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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q   For the quarterly period ended: April 3, 2004 Commission File Number: 001-15023 THE YANKEE CANDLE COMPANY, INC. 
  MASSACHUSETTS
    
    04 259 1416(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 16 YANKEE CANDLE WAY
SOUTH DEERFIELD, MASSACHUSETTS 01373
(Address of principal executive office and zip code) (413) 665-8306
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x No o The registrant had 49,707,226 shares of Common Stock, par value $0.01,
outstanding as of May 11, 2004.




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THE YANKEE CANDLE COMPANY, INC. FORM 10-Q  Quarter Ended April 3, 2004 This Quarterly Report on Form 10-Q contains a number of forward-looking
statements. Any statements contained herein, including without limitation
statements to the effect that The Yankee Candle Company, Inc. and its
subsidiaries (Yankee Candle, the Company, we, and us) or its management
believes, expects, anticipates, plans and similar expressions, that
relate to prospective events or developments should be considered
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date the
statement was made. There are a number of important factors that could cause
its actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those
set forth below in Managements Discussion and Analysis of Financial Condition
and Results of Operations - Future Operating Results. Management undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. Table of Contents  
 PageItemPART I.
    
    Financial InformationItem 1.
    
    Financial Statements-UnauditedCondensed Consolidated Balance Sheets as of April 3, 2004 and January 3, 2004
    
    
    3Condensed Consolidated Statements of Income for the Thirteen weeks ended April 3, 2004 and March 29, 2003
    
    
    4Condensed Consolidated Statements of Cash Flows for the Thirteen weeks ended April 3, 2004 and March 29, 2003
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4.
    
    Controls and Procedures
    
    
    16PART II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    17Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    17Item 3.
    
    Defaults Upon Senior Securities
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17Item 5.
    
    Other Information
    
    
    17Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    17Signatures
    
    
    
    
    18Ex-31.1 Section 302 CEO CertificationEx-31.2 Section 302 CFO CertificationEx-32.1 Section 906 CEO CertificationEx-32.2 Section 906 CFO Certification
 2




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PART I. Financial Information 
 Item 1. Condensed Consolidated Financial Statements THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES 
 
 April 3,
    
    January 3,2004
    
    2004(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    15,689
    
    
    $
    40,730Accounts receivable, net
    
    
    29,517
    
    
    
    24,251Inventory
    
    
    50,481
    
    
    
    42,186Prepaid expenses and other current assets
    
    
    8,384
    
    
    
    6,608Deferred tax assets
    
    
    3,128
    
    
    
    3,128TOTAL CURRENT ASSETS
    
    
    107,199
    
    
    
    116,903PROPERTY, PLANT AND EQUIPMENT-NET
    
    
    112,984
    
    
    
    114,774MARKETABLE SECURITIES
    
    
    1,954
    
    
    
    1,604DEFERRED FINANCING COSTS
    
    
    359
    
    
    
    588DEFERRED TAX ASSETS
    
    
    96,995
    
    
    
    100,346OTHER ASSETS
    
    
    468
    
    
    
    466TOTAL ASSETS
    
    $
    319,959
    
    
    $
    334,681LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    18,092
    
    
    $
    23,527Accrued payroll
    
    
    9,317
    
    
    
    13,348Accrued income taxes
    
    
    5,329
    
    
    
    22,025Other accrued liabilities
    
    
    10,270
    
    
    
    15,168Short-term debt
    
    
    90,500
    
    
    
    65,000TOTAL CURRENT LIABILITIES
    
    
    133,508
    
    
    
    139,068DEFERRED COMPENSATION OBLIGATION
    
    
    1,754
    
    
    
    1,525DEFERRED RENT
    
    
    4,496
    
    
    
    3,815STOCKHOLDERS EQUITY:Common stock
    
    
    1,046
    
    
    
    1,044Additional paid-in capital
    
    
    229,410
    
    
    
    227,145Treasury stock
    
    
    (336,726
    )
    
    
    (313,880
    )Retained earnings
    
    
    286,283
    
    
    
    275,790Accumulated other comprehensive income
    
    
    188
    
    
    
