<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: APRIL 1, 2000
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Commission File Number: 001-15023
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THE YANKEE CANDLE COMPANY, INC.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04 259 1416
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
102 CHRISTIAN LANE, WHATELY, MASSACHUSETTS 01093
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(Address of principal executive office and zip code)
(413) 665-8306
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $ 0.01 par value New York Stock Exchange, Inc.
(Title of class) (Name of each exchange where registered)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The registrant had 54,513,961 shares of Common Stock, par value $.01,
outstanding as of May 4, 2000.
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THE YANKEE CANDLE COMPANY, INC.
FORM 10-Q - Quarter Ended April 1, 2000
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements. Any statements contained herein, including without limitation
statements to the effect that The Yankee Candle Company, Inc. (the "Company")
and its subsidiaries 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 Exhibit 99,
"Forward-Looking Information".
<TABLE>
<CAPTION>
Index
ITEM PAGE
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<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
as of April 1, 2000 and January 1, 2000
Condensed Consolidated Statements of Operations 4
for the Thirteen Weeks Ended April 1, 2000 and April 3, 1999
Condensed Consolidated Statements of Cash Flows for the 5
Thirteen weeks ended April 1, 2000 and April 3,1999
Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
April 1, 2000 January 1, 2000
(UNAUDITED)
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ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,201 $ 23,569
Accounts receivable, less allowance
of $325 at April 1, 2000 and April 3, 1999 16,211 13,311
Inventory 33,667 21,994
Prepaid expenses and other current assets 4,481 3,176
Deferred tax assets 1,852 1,852
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Total current assets 62,412 63,902
Property, Plant And Equipment (Net) 73,548 65,217
Marketable Securities 994 816
Classic Vehicles 874 874
Deferred Financing Costs 4,790 5,093
Deferred Tax Assets 150,249 150,249
Other Assets 294 323
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Total Assets $ 293,161 $ 286,474
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 17,618 $ 14,662
Accrued interest 3,011 3,186
Accrued payroll 5,222 6,508
Accrued income taxes -- 5,635
Other accrued liabilities 3,713 5,611
Long-term debt, current portion 30,000 30,000
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Total current liabilities 59,564 65,602
Deferred Compensation Obligation 1,025 927
Long-Term Debt - less current portion 164,056 157,568
Deferred Rent 1,127 942
Stockholders' Equity
Common Stock 1,041 1,041
Additional paid-in capital 224,483 224,483
Treasury stock (212,988) (212,988)
Retained earnings 55,970 50,181
Unearned stock compensation (1,084) (1,235)
Accumulated other comprehensive loss (33) (47)
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Total stockholders' equity 67,389 61,435
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Total Liabilities And Stockholders Equity $ 293,161 $ 286,474
========= =========
</TABLE>
See notes to Condensed Consolidated Financial Statements
3
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 1, April 3,
2000 1999
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Net sales $ 62,531 $ 46,590
Cost of goods sold 28,121 20,804
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Gross profit 34,410 25,786
Selling expenses 13,143 8,509
General and administrative expenses 7,786 6,213
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Income from operations 13,481 11,064
Interest income (67) (290)
Interest expense 3,845 5,768
Other (income) expense 54 (44)
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Income before provision
for income taxes 9,649 5,630
Provision for income taxes 3,859 2,252
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Net income $ 5,790 $ 3,378
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Basic earnings per share $ 0.11 $ 0.07
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Diluted earnings per share $ 0.11 $ 0.07
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Weighted average basic shares outstanding 52,900 46,821
Weighted average diluted shares outstanding 54,622 48,826
See notes to Condensed Consolidated Financial Statements
4
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
April 1, April 3,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,790 $ 3,378
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,174 1,305
Unrealized gain on marketable equity securities (30) (45)
Non-cash stock compensation 152 282
Loss on disposal of fixed assets and classic vehicles 2 8
Changes in assets and liabilities
Accounts receivable-net (2,921) (1,777)
Inventory (11,720) (7,279)
Prepaid expenses and other assets (1,280) (607)
Accounts payable 2,954 46
Accrued expenses and other liabilities (8,899) 6,034
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Net cash provided by (used in) operating activities (13,778) 1,345
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,211) (4,242)
Proceeds from sale of property and equipment -- 26
Purchase of marketable equity securities (148) (127)
Proceeds from sale of marketable equity securities -- 410
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Net cash used in investing activities (10,359) (3,933)
CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts paid for capital redemption (540)
Proceeds from long term borrowings 14,172
Principal payments on long-term debt and capital
lease obligations (7,500)
Proceeds from repayment of capital subscription receivable 269
Net cash provided by (used in) financing activities 6,672 (271)
EFFECT OF EXCHANGE RATE ON CASH 97 8
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NET DECREASE IN CASH AND CASH EQUIVALENTS (17,368) (2,851)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 23,569 30,411
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,201 $ 27,560
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,019 $ 258
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Income taxes $ 10,698 $ 618
======== ========
</TABLE>
See notes to Condensed Consolidated Financial Statements
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of The Yankee
Candle Company, Inc. (the "Company") and its subsidiaries have been prepared in
accordance with generally accepted accounting principles. The financial
information included herein is unaudited; however, in the opinion of management
such information contains all adjustments necessary for a fair presentation of
the results for such periods. In addition, the Company believes such information
reflects all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position and results of operations for such
periods. All intercompany transactions and balances have been eliminated. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full fiscal year ending December 30, 2000.
