in capital 126,610 224,483
Treasury stock (212,448) (212,988)
Retained earnings 19,048 50,181
Capital subscription receivable (1,084) --
Unearned stock compensation (1,698) (1,235)
Accumulated other comprehensive income (loss) 1 (47)
--------- ---------
Total stockholders equity (deficit) (68,591) 61,435
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 275,345 $ 286,474
========= =========
See notes to consolidated financial statements.
25
<PAGE> 26
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FIFTY-TWO WEEKS ENDED JANUARY 1, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIFTY-TWO
YEAR ENDED WEEKS ENDED
DECEMBER 31, JANUARY 1,
1997 1998 2000
<S> <C> <C> <C>
NET SALES $144,103 $184,477 $256,573
COST OF SALES 62,069 79,105 109,617
-------- -------- --------
GROSS PROFIT 82,034 105,372 146,956
-------- -------- --------
OPERATING EXPENSES:
Selling expenses 26,935 30,546 44,547
General and administrative expenses 27,031 19,753 26,023
Bonus related to the recapitalization -- 61,263 --
-------- -------- --------
Total operating expenses 53,966 111,562 70,570
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS 28,068 (6,190) 76,386
-------- -------- --------
OTHER (INCOME) EXPENSE:
Interest income (151) (219) (627)
Interest expense 2,154 16,268 19,971
Other expense (income) 334 737 (116)
-------- -------- --------
Total other expense 2,337 16,786 19,228
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 25,731 (22,976) 57,158
PROVISION FOR INCOME TAXES 1,360 9,656 22,863
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 24,371 (32,632) 34,295
EXTRAORDINARY LOSS ON EARLY RETIREMENT
OF DEBT, Less income tax benefit of $2,108 -- -- 3,162
-------- -------- --------
NET INCOME (LOSS) $ 24,371 $(32,632) $ 31,133
======== ======== ========
</TABLE>
(Continued)
26
<PAGE> 27
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FIFTY-TWO WEEKS ENDED JANUARY 1, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIFTY-TWO
YEAR ENDED WEEKS ENDED
DECEMBER 31, JANUARY 1,
1997 1998 2000
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary item $ 0.25 $ (0.51) $ 0.69
======= ======== ======
Net income (loss) $ 0.25 $ (0.51) $ 0.62
======= ======== ======
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary item $ 0.25 $ (0.51) $ 0.66
======= ======== ======
Net income (loss) $ 0.25 $ (0.51) $ 0.60
======= ======== ======
PRO FORMA INFORMATION (UNAUDITED)-
Historical income (loss) before provision
(benefit) for income taxes $25,731 $(22,976)
======= ========
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES $10,686 $ (8,731)
======= ========
PRO FORMA NET INCOME (LOSS) $15,045 $(14,245)
======= ========
PRO FORMA BASIC EARNINGS (LOSS) PER SHARE $ 0.15 $ (0.22)
======= ========
PRO FORMA DILUTED EARNINGS (LOSS) PER SHARE $ 0.15 $ (0.22)
======= ========
WEIGHTED-AVERAGE BASIC SHARES OUTSTANDING 98,005 64,458 49,857
====== ====== ======
WEIGHTED-AVERAGE DILUTED SHARES OUTSTANDING 98,005 64,458 51,789
====== ====== ======
</TABLE>
(Concluded)
See notes to consolidated financial statements.
27
<PAGE> 28
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1998, AND FIFTY-TWO WEEKS ENDED
JANUARY 1, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN TREASURY RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 98,005 $ 980 $ (918) $ -- $37,118
Distributions to stockholder -- -- -- -- (26,760)
Net income/comprehensive income -- -- -- -- 24,371
------ ----- -------- -------- -------
BALANCE, DECEMBER 31, 1997 98,005 980 (918) -- 34,729
Distributions to stockholder -- -- -- -- (34,102)
Transfer of accumulated deficit to
additional paid-in capital at termination
of S-Corporation status -- -- (51,053) -- 51,053
Redemption of common stock -- -- -- (212,448) --
Recognition of deferred tax asset -- -- 175,683 -- --
Capital subscription receivable -- -- 1,084 -- --
Unearned stock compensation -- -- 1,814 -- --
Amortization of unearned stock compensation -- -- -- -- --
Comprehensive income (loss): --
Net loss -- -- -- -- (32,632)
Foreign currency translation gain -- -- -- -- --
Comprehensive income (loss) -- -- -- -- --
------ ----- -------- -------- -------
BALANCE, DECEMBER 31, 1998 98,005 980 126,610 (212,448) 19,048
Redemption of common stock -- -- (540) --
Payment of capital subscription receivable -- -- -- --
Unearned stock compensation -- -- 566 -- --
Amortization of unearned stock compensation -- -- -- -- --
Issuance of common stock less underwriting -- -- --
fees and other expenses 6,054 61 96,948 -- --
Tax benefits on option exercises -- -- 359 -- --
Comprehensive income (loss): -- -- -- --
Net income -- -- -- -- 31,133
Foreign currency translation loss -- -- -- -- --
Comprehensive income -- -- -- -- --
------ ------ -------- -------- -------
BALANCE, JANUARY 1, 2000 104,059 $1,041 $224,483 $(212,988) $50,181
======= ====== ======== ========= =======
- -----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
CAPITAL UNEARNED OTHER
SUBSCRIPTION STOCK COMPREHENSIVE COMPREHENSIVE
RECEIVABLE COMPENSATION INCOME INCOME TOTAL
BALANCE, DECEMBER 31, 1996 $ -- $ -- $ -- $37,180
Distributions to stockholder -- -- -- (26,760)
Net income/comprehensive income -- -- -- $ 24,371 24,371
----- ------- ---- ======== -------
BALANCE, DECEMBER 31, 1997 -- -- -- 34,791
Distributions to stockholder -- -- -- (34,102)
Transfer of accumulated deficit to
additional paid-in capital at termination
of S-Corporation status -- -- -- --
Redemption of common stock -- -- -- (212,448)
Recognition of deferred tax asset -- -- -- 175,683
Capital subscription receivable (1,084) -- --
Unearned stock compensation -- (1,814) -- --
Amortization of unearned stock compensation -- 116 -- 116
Comprehensive income (loss):
Net loss -- -- -- $(32,632) (32,632)
Foreign currency translation gain 1 1 1
--------
Comprehensive income (loss) -- -- -- $(32,631) --
----- ------- ---- ======== -------
BALANCE, DECEMBER 31, 1998 (1,084) (1,698) 1 (68,591)
Redemption of common stock -- -- -- (540)