    174TOTAL STOCKHOLDERS EQUITY
    
    
    180,201
    
    
    
    190,273TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    319,959
    
    
    $
    334,681
 See notes to Condensed Consolidated Financial Statements 3




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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES 
 
 For the Thirteen Weeks EndedApril 3,
    
    March 29,2004
    
    2003Sales
    
    $
    106,519
    
    
    $
    97,052Cost of sales
    
    
    47,372
    
    
    
    44,078Gross profit
    
    
    59,147
    
    
    
    52,974Selling expenses
    
    
    27,852
    
    
    
    24,700General and administrative expenses
    
    
    13,240
    
    
    
    12,448Income from operations
    
    
    18,055
    
    
    
    15,826Interest income
    
    
    (5
    )
    
    
    (3
    )Interest expense
    
    
    809
    
    
    
    786Other (income) expense
    
    
    (92
    )
    
    
    126Income before provision for income taxes
    
    
    17,343
    
    
    
    14,917Provision for income taxes
    
    
    6,850
    
    
    
    5,892Net income
    
    $
    10,493
    
    
    $
    9,025Basic earnings per share
    
    $
    0.21
    
    
    $
    0.17Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.17Weighted average shares:Basic
    
    
    50,281
    
    
    
    54,193Diluted
    
    
    50,692
    
    
    
    54,568
 See notes to Condensed Consolidated Financial Statements 4




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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES 
 
 For the Thirteen Weeks EndedApril 3,
    
    March 29,2004
    
    2003CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:Net income
    
    $
    10,493
    
    
    $
    9,025Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    5,107
    
    
    
    4,475Unrealized (gain) loss on marketable securities
    
    
    (53
    )
    
    
    29Stock-based compensation expense
    
    
    283
    
    
    
    22Deferred taxes
    
    
    3,350
    
    
    
    3,000Loss on disposal of fixed assets and classic vehicles
    
    
    8
    
    
    
    114Changes in assets and liabilities:Accounts receivable, net
    
    
    (5,188
    )
    
    
    (2,792
    )Inventory
    
    
    (8,217
    )
    
    
    (7,405
    )Prepaid expenses and other assets
    
    
    (1,857
    )
    
    
    (277
    )Accounts payable
    
    
    (5,440
    )
    
    
    (2,321
    )Accrued expenses and other liabilities
    
    
    (24,722
    )
    
    
    (24,085
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (26,236
    )
    
    
    (20,215
    )CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (3,000
    )
    
    
    (3,392
    )Investments in marketable securities
    
    
    (296
    )
    
    
    (207
    )Proceeds from sale of property and equipment
    
    
    6
    
    
    
    33NET CASH USED IN INVESTING ACTIVITIES
    
    
    (3,290
    )
    
    
    (3,566
    )CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:Net borrowings (repayments) under bank credit agreements and other
    
    
    34,830
    
    
    
    (6,500
    )Payments for redemption of common stock
    
    
    (22,846
    )
    
    
    Principal payments on long-term debt
    
    
    (9,500
    )
    
    
    (8,000
    )Net proceeds from issuance of common stock
    
    
    1,984
    
    
    
    74NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    4,468
    
    
    
    (14,426
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    17
    
    
    
    (19
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (25,041
    )
    
    
    (38,226
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    40,730
    
    
    
    43,689CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    15,689
    
    
    $
    5,463SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for:Interest
    
    $
    242
    
    
    $
    422Income taxes
    
    $
    20,070
    
    
    $
    20,457Purchase of equipment by assumption of capital lease
    
    $
    
    
    
    $
    71
 See notes to Condensed Consolidated Financial Statements 5




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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES 
 
 1. BASIS OF PRESENTATION The unaudited interim condensed consolidated financial statements of The Yankee
Candle Company, Inc. and its subsidiaries (the Company) have been prepared in
accordance with accounting principles generally accepted in the United States
of America (generally accepted accounting principles). The financial
information included herein is unaudited; however, in the opinion of management
such information reflects all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of financial position, results of
operations, cash flows and comprehensive income for such periods. All
intercompany transactions and balances have been eliminated. The results of
operations for the interim period are not necessarily indicative of the results
to be expected for the full fiscal years. Certain information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted as permitted
by the rules and regulations of the Securities and Exchange Commission. The
accompanying unaudited condensed financial statements should be read in
conjunction with the audited consolidated financial statements of the Company
for the year ended January 3, 2004 included in the Companys Annual Report on
Form 10-K. 2. INVENTORIES The components of inventory were as follows: April 3,
    