Certain information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission, although
the Company believes the disclosure is adequate to make the information
presented not misleading. The accompanying unaudited condensed financial
statements should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended January 1, 2000.
2. INVENTORIES
Inventory quantities are substantiated through the completion of quarter end
physical inventory counts. Inventories are stated at the lower of cost or market
on a last-in first-out ("LIFO") basis.
The components of inventory were as follows:
April 1, January 1,
2000 2000
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Finished Goods $29,308 $17,579
Work in process 208 196
Raw materials 4,151 4,219
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Total Inventory $33,667 $21,994
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3. INCOME TAXES
The Company's effective tax rate in the first quarter of fiscal 2000 and fiscal
1999 was 40%. The Company provides for income taxes at the end of each interim
period based on the estimated effective tax rate for a full fiscal year.
4. EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of earnings per share
("EPS") on a basic and diluted basis. The computation of basic earnings per
share is based on the weighted average number of common shares outstanding
during the period. The computation of diluted earnings per share includes the
dilutive effect of common stock equivalents consisting of certain shares subject
to stock options. The Company's granting of certain stock options resulted in
the potential dilution of basic EPS. The following summarizes the effects of the
assumed issuance of dilutive securities on weighted-average shares.
Thirteen Thirteen
Weeks Ended Weeks Ended
April 1, April 3,
2000 1999
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Weighted average basic shares outstanding 52,900 46,821
Contingently returnable shares and shares issuable
pursuant to stock option grants 1,722 2005
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Weighted average diluted shares outstanding 54,622 48,826
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6
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5. COMPREHENSIVE INCOME
Comprehensive income includes all changes in equity during the period. 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, is as follows (in thousands):
Thirteen Thirteen
Weeks Ended Weeks Ended
April 1, April 3,
2000 1999
----------- -----------
Net income $5,790 $3,378
Translation adjustment 14 (112)
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Total comprehensive income $5,804 $3,266
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6. SEGMENT 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.
<TABLE>
<CAPTION>
Balance per
Thirteen Weeks Unallocated/ Condensed
Ended Corporate/ Consolidated
APRIL 1, 2000 RETAIL WHOLESALE OTHER FINANCIAL STATEMENTS
- -------------- ------- --------- ------------ --------------------
<S> <C> <C> <C> <C>
Net sales $24,717 $37,814 $ -- $62,531
Operating margin 4,977 16,290 (7,786) 13,481
Unallocated costs -- -- (3,832) (3,832)
Earning before taxes -- -- -- 9,649
Balance per
Thirteen Weeks Unallocated/ Condensed
Ended Corporate/ Consolidated
APRIL 3, 1999 RETAIL WHOLESALE OTHER FINANCIAL STATEMENTS
- -------------------- ------- --------- ------------ --------------------
Net sales $17,027 $29,563 $ -- $46,590
Operating margin 4,481 12,796 (6,213) 11,064
Unallocated costs -- -- (5,434) (5,434)
Earning before taxes -- -- -- $5,630
</TABLE>
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - Thirteen weeks ended April 1, 2000 versus thirteen weeks
ended April 3, 1999.
NET SALES
Net sales increased 34.1% to $62.5 million for the thirteen weeks ended April 1,
2000 from $46.6 million for the thirteen weeks ended April 3, 1999. This growth
was achieved by increasing the number of retail stores, increasing sales in
existing retail stores and mail-order operations, and increasing sales to
wholesale customers.