Payment of capital subscription receivable 1,084 -- -- 1,084
Unearned stock compensation -- (566) -- --
Amortization of unearned stock compensation -- 1,029 -- 1,029
Issuance of common stock less underwriting -- --
fees and other expenses -- -- -- 97,009
Tax benefits on option exercises -- -- -- 359
Comprehensive income (loss): -- -- --
Net income -- -- -- $ 31,133 31,133
Foreign currency translation loss -- -- (48) (48) (48)
--------
Comprehensive income -- -- -- $ 31,085 --
----- ------- ---- ======== -------
BALANCE, JANUARY 1, 2000 $ -- $(1,235) $(47) $61,435
===== ======= ==== =======
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FIFTY-TWO WEEKS ENDED JANUARY 1, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIFTY-TWO
YEAR ENDED WEEKS ENDED
DECEMBER 31, JANUARY 1,
1997 1998 2000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 24,371 $ (32,632) $ 31,133
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary loss on early extinguishment of debt -- -- 3,162
Depreciation and amortization 3,581 4,662 6,709
Provision for loss on classic vehicles 46 -- --
Unrealized gain on marketable equity securities (37) (92) (4)
Noncash stock compensation -- 116 1,029
Deferred taxes (35) 9,656 13,915
(Gain) loss on disposal of fixed assets and classic vehicles 460 (146) 132
Changes in assets and liabilities:
Accounts receivable-net (983) (1,613) (4,817)
Inventory (1,064) (2,270) (9,586)
Prepaid expenses and other assets 1,005 (323) (2,225)
Accounts payable 1,105 7,012 1,365
Accrued expenses and other liabilities 1,586 3,951 13,776
Deferred rent obligation -- 101 841
-------- --------- --------
Net cash provided by (used in) operating activities 30,035 (11,578) 55,430
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (9,173) (9,433) (22,749)
Acquisition of classic vehicles (455) -- --
Acquisition of trademarks (17) -- --
Loans to stockholder (204) -- --
Purchase of marketable equity securities for deferred
compensation plan (349) (378) (366)
Proceeds from sale of equipment 22 506 29
Proceeds from sale of classic vehicles 215 -- --
Proceeds from sale of marketable equity securities -- -- 410
-------- --------- --------
Net cash used in investing activities (9,961) (9,305) (22,676)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subordinated notes -- -- (320,000)
Net borrowings (repayments) under bank credit agreements 14,080 (31,097) (33,000)
Proceeds from long-term borrowings and capital lease obligations -- 320,000 228,068
Proceeds from the sale of common stock (net of fees and expenses) -- -- 97,009
Proceeds from repayment of capital stock subscription receivable -- -- 1,084
Principal payments on long-term debt (861) (8,183) (7,500)
Payments for deferred financing costs -- (7,115) (4,804)
Payments for redemption of common stock -- (212,448) (540)
Distributions to stockholder (26,760) (17,240) --
--------- --------- --------
Net cash (used in) provided by financing activities (13,541) 43,917 (39,683)
--------- --------- --------
</TABLE>
(Continued)
29
<PAGE> 30
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FIFTY-TWO WEEKS ENDED JANUARY 1, 2000
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIFTY-TWO
YEAR ENDED WEEKS ENDED
DECEMBER 31, JANUARY 1,
1997 1998 2000
<S> <C> <C> <C>
EFFECT OF EXCHANGE RATE ON CASH -- -- 87
------ ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,533 23,034 (6,842)
------ ------- -------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 844 7,377 30,411
------ ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $7,377 $30,411 $23,569
====== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION-Cash paid during the year for:
Interest $2,078 $14,497 $18,672
====== ======= =======
Income taxes $ 485 $ 8,730 $ 864
====== ======= =======
Noncash distributions to MK $ -- $16,862 $ --
====== ======= =======
Purchase of equipment by assumption of capital
lease and lease incentives $ -- $ -- $ 802
====== ======= =======
</TABLE>
(Concluded)
See notes to consolidated financial statements.
30
<PAGE> 31
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FIFTY-TWO WEEKS ENDED
JANUARY 1,2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. HISTORY, RECAPITALIZATION AND FINANCING
The Yankee Candle Company, Inc. (the "Company") and its subsidiaries is a
leading designer, manufacturer, wholesaler and retailer of premium scented
candles in the giftware industry. The Company has a 30-year history of
offering Yankee Candle products and marketing them as affordable luxuries
and consumable gifts. The Company's current products are available in
numerous fragrances and include a wide variety of jar candles,
Samplers(R), pillars, tapers and other candle products marketed under the
trade names Housewarmer(R) and Country Kitchen(R), as well as candle
accessories. The Company sells such products to its wholesale customers,
who have gift store locations nationwide, and through its retail store
network.
On March 25, 1998, the Company entered into a Recapitalization and Stock
Purchase Agreement with Yankee Candle Holdings Corp. ("Holdings"), Michael
Kittredge ("MK") and affiliates of Forstmann Little & Co. ("FL&Co."). On
April 27, 1998 in connection with the Recapitalization, the Company (i)
redeemed (the "Redemption") a portion of its common stock held by MK for
approximately $200,000; (ii) paid transaction fees and expenses, including
financing fees, of approximately $19,550; (iii) repaid existing
indebtedness of approximately $49,300; and (iv) paid bonuses related to
the recapitalization of approximately $61,300. In addition, Holdings
acquired shares of common stock from MK for approximately $180,000. This
purchase was financed by the issuance of Holdings' common stock to FL&Co.
and senior management (together with the Redemption, the
"Recapitalization"). Upon completion of the Recapitalization, Holdings
owned 90% of the common stock and MK retained 10% of the common stock of
the Company.