    January 3,2004
    
    2004Finished goods
    
    $
    44,007
    
    
    $
    37,537Work-in-process
    
    
    534
    
    
    
    975Raw materials and packaging
    
    
    6,753
    
    
    
    4,48751,294
    
    
    
    42,999Less LIFO adjustment
    
    
    (813
    )
    
    
    (813
    )$
    50,481
    
    
    $
    42,186
 3. INCOME TAXES The Companys effective tax rate in the first quarter of fiscal 2004 and 2003
was 39.5%. The Company has provided and expects to continue to provide in 2004
a valuation allowance against the deferred tax asset for its international
operations. As a result, it is anticipated that the effective tax rate for
2004 will be approximately 39.5%. Management re-evaluates the Companys
effective tax rate on a quarterly basis. 6




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4. 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 outstanding (the denominator) for the period.
The computation of diluted earnings per share is similar to basic earnings per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued. The denominator in the calculation is
based on the following weighted-average number of common shares: For the Thirteen Weeks EndedApril 3, 2004
    
    March 29, 2003Basic
    
    
    50,281
    
    
    
    54,193Add:Shares issuable pursuant to stock
option grants
    
    
    411
    
    
    
    375Diluted
    
    
    50,692
    
    
    
    54,568
 At April 3, 2004 and March 29, 2003 approximately 34 and 565 shares,
respectively, issuable pursuant to option grants were excluded from the
computation of diluted earnings per share due to the anti-dilutive effect. 5. STOCK BASED COMPENSATION The Company sponsors stock option plans. Prior to the third quarter of fiscal
2003, the Company accounted for employee options or share awards under the
intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25
Accounting for Stock Issued to Employees. Compensation expense, if any, was
recognized based on the difference between the fair value of the common stock
and the exercise price of the option on the measurement date, as defined by
Opinion No. 25. Pro forma disclosures of net earnings and earnings per share
had been provided supplementally, as if the fair value method of accounting
defined in SFAS No. 123 Accounting for Stock Based Compensation had been
applied. Effective in the third quarter of fiscal 2003, the Company adopted
the fair value recognition provisions of SFAS No. 123 using the prospective
transition method provided by SFAS No. 148 Accounting for Stock Based
Compensation-Transition and Disclosure, an amendment of SFAS No. 123. Under
the prospective transition method, the Company has valued all stock option
grants beginning with grants made in fiscal 2003. These are being expensed
over the vesting period based on the fair value at the date of the grant. The
adoption of the fair value method of accounting for stock-based compensation
resulted in a charge of $283 for the first quarter ended April 3, 2004. Awards under the Companys option plan vest, in general, over a four year
period. Therefore, the cost related to stock-based employee compensation
included in the determination of net income for all periods presented in the
Companys historical consolidated Statements of Income is less than that which
would have been recognized if the fair value based method had been applied to
all awards since the original effective date of SFAS No. 123. 7




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The following table illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all outstanding and unvested
awards in each period. For the Thirteen Weeks EndedApril 3, 2004
    
    March 29, 2003Net income, as reported
    
    $
    10,493
    
    
    $
    9,025Add: Stock compensation recorded under
Opinion No. 25
    
    
    
    
    
    
    22Deduct: Total stock based employee
compensation expense determined under
fair value based method for awards
granted prior to 2003, net of related
tax effects
    
    
    (282
    )
    
    
    (364
    )Pro forma net income
    
    $
    10,211
    
    
    $
    8,683Earnings per share:Basic-as reported
    
    $
    0.21
    
    
    $
    0.17Basic-pro forma
    
    $
    0.20
    
    
    $
    0.16Weighted average basic shares outstanding
    
    
    50,281
    
    
    