Wholesale sales increased 27.7% to $37.8 million for the thirteen weeks ended
April 1, 2000 from $29.6 million for the thirteen weeks ended April 3, 1999.
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 45.3% to $24.7 million for the thirteen weeks ended April
1, 2000 from $17.0 million for the thirteen weeks ended April 3, 1999. This
growth was achieved by increasing the number of retail stores and increasing
sales in existing retail stores and mail-order operations. There were 116 retail
stores open as of April 1, 2000 compared to 67 retail stores open as of April 3,
1999 and 102 retail stores open as of January 1, 2000. Comparable store and
mail-order hub sales for the thirteen weeks ended April 1, 2000 increased 14%
over the thirteen weeks ended April 3, 1999. Retail comparable store sales
increased 11%. There were 64 retail stores included in the comparable store base
as of April 1, 2000.
GROSS PROFIT
Gross profit increased 33.3% to $34.4 million for the thirteen weeks ended April
1, 2000 from $25.8 million for the thirteen weeks ended April 3, 1999. This
increase was almost entirely attributable to the increase in sales. As a
percentage of sales, gross profit decreased slightly to 55.0% for the thirteen
weeks ended April 1, 2000 from 55.4% for the thirteen weeks ended April 3, 1999.
The decrease in the gross profit rate for the quarter was entirely attributable
to distribution expense. The Company's Salt Lake City distribution center, fully
operational during the thirteen weeks ended April 1, 2000, did not exist in the
same quarter last year.
SELLING EXPENSES
Selling expenses increased 54.1% to $13.1 million for the thirteen weeks ended
April 1, 2000 from $8.5 million for the thirteen weeks ended April 3, 1999.
These expenses are related to both wholesale and retail operations and consist
of payroll, occupancy, advertising and other operating costs. As a percentage of
sales, selling expenses increased to 21.0% for the thirteen weeks ended April 1,
2000 from 18.2% for the thirteen weeks ended April 3, 1999. The increase in
selling expense in dollars and as a percentage of sales for the quarter was
primarily related to the continued growth in the number of retail stores, from
67 as of April 3, 1999 to 116 as of April 1, 2000. Retail sales, which have
higher selling expenses as a percent of sales than wholesale sales, represented
39.5% of total sales in the thirteen weeks ended April 1, 2000 compared to 36.5%
in the same quarter last year.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which consist primarily of
personnel-related costs incurred in the administration of support functions,
increased 25.8% to $7.8 million for the thirteen weeks ended April 1, 2000 from
$6.2 million for the thirteen weeks ended April 3, 1999. As a percentage of
sales, general and administrative expenses decreased to 12.5% for the thirteen
weeks ended April 1, 2000 from 13.3% for the thirteen weeks ended April 3, 1999.
The decrease in general and administrative expenses as a percentage of sales for
the thirteen weeks ended April 1, 2000 was attributable to the Company's
leveraging of such costs over a larger sales base.
OPERATING MARGINS
Operating margins for the wholesale segment, including Europe, were $16.3
million or 43.1% of wholesale sales for the thirteen weeks ended April 1, 2000
compared to $12.8 million or 43.2% of wholesale sales for the thirteen weeks
ended April 3, 1999. The increase in wholesale operating margin dollars for the
quarter was attributable to the increase in sales. The wholesale operating
margin decline as a percentage of sales was attributable to higher distribution
expenses related to the Company's Salt Lake City distribution center and higher
selling expenses as a percentage of sales in its start-up European operation
compared to domestic wholesale selling expense. These percentage increases were
substantially offset by a decline in wholesale selling expenses as a percent of
wholesale sales due to leveraging of such costs over a larger sales base.
8
<PAGE> 9
Operating margins for the Company's retail segment were $5.0 million or 20.2% of
retail sales for the thirteen weeks ended April 1, 2000 compared to $4.5 million
or 26.5% of retail sales for the thirteen weeks ended April 3, 1999. The
decrease in retail operating margin as a percentage of sales for the quarter was
attributable to the heavy weighting of young stores. The Company opened 40
stores in 1999 and 14 in the thirteen weeks ended April 1, 2000. 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 percent of sales,
are higher during the early sales maturation period. The operating margin rate
decrease is also attributable to preopening expenses associated with the 14
stores opened in the first quarter of 2000 compared to 5 in the same period last
year. Preopening costs are expensed as incurred.