The Redemption and related transactions described above were financed
through the issuance of $320,000 of subordinated debentures (the
"Subordinated Debentures"). In addition, the Company entered into a credit
agreement with a consortium of banks that provided for a $60,000 revolving
credit facility. The Company incurred financing costs of approximately
$7,100 which were recorded as deferred financing costs. In addition, the
Company incurred approximately $12,450 of transaction costs related to the
Recapitalization which were charged to treasury stock.
On July 1, 1999, the Company sold 6,000,000 shares of common stock at $18
per share in an initial public offering and listed its stock on the New
York Stock Exchange. Prior to the closing of the public offering, the
Company executed a reorganization that (i) split its currently issued
shares on a 98,005 to 1 basis; and (ii) exchanged 43,545,479 shares of
common stock and options to purchase 554,521 shares of Company common
stock on the same economic terms and conditions as the Holdings options
for all of Holdings assets, consisting principally of shares of Company
common stock.
All share and per share amounts have been restated to give effect to these
transactions.
31
<PAGE> 32
1. HISTORY, RECAPITALIZATION AND FINANCING (CONTINUED)
The proceeds to the Company from its initial public offering, after
deducting underwriting fees and other expenses, were approximately
$97,000. On July 7, 1999, the Company used these proceeds, together with
$220,000 of bank borrowings under a new credit facility (described in Note
6), and available cash to redeem $320,000 aggregate principal amount of
outstanding Subordinated Debentures. The redemption of these subordinated
debentures resulted in an extraordinary charge to the statement of
operations of $3,162, net of tax ($(0.07) and $(0.06) per basic and
diluted share, respectively). These charges related to the write-off of
financing fees that had previously been deferred.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Effective January 1, 1999, the Company adopted a
52/53 week fiscal year. The fiscal year is the 52 or 53 weeks ending the
Saturday closest to December 31. There was no material impact on the
operating results reported for 1999 as a result of this change in the
Company's fiscal year.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Actual
results could differ from those estimates.
REVENUE RECOGNITION - The Company sells its products directly to retail
customers and through wholesale channels. Revenue from the sale of
merchandise to retail customers is recognized at the time of sale. Revenue
from sales to wholesale customers is recognized upon shipment of product.
Revenue from merchandise credits and gift certificates issued is deferred
until redemption.
CASH AND CASH EQUIVALENTS - The Company considers all short-term
interest-bearing investments with original maturities of three months or
less to be cash equivalents. Such investments are classified by the
Company as "held to maturity" securities under the provisions of Statement
of Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." These securities are stated at
cost, adjusted for amortization of discounts and premiums to maturity.
MARKETABLE SECURITIES - The Company classifies the marketable securities
held in its deferred compensation plan as "trading" securities under SFAS
No. 115. In accordance with the provisions of this statement, the
investment balance is stated at fair market value, based on quoted market
prices. Unrealized gains and losses are reflected in earnings; realized
gains and losses are computed using the specific-identification method. As
the assets held in the deferred compensation plan reflect amounts due to
employees, but available for general creditors of the Company in the event
the Company becomes insolvent, the Company has recorded the investment
balance as a noncurrent asset and has established a corresponding other
long-term liability entitled "deferred compensation obligation" on the
balance sheet.
32
<PAGE> 33
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES (CONTINUED) - The marketable securities held in this
plan consist of investments in mutual funds at December 31, 1998 and
January 1, 2000. Unrealized gains included in earnings during the years
ended December 31, 1997 and 1998 and the fifty-two weeks ended January 1,
2000 were $37, $92 and $4 , respectively. Gains of $9, $30 and $44 were
realized during 1997, 1998 and the fifty-two weeks ended January 1, 2000,
respectively.
ACCOUNTS RECEIVABLE - Accounts receivable primarily represents amounts due
from wholesale customers.
INVENTORIES - Inventories are stated at the lower of cost or market on a
last-in, first-out ("LIFO") basis. In 1998, the liquidation of certain
LIFO layers decreased cost of sales by $383.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost and are depreciated on the straight-line method based on the
estimated useful lives of the various assets. The estimated useful lives
are as follows:
Buildings and improvements 5 to 40 years
Computer equipment 3 to 5 years
Furniture and fixtures 5 to 10 years
Equipment 10 years
Vehicles 5 years
Leasehold improvements are amortized using the straight-line method over
the lesser of the estimated life of the improvement or the remaining life
of the lease. Expenditures for normal maintenance and repairs are charged
to expense as incurred.
DEFERRED FINANCING COSTS - The Company amortizes deferred financing costs
using the effective-interest method over the life of the related debt.
Accumulated amortization was $548 and $974 at December 31, 1998 and
January 1, 2000, respectively.
TRADEMARKS - Trademarks are recorded at cost and amortized over 15 years.
Cost of trademarks, included in other assets at December 31, 1998 and
January 1, 2000, was $231 and $233, respectively. Accumulated amortization
was $69 and $85, at December 31, 1998 and January 1, 2000, respectively.
CLASSIC VEHICLES - The Company has invested in certain vehicles, which it
displays in its car museum. These vehicles are stated at cost, with no
provision for depreciation, since their useful lives are indeterminable
and their values fluctuate with the classic vehicle market. When
management believes that a permanent decline in value has occurred, the
assets are written down to their fair value. During the years ended
December 31, 1997 and 1998 and the fifty-two weeks ended January 1, 2000,
the value of these vehicles was written down by $46, $0 and $0,
respectively.
ADVERTISING - The Company expenses the costs of advertising as they are
incurred. Advertising expense was $1,306, $1,986 and $2,876 for the years
ended 1997 and 1998 and the fifty-two weeks ended January 1, 2000,
respectively.
33
<PAGE> 34
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT ACCOUNTING - The Company reviews the recoverability of its
long-lived assets when events or changes in circumstances occur that
indicate that the carrying value of the assets may not be recoverable.
This review is based on the Company's ability to recover the carrying
value of the assets from expected undiscounted future cash flows. If an
impairment is indicated, the Company measures the loss based on the fair
value of the asset using various valuation techniques. If an impairment
loss exists, the amount of the loss will be recorded in the consolidated
statements of operations. It is possible that future events or
circumstances could cause these estimates to change.