    54,193Diluted-as reported
    
    $
    0.21
    
    
    $
    0.17Diluted-pro forma
    
    $
    0.20
    
    
    $
    0.16Weighted average diluted shares
outstanding
    
    
    50,692
    
    
    
    54,568
 The following weighted-average assumptions were used to compute the pro forma
results of operations for fiscal 2004 and 2003 and the stock option expense
that was recorded in the Condensed Consolidated Statements of Income in the
first quarter of fiscal 2004: 2004
    
    2003Volatility
    
    
    27
    %
    
    
    44
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    2.85
    %
    
    
    2.85
    %Expected lives
    
    4 years
    
    4 years
 6. STOCK REPURCHASE PROGRAM On February 18, 2004 the Company announced that its Board of Directors had
approved a stock repurchase program authorizing the Company to repurchase up to
$100.0 million of Yankee Candle common stock. During the fiscal 2004 first
quarter the Company repurchased a total of 806,100 shares of common stock for
an aggregate purchase price of $22.8 million. 8




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7. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION The Company has segmented its operations in a manner that reflects how its
chief operating decision-maker (the CEO) currently reviews the results of the
Company and its subsidiaries businesses. The Company has two reportable
segments - retail and wholesale. The identification of these segments results
from managements recognition that while the product sold is similar, the type
of customer for the product and services and methods used to distribute the
product are different. Balance perUnallocated/
    
    ConsolidatedCorporate/
    
    Statements ofRetail
    
    Wholesale
    
    Other
    
    IncomeThirteen weeks ended April 3, 2004Sales
    
    $
    45,904
    
    
    $
    60,615
    
    
    $
    
    
    
    $
    106,519Gross Profit
    
    
    30,581
    
    
    
    28,566
    
    
    
    
    
    
    
    59,147Operating Margin
    
    
    6,010
    
    
    
    25,285
    
    
    
    (13,240
    )
    
    
    18,055Other expense
    
    
    
    
    
    
    
    
    
    
    (712
    )
    
    
    (712
    )Income before provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,343Thirteen weeks ended March 29, 2003Sales
    
    $
    44,016
    
    
    $
    53,036
    
    
    $
    
    
    
    $
    97,052Gross Profit
    
    
    28,498
    
    
    
    24,476
    
    
    
    
    
    
    
    52,974Operating Margin
    
    
    6,304
    
    
    
    21,970
    
    
    
    (12,448
    )
    
    
    15,826Other expense
    
    
    
    
    
    
    
    
    
    
    (909
    )
    
    
    (909
    )Income before provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,917
 8. RESTRUCTURING RESERVE A restructuring charge for $8.0 million was recorded in fiscal 2001 to record
costs associated with the Companys decision to consolidate and restructure its
distribution and manufacturing operations. The Company closed its Utah
distribution facility and restructured its distribution and manufacturing
work-force during 2001. Included in the restructuring charge were severance
and other employee related costs, $2,124 of a non-cash write-down of
non-recoverable leasehold improvements, fixture and equipment investments and
estimated continuing occupancy expenses for abandoned facilities, net of
anticipated sub-lease income. As a result of this consolidation and
restructuring, the Company terminated approximately 450 manufacturing and
logistics employees. An analysis of the activity within the remaining
restructuring reserve is as follows at April 3, 2004: Accrued as of
    
    
    
    
    