NET OTHER INCOME (EXPENSE)
Net other expense was $3.8 million for the thirteen weeks ended April 1, 2000,
1999 compared to $5.4 million for the thirteen weeks ended April 3, 1999. The
primary component of the expense in each of these periods was interest expense,
which was $3.8 million in the first quarter of 2000 compared to $5.8 million in
the first quarter of 1999. Interest expense in the thirteen weeks ended April 1,
2000 was down compared to the thirteen weeks ended April 3, 1999 due to a
decrease in total borrowings by the Company. Proceeds from the Company's July 1,
1999 initial public offering together with available cash and $220.0 million of
bank borrowings under a new credit facility were used to redeem $320.0 million
subordinated debentures on July 7, 1999, thereby reducing debt by approximately
$100 million. Interest expense declined subsequent to July 7, 1999 as a result
of the debt reduction.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for both the thirteen week periods ended April
1, 2000 and April 3, 1999 was 40%. Management estimates that such rates will
remain in place for the entire year based on its current tax structure.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $17.4 million compared to January 1,
2000. This decrease was partially attributable to cash used in operating
activities of $13.8 million, which includes a $9.0 million reduction in accrued
expenses due mainly to payment during the quarter of 1999 corporate income
taxes, and a seasonal increase in inventories of $11.7 million. Capital
expenditures for the thirteen week period ended April 1, 2000 were $10.2
million, primarily related to the capital requirements to open 14 new stores and
investments in manufacturing equipment to meet increased production
requirements. Net cash provided by financing activities was $6.7 million in the
thirteen weeks ended April 1, 2000 which represents net borrowings during the
quarter on the Company's credit facility.
The Company opened 14 stores during the thirteen weeks ended April 1, 2000 and
expects to open approximately 26 additional stores in the next three quarters of
fiscal 2000. Management estimates that the Company's cash requirements,
including preopening expenses, leasehold improvements and fixtures, will be
approximately $250,000 for each new store. Accordingly, the Company expects to
use approximately of $6.5 million for store openings during the last three
quarters of fiscal 2000. In addition, the Company plans to continue to make
investments in manufacturing equipment, information systems, distribution
centers and store remodels to improve operational efficiencies and customer
service. The Company expects to meet these cash requirements through a
combination of available cash and operating cash flow.
As of April 1, 2000 the Company was in compliance with all covenants under its
credit facility. Available borrowings under the facility were $91.0 million.
The Company expects that its current cash and cash equivalents and funds
available under its revolving credit and term loan facility will be sufficient
to fund its planned store openings and other recurring operational cash needs
for 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 material and labor costs are not
materially affected by inflation.
9
<PAGE> 10
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks relate primarily to changes in interest rates. The
Company bears this risk in two specific ways. First, it has debt outstanding. At
April 1, 2000 there was $194.0 million of debt outstanding, which consisted of
$135.0 million in term loans and $59.0 million from its revolving credit
facility. Because this debt carries a variable interest rate pegged to market
indices, the Company's statements of operations and cash flows are exposed to
changes in interest rates.
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 average balance in such securities
was approximately $5.8 million during the thirteen weeks ended April 1, 2000.
Earnings from these cash equivalents totaled $67,000 for the thirteen weeks
ended April 1, 2000.
The Company buys a variety of raw materials for inclusion in its products. The
only raw material that it considers 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 moved with inflation.
At this point in time, the Company's operations outside of the United States are
immaterial. Accordingly, it is not exposed to substantial risks arising from
foreign currency exchange rates.
FORWARD-LOOKING INFORMATION
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.
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.
10
<PAGE> 11
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.
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.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE YANKEE CANDLE COMPANY, INC.
/s/ Robert R. Spellman
-------------------------------
Date: May 15, 2000 By: Robert R. Spellman
------------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Yankee
Candle Company, Inc. Unaudited Condensed Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 6,201
<SECURITIES> 0
<RECEIVABLES> 16,536
<ALLOWANCES> 325
<INVENTORY> 33,667
<CURRENT-ASSETS> 62,412
<PP&E> 94,591
<DEPRECIATION> 21,043
<TOTAL-ASSETS> 293,161
<CURRENT-LIABILITIES> 59,564
<BONDS> 0
0
0
<COMMON> 1,041
<OTHER-SE> 66,348
<TOTAL-LIABILITY-AND-EQUITY> 293,161
<SALES> 62,531
<TOTAL-REVENUES> 62,531
<CGS> 28,121
<TOTAL-COSTS> 28,121
<OTHER-EXPENSES> 20,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,845
<INCOME-PRETAX> 9,649
<INCOME-TAX> 3,859
<INCOME-CONTINUING> 5,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,790
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