PRO FORMA ADJUSTMENTS - The Company had, until the Recapitalization,
elected to be treated as an S corporation for federal and state income tax
purposes. Under this previous election, income for federal income tax
purposes was not taxed at the corporate level but was taxed to MK.
On April 27, 1998, the Company's tax status changed from an S corporation
to a C corporation. The income statement reflects a provision for income
taxes for federal and state purposes for the period the Company was a C
corporation and a provision for state taxes for the periods the Company
was an S corporation. The pro forma financial information shows the effect
on the historical financial statements as if the Company had been taxed as
a C corporation during 1997 and 1998 instead of an S corporation until
April 27, 1998.
INCOME TAXES - The Company accounts for income taxes under the provisions
of SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the
recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and
the tax basis of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse. The
provision for income taxes in the consolidated statements of operations is
the actual computed tax obligation or receivable for the period, plus or
minus the change during the period in deferred income tax assets and
liabilities.
NEWLY ISSUED ACCOUNTING STANDARDS - During 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued by the
Financial Accounting Standards Board ("FASB"). During 1999, SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133," was issued by FASB. This
statement delays the effective date of SFAS No. 133 to all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact, if any, of this statement.
FAIR VALUE OF FINANCIAL INSTRUMENTS - At January 1, 2000, the estimated
fair values of all financial instruments approximate their carrying
amounts in the consolidated balance sheets due to (i) the short-term
maturity of certain instruments or (ii) the floating interest rate
associated with certain instruments which have the effect of repricing
such instruments regularly.
EARNINGS PER SHARE - 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 (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.
34
<PAGE> 35
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE (CONTINUED) - The denominator in the calculation is
based on the following weighted-average number of common shares:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1997 1998 2000
<S> <C> <C> <C>
Basic 98,005,000 64,458,000 49,857,000
Add:
Contingently returnable shares -- -- 1,666,000
Shares issuable pursuant to option grants -- -- 266,000
---------- ---------- ----------
Diluted 98,005,000 64,458,000 51,789,000
========== ========== ==========
</TABLE>
The Company had issued no options nor had there been any other common
stock equivalents that would have caused the basic and diluted shares
numbers to differ in 1997. In 1998, however, contingently returnable
shares and shares issuable pursuant to option awards, which were deemed
common stock equivalents, were excluded from the computation of diluted
earnings per share because of their antidilutive effect on earnings per
share. Such common stock equivalents did impact the computation of diluted
earnings per share in the fifty-two weeks ended January 1, 2000.
COMPREHENSIVE INCOME - Comprehensive income includes all changes in equity
during the period except those resulting from transactions with owners of
the Company. It has two components: net income and other comprehensive
income. Accumulated other comprehensive income reported on the Company's
consolidated balance sheets consists of foreign currency translation
adjustments. Comprehensive income, net of related tax effects (where
applicable), is detailed in the consolidated statements of stockholders'
equity (deficit).
PRIOR-YEAR RECLASSIFICATIONS - Certain prior year amounts have been
reclassified to conform with the current year presentation.
3. INVENTORIES
The components of inventory were as follows:
DECEMBER 31, JANUARY 1,
1998 2000
Finished goods $ 9,967 $18,127
Work-in-process 126 196
Raw materials and packaging 2,816 4,219
------- -------
12,909 22,542
Less LIFO reserve (427) (548)
------- -------
$12,482 $21,994
======= =======
35
<PAGE> 36
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
DECEMBER 31, JANUARY 1,
1998 2000
Land and improvements $ 3,971 $ 4,492
Buildings and improvements 36,120 43,974
Computer equipment 4,584 7,576
Furniture and fixtures 5,471 10,954
Equipment 9,445 15,122
Vehicles 814 880
Construction-in-process 1,815 1,462
------- -------
Total 62,220 84,460
Less accumulated depreciation and amortization (13,905) (19,243)
------- -------
$48,315 $65,217
======= =======
5. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100. Uninsured balances aggregated $28,177 and $18,189
at December 31, 1998 and January 1, 2000, respectively.
The Company extends credit to its wholesale customers. No single customer
accounted for more than 2% of total sales during any period presented nor
did any such customer account for more than 7% of the outstanding
receivable balance at either December 31, 1998 or January 1, 2000.
6. LONG-TERM DEBT
Long term debt is summarized as follows:
DECEMBER 31, JANUARY 1,
1998 2000
6.75% Subordinated notes; due 2009 - 2011 $320,000 $ --
Term loan -- 142,500
Revolving line of credit -- 45,068
-------- --------
320,000 187,568
Less current portion -- 30,000
-------- --------
Noncurrent portion $320,000 $157,568
======== ========
36
<PAGE> 37
6. LONG-TERM DEBT (CONTINUED)
In connection with the Recapitalization, the Company issued $320,000 of
Subordinated Debentures that were distributed to limited partners of
FL&Co. The Subordinated Debentures bore interest at 6 3/4%, which was
payable semiannually in May and November commencing on November 30, 1998.
These debentures were repaid with proceeds from the Company's initial
public offering and its new credit agreement in July 1999 (see Note 1).
In April 1998, the Company entered into a credit agreement with a
consortium of banks (the "Old Credit Agreement"). The Old Credit Agreement
provides for a revolving credit facility of $60,000. A portion of this
revolving credit facility, in an amount not to exceed $15,000, could have
been used, to the extent available, for standby and commercial letters of
credit. This facility was terminated at the time that the New Credit
Agreement was executed.
In July 1999, the Company entered into a new credit agreement with a
consortium of banks (the "New Credit Agreement"). The New Credit Agreement
provides for a maximum borrowing of $300,000 and consists of a revolving
credit facility for $150,000 and a term loan for $150,000. Borrowings of
$220,000 under the New Credit Agreement were used together with net
proceeds from the initial public offering (see Note 1) to redeem the
aggregate principal amount of Subordinated Debentures. The New Credit
Agreement matures on July 7, 2004, with any outstanding amounts due on
that date; no payments of principal are due on the revolving credit
facility until this maturity date. The term loan is payable in quarterly
installments ranging from $7,500 to $9,500 in March, June, September and
December of each year commencing on December 31, 1999. The New Credit
Agreement is collateralized by substantially all of the assets of the
Company. As of January 1, 2000, $45,068 was outstanding under the
revolving credit facility, thus leaving $104,932 in availability under the
New Credit Agreement.