    Accrued as ofJanuary 3, 2004
    
    Costs paid
    
    April 3, 2004Occupancy
    
    $
    796
    
    
    $
    60
    
    
    $
    736
 During the second quarter of fiscal 2002, the Company was successful in
subletting the facility for the remaining lease term. The sublet income does
not fully offset the Companys lease obligations, therefore the initial
occupancy reserve remained unchanged after this sublet. 9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES AND ESTIMATES Managements Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to
inventories, restructuring costs, bad debts, intangible assets, income taxes,
debt service and contingencies and litigation. Management bases its estimates
and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about operating results and the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. Management believes the following critical accounting policies,
among others, involve its more significant estimates and judgments and are
therefore particularly important to an understanding of our results of
operations and financial position. Revenue/receivables We sell our products both directly to retail customers and through wholesale
channels. Revenue from the sale of merchandise to retail customers is
recognized at the time of sale, while revenue from wholesale customers is
recognized when risk of loss has passed to the customers. We believe that this
is the time that persuasive evidence of an agreement exists, delivery has
occurred, the price is fixed and determinable and collectability is reasonably
assured. Revenue is recognized net of any applicable discounts and allowances.
Customers, be they retail or wholesale, do have the right to return product to
us in certain limited situations. Such rights of return have not precluded
revenue recognition because we have a long history with such returns, which we
use in constructing a reserve. This reserve, however, is subject to change.
In addition to returns, we bear credit risk relative to our wholesale
customers. We have provided a reserve for bad debts in our financial
statements based on our estimates of the creditworthiness of our customers.
However, this reserve is also subject to change. Changes in these reserves
could affect our operating results. Inventory We write down our inventory for estimated obsolescence or unmarketable
inventory in an amount equal to the difference between the cost of inventory
and the estimated market value, based upon assumptions about future demand and
market conditions. If actual future demand or market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required. In addition, our inventory is stated at the lower of cost or
market on a last-in first-out (LIFO) basis. Fluctuations in inventory levels
along with the cost of raw materials could impact the carrying value of our
inventory. Changes in the carrying value of inventory could affect our
operating results. Taxes We have a significant deferred tax asset recorded on our financial statements.
This asset arose at the time of our recapitalization in 1998 and is a future
tax benefit for us. The realization of this future tax benefit is dependent
upon our future profitability. We have made an assessment that this asset is
likely to be recovered and is appropriately reflected on the balance sheet.
Should we find that we are not able to utilize this benefit in the future, we
would have to record a reserve for all or a part of this asset, which would
adversely affect our operating results and cash flows. Restructuring reserve In fiscal 2001, we closed our distribution facility in Utah, recorded a
restructuring charge and established a reserve for future expenses related to
the restructuring. Part of the restructuring charge related to the lease
commitment that we have through 2005. In connection with the restructuring, we
did not record the entire lease commitment as a liability because we believed
we would be able to sublet the facility. During the second quarter of fiscal
2002, we were successful in subletting the facility for the remaining lease
term. If the facility were to be vacated by the current tenant in breach of
its sublease, this would negatively affect our results of operations and cash
flows. 10