The Company is required to pay a commitment fee on the average daily
unutilized portion of the revolving credit facility at a rate ranging from
1/4% to 3/8% per annum. The Company may elect to set the interest rate on
all or a portion of the borrowings outstanding under the New Credit
Agreement at a rate per annum equal to (a) the greater of (i) prime rate,
(ii) the base CD rate plus 1% or (iii) the federal funds effective rate
plus 1/2 of 1%, or (b) the eurodollar rate. The weighted-average interest
rate at January 1, 2000 was 7.62%.
The New Credit Agreement includes restrictions as to, among other things,
the amount of additional indebtedness, contingent obligations, liens,
investments, asset sales, capital expenditures and requires the
maintenance of minimum levels of interest coverage. It also includes a
restriction for the payment of dividends. None of the restrictions
contained in the New Credit Agreement are expected to have a significant
effect on the ability of the Company to operate. As of January 1, 2000,
the Company was in compliance with all financial and operating covenants
under the New Credit Agreement.
Aggregate annual maturities of long-term debt and capital lease
obligations are as follows:
LONG-TERM
DEBT
2000 $ 30,000
2001 30,000
2002 31,500
2003 32,000
2004 64,068
--------
Total $187,568
========
37
<PAGE> 38
7. PROVISION FOR INCOME TAXES
Prior to the Recapitalization, the Company was taxed as an S corporation
for federal and state income tax purposes. Generally, there is no federal
income tax on earnings of an S corporation; however, some states impose a
tax on taxable earnings. There was no federal income tax provision in
1997; but there was a provision for state income taxes in that year.
Income tax expense, exclusive of that relating to extraordinary items,
consists of the following:
DECEMBER 31, JANUARY 1,
1997 1998 2000
Federal:
Current $ -- $ -- $ 7,881
Deferred -- 8,894 12,263
------ ------ -------
Total federal -- 8,894 20,144
------ ------ -------
State:
Current 1,395 -- 1,067
Deferred (35) 762 1,652
------ ------ -------
Total state 1,360 762 2,719
------ ------ -------
Total income tax provision $1,360 $9,656 $22,863
====== ====== =======
In connection with the Recapitalization, an election was made for federal
and state income tax purposes to value the assets and liabilities of the
Company at fair value. As a result of such election, there is a difference
between the financial reporting and tax bases of the Company's assets and
liabilities. This difference was accounted for by recording a deferred tax
asset of approximately $175,700 with a corresponding credit to additional
paid-in capital. The deferred tax asset will be realized as these
differences, including tax goodwill, are deducted, principally over a
period of 15 years. In the opinion of management, the Company will have
sufficient profits in the future to realize the deferred tax asset.
38
<PAGE> 39
7. PROVISION FOR INCOME TAXES (CONTINUED)
The tax effect of significant items comprising the Company's net deferred
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1998 2000
CURRENT NONCURRENT CURRENT NONCURRENT
<S> <C> <C> <C> <C>
Deferred tax assets:
Basis differential as a result
of basis setup for tax $ -- $164,204 $ -- $151,664
Net operating loss
carryforward -- 1,382 -- --
Deferred compensation
arrangements 341 -- 350 --
Employee benefits 917 -- 1,123 --
Other 284 -- 379 397
Deferred tax liabilities - fixed assets -- (1,112) -- (1,812)
------ -------- ------ --------
$1,542 $164,474 $1,852 $150,249
====== ======== ====== ========
</TABLE>
A reconciliation of the statutory federal income tax rate and the
effective rate of the provision for income taxes consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1997 1998 2000
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
State income taxes - net of federal income tax benefit 3 3 4
S-Corporation income (35) (80) --
Other 2 -- 1
---- ---- ----
5% (42)% 40%
==== ==== ====
</TABLE>
8. PROFIT SHARING PLAN
The Company maintains a profit sharing/salary reduction plan under section
401(k) of the Internal Revenue Code. Employer matching contributions
amounted to $137, $347 and $425 for 1997, 1998 and the fifty-two weeks
ended January 1, 2000, respectively. The Company, at its discretion, may
also make annual profit sharing contributions to the plan. There were no
profit sharing contributions in 1997, 1998 or the fifty-two weeks ended
January 1, 2000.
9. DEFERRED COMPENSATION
The Company has a deferred compensation agreement with certain key
employees. Under this agreement, the Company will match certain elective
salary deferrals of eligible employees' compensation up to a maximum of
$20 per employee. Employer contributions amounted to $140, $133 and $100
for 1997, 1998 and the fifty-two weeks ended January 1, 2000,
respectively. Benefits under the plan will be paid in a lump sum upon
termination of the plan or termination of employment. Benefits paid to
retired employees during the fifty-two weeks ended January 1, 2000
amounted to $410.
39
<PAGE> 40
10. CONTINGENCIES
The Company is engaged in various lawsuits, either as plaintiff or
defendant. In the opinion of management, the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
11. STOCKHOLDERS' EQUITY
CAPITAL STOCK - As of December 31, 1998 and January 1, 2000, the Company
had 98,005,000 and 104,059,000 shares of common stock (par value $.01)
issued. In connection with the 1998 Recapitalization, the Company redeemed
approximately 49,560,000 shares of common stock from MK. These shares were
held in treasury at December 31, 1998 and January 1, 2000.
In connection with the 1998 Recapitalization, common stock was purchased
by management. The Company made loans to certain members of management to
aid them in the purchase of this common stock. These loans were reflected
in stockholders' equity under the caption "capital subscription
receivable," carried an interest rate of 7%, were secured by the shares
and provide for full recourse to the borrower. As of January 1, 2000, all
of these loans had been repaid.
In addition, rights to purchase common stock were granted to a member of
management in October 1998, and he committed to purchase such shares in
November 1998. This common stock was purchased in 1999. A subscription
receivable for this common stock was reflected in stockholders' equity as
"capital subscription receivable." As of January 1, 2000 this subscription
receivable had been paid.
In addition, options to purchase common stock were granted to key
employees and directors of the Company in 1998 (the "1998 Plan"). The
options granted under the 1998 Plan were "nonqualified" for tax purposes.
For financial reporting purposes, the award of the right to purchase stock
and the grant of options, in certain cases, were considered to be below
the fair value of the stock at the time of grant. The fair value was
determined based on an appraisal conducted by an independent appraisal
firm as of the relevant dates. The differences between fair value and the
purchase price or the exercise price is being charged to compensation
expense over the relevant vesting period - generally between three and
five years. In 1998 and the fifty-two weeks ended January 1, 2000, such
expense aggregated $116 and $1,029, respectively. In addition to the
options granted above, the Company adopted the 1999 Employee Stock Option
and Award Plan in June, 1999 (the "1999 Plan"). The 1999 plan provides for
the grant of incentive stock options intended to qualify under Section 422
of the Internal Revenue Code. These options generally have an exercise
price equal to the fair market value of the stock on the date of grant,
vest gradually over a five-year period and expire after 10 years. Under
the 1999 Plan, options to purchase 95,000 shares at prices of between
$16.875 and $18.00 per share were granted. None of these shares have
vested as of January 1, 2000.
40
<PAGE> 41
11. STOCKHOLDERS' EQUITY (CONTINUED)
CAPITAL STOCK (CONTINUED) - A summary of the status of option grants and
changes during the period ending on that date are presented below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF EXERCISE GRANT
EXERCISE PRICE DATE FAIR
OPTIONS PRICES PER SHARE VALUE
<S> <C> <C> <C> <C>
Outstanding at December 31, 1997 -- $ -- $ --
Granted 427,493 4.25 4.25 $3.10
Forfeited -- -- --
------- -------------- -----
Outstanding at December 31, 1998 427,493 4.25 4.25
Granted 153,546 4.25 - 18.00 12.55 $9.09
Forfeited (24,428) 4.25 4.25
------- ------------- -----
Outstanding at January 1, 2000 556,611 $4.25 - 18.00 $6.44
======= ============= =====
</TABLE>
No options were exercisable at December 31, 1998 and January 1, 2000.
Under the existing stock option plans, there are 2,655,000 shares
available for future grants at January 1, 2000.
Effective with the adoption of the 1998 Plan, the Company elected to use
the disclosure provisions of SFAS No. 123 "Accounting for Stock Based
Compensation." The Company accounts for employee options or share awards
under the intrinsic-value method prescribed by Accounting Principles Board
("APB") Opinion No. 25 with pro forma disclosures of net earnings and
earnings per share, as if the fair value method of accounting defined in
SFAS No. 123 had been applied. SFAS No. 123 establishes a fair value based
method of accounting for stock-based employee compensation plans; however,
it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the fair-value method, compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the
intrinsic-value method, compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement
date over the amount an employee must pay to acquire the stock.
Under SFAS No. 123, the fair value of each option grant is estimated on
the date of grant. The following weighted-average assumptions were used to
compute the pro forma results of operations that reflect grants in 1999
under both the 1998 and the 1999 plans and for grants in 1998 under the
1998 Plan: volatility of 20% in 1998 and 52% in 1999, dividend yield of 0%
in both years, risk-free interest rates ranging from 4.54% in 1998 to
5.30% in 1999 and expected lives of 5 years in both years. If compensation
cost for stock option grants had been determined based on the fair value
on the grant dates consistent with the method prescribed by SFAS No. 123,
the Company's net income (loss) and earnings per share for the year ended
December 31, 1998 and fifty-two weeks ended January 1, 2000 would have
been $(14,290) or $(0.22) per basic and diluted share and $30,847 or $.62
per basic share and $.60 per diluted share, respectively.
41
<PAGE> 42
11. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about the Company's stock
options outstanding at January 1, 2000:
RANGE AVERAGE
OF REMAINING
EXERCISE OPTIONS OPTIONS LIFE
PRICES OUTSTANDING EXERCISABLE (YEARS)
$ 4.25 461,611 -- 8.53
16.87 - 18.00 95,000 -- 9.64
-------------- ------- ---- ----
$4.25 - $18.00 556,611 -- 8.72
============== ======= ==== ====
12. COMMITMENTS
The Company leases most store locations, several distribution facilities
and a number of vehicles. Most store leases provide for base rentals plus
contingent rentals thereafter, which are a function of sales volume. In
addition, the Company is required to pay real estate taxes, maintenance
and other operating expenses applicable to the leased premises.
Furthermore, several facility leases contain rent escalation clauses.
The aggregate annual future minimum lease commitments under operating
leases as of January 1, 2000 are as follows:
OPERATING
LEASES
2000 $ 6,615
2001 6,577
2002 6,281
2003 5,949
2004 5,865
Thereafter 21,449
-------
Total minimum lease payments $52,736
=======
Rent expense for the years ended December 31, 1997 and 1998 and the
fifty-two weeks ended January 1, 2000 was approximately $3,062, $3,997 and
$4,902, respectively. In addition, contingent rental payments for 1997,
1998 and the fifty-two weeks ended January 1, 2000 approximated $376, $764
and $1,119, respectively.
At January 1, 2000, the Company had purchase commitments of $809
outstanding for various inventory purchases.
42
<PAGE> 43
13. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION
The Company has segmented its operations in a manner that reflects how its
chief operating decision-maker (the "CEO") currently reviews the results
of the Company and its subsidiaries' businesses. The Company has two
reportable segments - retail and wholesale. The identification of these
segments results from management's recognition that while the product
produced is similar, the type of customer for the product and services and
the methods used to distribute the product are different.
The CEO evaluates both its retail and wholesale operations based on an
"operating earnings" measure. Such measure gives recognition to
specifically identifiable operating costs such as cost of sales and
selling expenses. Administrative charges are generally not allocated to
specific operating segments and are accordingly reflected in the
unallocated/corporate/other category. Other components of the statement of
operations, which are classified below operating income, are also not
allocated by segments. The Company does not account for or report assets,
capital expenditures or depreciation and amortization by segment to the
CEO.
The following are the relevant data for the years ended December 31, 1997
and 1998 and the fifty-two weeks ended January 1, 2000:
<TABLE>
<CAPTION>
BALANCE PER
UNALLOCATED/ CONSOLIDATED
CORPORATE/ FINANCIAL
YEAR ENDED DECEMBER 31, 1997 RETAIL WHOLESALE OTHER STATEMENTS
<S> <C> <C> <C> <C>
Net sales $ 59,227 $ 84,876 $ -- $ 144,103
Operating earnings (loss) 23,911 31,188 (27,031) 28,068
Unallocated costs -- -- (2,337) (2,337)
Earnings (loss) before taxes and
extraordinary item -- -- -- 25,731
YEAR ENDED DECEMBER 31, 1998
Net sales 81,210 103,267 -- 184,477
Operating earnings (loss) 29,724 45,102 (81,016) (6,190)
Unallocated costs -- -- (16,786) (16,786)
Earnings (loss) before taxes and
extraordinary item -- -- -- (22,976)
FIFTY-TWO WEEKS ENDED JANUARY 1, 2000
Net sales 123,185 133,388 -- 256,573
Operating earnings (loss) 43,055 59,354 (26,023) 76,386
Unallocated costs -- -- (19,228) (19,228)
Earnings (loss) before taxes and
extraordinary item -- -- -- 57,158
</TABLE>
43
<PAGE> 44
14. QUARTERLY RESULTS (UNAUDITED)
In management's opinion, this unaudited information includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any future
quarters.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $35,313 $ 28,742 $43,611 $76,812
Cost of goods sold 16,400 12,835 19,340 30,530
------------ ------------ ------------- -------------
Gross profit 18,913 15,907 24,271 46,282
Selling expenses 7,480 6,186 6,939 9,941
General and administrative expenses 4,006 3,946 4,871 6,930
Bonus related to the Recapitalization -- 61,263 -- --
------------ ------------ ------------- -------------
Income (loss) from operations 7,427 (55,488) 12,461 29,411
Interest income (48) (33) (34) (104)
Interest expense 369 4,309 5,878 5,711
Other (income) expense (11) 44 (7) 712
------------ ------------ ------------- -------------
Income (loss) before provision for
income taxes 7,117 (59,808) 6,624 23,092
Provision for income taxes -- (1,636) 2,517 8,775
------------ ------------ ------------- -------------
Income (loss) before extraordinary loss
on early extinguishment of debt 7,117 (58,172) 4,107 14,317
Extraordinary loss on early extinguishment
of debt -- -- -- --
------------ ------------ ------------- -------------
Net income $ 7,117 $(58,172) $ 4,107 $14,317
============ ============ ============= =============
BASIC EARNINGS PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.07 $ (0.90) $ 0.09 $ 0.30
============ ============ ============= =============
NET INCOME (LOSS) $ 0.07 $ (0.90) $ 0.09 $ 0.30
============ ============ ============= =============
DILUTED EARNINGS PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.07 $ (0.90) $ 0.08 $ 0.29
============ ============ ============= =============
NET INCOME (LOSS) $ 0.07 $ (0.90) $ 0.08 $ 0.29
============ ============ ============= =============
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 1, 2000
APRIL 3, JULY 3, OCTOBER 2, JANUARY 1,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales $46,590 $41,372 $59,109 $109,502
Cost of goods sold 20,804 18,605 25,883 44,326
------------- ------------- ------------ -------------
Gross profit 25,786 22,767 33,226 65,176
Selling expenses 8,509 9,224 11,324 15,489
General and administrative expenses 6,213 6,049 6,252 7,509
Bonus related to the Recapitalization -- -- -- --
------------- ------------- ------------ -------------
Income (loss) from operations 11,064 7,494 15,650 42,178
Interest income (290) (206) (63) (68)
Interest expense 5,768 5,611 4,106 4,483
Other (income) expense (44) (51) 58 (76)
------------- ------------- ------------ -------------
Income (loss) before provision for
income taxes 5,630 2,140 11,549 37,839
Provision for income taxes 2,252 856 4,620 15,135
------------- ------------- ------------ -------------
Income (loss) before extraordinary loss
on early extinguishment of debt 3,378 1,284 6,929 22,704
Extraordinary loss on early extinguishment
of debt -- -- 3,162 --
------------- ------------- ------------ -------------
Net income $ 3,378 $ 1,284 $ 3,767 $ 22,704
============= ============= ============ =============
BASIC EARNINGS PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.07 $ 0.03 $ 0.13 $ 0.43
============= ============= ============ =============
NET INCOME (LOSS) $ 0.07 $ 0.03 $ 0.07 $ 0.43
============= ============= ============ =============
DILUTED EARNINGS PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.07 $ 0.03 $ 0.13 $ 0.42
============= ============= ============ =============
NET INCOME (LOSS) $ 0.07 $ 0.03 $ 0.07 $ 0.42
============= ============= ============ =============
</TABLE>
44
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as set forth below, the information required by this item is incorporated
by reference from the information under the captions "Election of Directors" and
"Section 16a Beneficial Ownership Reporting Compliance" contained in the Proxy
Statement relating to the 2000 Annual Meeting of Stockholders to be held on June
1, 2000 (the "Proxy Statement") and the caption "Executive Officers of the
Company" in Part I of this Annual Report on Form 10-K.
Mr. Steven B. Klinsky, 43, is a director of the Company whose term expires on
June 1, 2000, the date of the Annual Meeting of Stockholders. Mr. Klinsky is not
standing for re-election to another term. Mr. Klinsky has been a Director of
Yankee Candle Holdings since July 1998 and a Director of Yankee Candle since
April 1999. He was a general partner of FLC XXIX Partnership, L.P. from December
1986 - July 1999. Since July of 1999, Mr. Klinsky has served as Founder of New
Mountain Capital, a private equity firm.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the captions "Compensation of Directors," "Compensation of
Executive Officers" and "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item with is incorporated by reference from the
information under the caption "Stock Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item with is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
contained in the Proxy Statement.
45
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
The consolidated financial statements listed below are included in this
document under Item 8.
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule
The schedule listed below is filed as part of this Form 10-K and is
set forth below:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been omitted
because the information is disclosed in the Consolidated Financial
Statements or because such schedules are not required or not
applicable.
46
<PAGE> 47
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Allowance for Doubtful Accounts BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND FROM END OF
OF YEAR EXPENSES RESERVES YEAR
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $307,000 $ 93,677 $ (40,677) $360,000
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $360,000 $181,946 $ (91,946) $450,000
52 WEEKS ENDED JANUARY 1, 2000
Allowance for doubtful accounts $450,000 $ 76,080 $(201,080) $325,000
</TABLE>
Amounts charged to deductions from reserves represent the write-off of
uncollectible balances.
3. Exhibits
The exhibits are listed below under Part IV, Item 14(c) of this Report.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended January 1, 2000
(c) Exhibits
NO. DESCRIPTION
2.1 Recapitalization Agreement, dated as of March 25, 1998, as amended by
and among Yankee Candle Holdings Corp., The Yankee Candle Company,
Inc., Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P. and Michael J. Kittredge.*
2.2 Asset Purchase Agreement, dated as of April 1, 1998, by and among The
Yankee Candle Company, Inc., Chandler's Tavern, Inc. and Michael J.
Kittredge.*
2.3 Form of Agreement and Plan or Reorganization between The Yankee Candle
Company, Inc. and Yankee Candle Holdings Corp.*
2.4 Form of Share Exchange between The Yankee Candle Company, Inc. and
Michael J. Kittredge.*
3.1 Form of Restated Articles of Organization of The Yankee Candle Company,
Inc.*
3.2 Form of Amended and Restated By-Laws of The Yankee Candle Company,
Inc.*
4.1 Form of Common Stock Certificate.*
10.1 Form of outside director Stock Option Agreement.*+
10.2 Form of outside director Stockholder's Agreement.*+
10.3 Form of Employee Stockholder's Agreement.*+
10.4 The Yankee Candle Company Inc. Employee Stock Option Plan and form of
Stock Option Agreement.*+
10.5 The Yankee Candle Company, Inc. 1999 Stock Option and Award Plan.*+
10.6 Stockholder's Agreement, dated April 27, 1998, by and between The
Yankee Candle Company, Inc. and Michael J. Kittredge.*
10.7 Form of Stockholder's Agreement between The Yankee Candle Company, Inc.
and employees.*+
10.8 Registration Rights Agreement, dated as of May 6, 1999, among The
Yankee Candle Company, Inc., Forstmann Little & Co. Equity
Partnership-V, L.P. and Forstmann Little & Co. Subordinated Debt and
Equity Management Buyout Partnership-VI, L.P.*
10.9 Form of Indemnification Agreement between The Yankee Candle Company,
Inc. and its directors and executive officers.*
47
<PAGE> 48
10.10 Form of Credit Agreement among The Yankee Candle Company, Inc., The
Chase Manhattan Bank, as sole administrative agent, and the banks and
other financial institutions party thereto.*
10.11 Recourse Secured Promissory Note, dated February 3, 1999, by Robert R.
Spellman, and Stock Pledge Agreement, dated as of February 3, 1999, by
and between The Yankee Candle Company, Inc. and Robert R. Spellman.*
10.12 Employment Agreement, dated as of October 22, 1998, as amended on
February 9, 1999, between The Yankee Candle Company, Inc. and Robert R.
Spellman.*
10.13 Form of Management Rights Letter between The Yankee Candle Company,
Inc. and the partnerships affiliated with Forstmann Little & Co.*
27 Financial Data Schedule.
- ---------------------------------
* Incorporated by reference from the Company's Registration Statements on
Form S-1 (File No. 333-76397)
+ Management compensation contract/plan
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 31, 2000.
The Yankee Candle Company, Inc.
By /s/ MICHAEL D. PARRY
------------------------------
Michael D. Parry
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below as of March 31, 2000 by the following persons on
behalf of the registrant and in the capacities indicated.
Signature Capacity
/s/ MICHAEL J. KITTREDGE Chairman of the Board of Directors
- ------------------------------
Michael J. Kittredge
/s/ MICHAEL D. PARRY President, Chief Executive Officer and
- ------------------------------ Director
Michael D. Parry
/s/ ROBERT R. SPELLMAN Senior Vice President, Finance and
- ------------------------------ Chief Financial Officer
Robert R. Spellman (Principal Financial Officer)
/s/ GERALD F. LYNCH Vice President, Controller
- ------------------------------ (Principal Accounting Officer)
Gerald F. Lynch
/s/ THEODORE J. FORSTMANN Director
- ------------------------------
Theodore J. Forstmann
/s/ NICHOLAS C. FORSTMANN Director
- ------------------------------
Nicholas C. Forstmann
/s/ SANDRA J. HORBACH Director
- ------------------------------
Sandra J. Horbach
Director
- ------------------------------
Steven B. Klinsky
49
<PAGE> 50
/s/ MICHAEL J. OVITZ Director
- ------------------------------
Michael J. Ovitz
/s/ RONALD L. SARGENT Director
- ------------------------------
Ronald L. Sargent
/s/ EMILY WOODS Director
- ------------------------------
Emily Woods
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Yankee
Candle Company, Inc. Audited Condensed Consolidated Financial Statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-END> JAN-1-2000
<CASH> 23,569
<SECURITIES> 0
<RECEIVABLES> 13,636
<ALLOWANCES> 325
<INVENTORY> 21,994
<CURRENT-ASSETS> 63,902
<PP&E> 84,460
<DEPRECIATION> 19,243
<TOTAL-ASSETS> 286,474
<CURRENT-LIABILITIES> 65,602
<BONDS> 0
0
0
<COMMON> 1,041
<OTHER-SE> 60,394
<TOTAL-LIABILITY-AND-EQUITY> 286,474
<SALES> 256,573
<TOTAL-REVENUES> 256,573
<CGS> 109,617
<TOTAL-COSTS> 109,617
<OTHER-EXPENSES> 70,570
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 19,972
<INCOME-PRETAX> 57,158
<INCOME-TAX> 22,863
<INCOME-CONTINUING> 34,295
<DISCONTINUED> 0
<EXTRAORDINARY> 3,162
<CHANGES> 0
<NET-INCOME> 31,133
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.60
</TABLE>