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Value of long-lived assets, including intangibles Long-lived assets on our balance sheet consist primarily of property, plant and
equipment and trademarks. We periodically review the carrying value of all of
these assets based, in part, upon our projections of anticipated undiscounted
future cash flows. We undertake this review when facts and circumstances
suggest that cash flows emanating from those assets may be diminished. Any
impairment charge that we record reduces our earnings. While we believe that
our future estimates are reasonable, different assumptions regarding items such
as future cash flows and the volatility inherent in markets which we serve
could affect our evaluations and result in impairment charges against the
carrying value of those assets. Stock based compensation Effective in 2003, we adopted the fair value recognition provisions of SFAS No.
123 Accounting for Stock Based Compensation. Under the prospective
transition method selected by us, as described in SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No.
123, all stock option grants beginning with grants made in fiscal 2003 are
being expensed over the vesting period, based on the fair value at the date of
the grant. Fair value is determined based on a variety of factors, all of
which are estimates subject to judgment. Changes in estimated lives of
options, risk free interest rates or exercise patterns could impact our results
of operations. We recorded a charge of approximately $0.3 million for the
thirteen weeks ended April 3, 2004. Self-insurance We are self-insured for
certain losses related to health insurance, although we maintain
stop-loss coverage with third-party insurers to limit our liability
exposure. Liabilities associated with these losses are estimated in
part by considering historical claims experience, industry factors,
severity factors and other actuarial assumptions. PERFORMANCE MEASURES We measure the performance of our retail and wholesale segments through a
segment margin calculation, which specifically identifies not only gross profit
on the sales of products through the two channels but also costs and expenses
specifically related to each segment. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS We have experienced, and may experience in the future, fluctuations in our
quarterly operating results. There are numerous factors that can contribute to
these fluctuations; however, the principal factors are seasonality and new
store openings. Seasonality.We have historically realized higher revenues and operating
income in our fourth quarter, particularly in our retail business. We believe
that this has been due primarily to the increase in the number of our retail
stores and to increased sales in the giftware industry during the holiday
season of the fourth quarter. New Store Openings.The timing of our new store openings may also have an
impact on our quarterly results. First, we incur certain one-time expenses
related to opening each new store. These expenses, which consist primarily of
salaries, supplies and marketing costs, are expensed as incurred. Second, most
store expenses vary proportionately with sales, but there is a fixed cost
component. This typically results in lower store profitability when a new
store opens because new stores generally have lower sales than mature stores.
Due to both of these factors, during periods when new store openings as a
percentage of the base are higher, operating profit may decline in dollars
and/or as a percentage of sales. As the overall store base matures, the fixed
cost component of selling expenses is spread over an increased level of sales,
assuming sales increase as stores age, resulting in a decrease in selling and
other expenses as a percentage of sales. RESULTS OF OPERATIONS  Thirteen weeks ended April 3, 2004 versus thirteen
weeks ended March 29, 2003 SALES Sales increased 9.8% to $106.5 million for the thirteen weeks ended April 3,
2004 from $97.0 million for the thirteen weeks ended March 29, 2003. Wholesale
sales, including European operations, increased 14.3% to $60.6 million for the
thirteen weeks ended April 3, 2004 from $53.0 million for the thirteen weeks
ended March 29, 2003. This growth was achieved primarily by increasing sales
to existing customers and to a lesser extent by increasing the number of
wholesale locations. Retail sales increased 4.3% to $45.9 million for the thirteen weeks ended April
3, 2004 from $44.0 million for the thirteen weeks ended March 29, 2003. The
increase in retail sales was due primarily to increased sales attributable to
the 49 stores opened in 2003 (which in 2003 were open for less than a full
year), and to a lesser extent to the addition of fourteen new stores in the
first quarter of 2004. These factors were partially offset by a decrease in
retail comparable store sales. Comparable store and Catalog and Internet sales
for the thirteen weeks ended April 3, 2004 decreased 4.0% 11




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compared to the thirteen weeks ended March 29, 2003. Retail comparable store
sales for the thirteen weeks ended April 3, 2004 decreased 4.0% compared to the
thirteen weeks ended March 29, 2003. We believe the major factor
contributing to the decrease in comparable store sales was the
significant discounting of candle, candle accessory and gift products
by several of our retail competitors, primarily in the month of
January. We did not increase our discounting initiatives in response
to this activity due to the potential negative impact on our brand
and profitability. Comparable store sales represent a
comparison of the sales, during the corresponding fiscal periods of the two
fiscal years compared, of the stores included in our comparable store sales
base. A store first enters our comparable store sales base in the first fiscal
period that begins after the first full year of operation. There were 247
stores included in the comparable store base as of April 3, 2004, and 47 of
these stores were included for less than a full year. There were 300 retail
stores open as of April 3, 2004 compared to 249 retail stores open as of March
29, 2003 and 286 retail stores open as of January 3, 2004. GROSS PROFIT Gross profit increased 11.7% to $59.1 million for the thirteen weeks ended
April 3, 2004 from $53.0 million for the thirteen weeks ended March 29, 2003.
As a percentage of sales, gross profit increased to 55.5% for the thirteen
weeks ended April 3, 2004 from 54.6% for the thirteen weeks ended March 29,
2003. The increase in gross profit dollars was primarily attributable to an
increase in sales. The improvement in gross profit rate was primarily the
result of improved productivity in supply chain operations and a lower level of
discounts as a percentage of sales in our retail operations. SELLING EXPENSES Selling expenses increased 12.8% to $27.9 million for the thirteen weeks ended
April 3, 2004 from $24.7 million for the thirteen weeks ended March 29, 2003.
These expenses are related to both wholesale and retail operations and consist
of payroll, occupancy, advertising and other operating costs, as well as
pre-opening costs, which are expensed as incurred. As a percentage of sales,
selling expenses increased to 26.1% for the thirteen weeks ended April 3, 2004
from 25.5% for the thirteen weeks ended March 29, 2003. The increase in
selling expenses in dollars was primarily related to the continued growth in
the number of retail stores, from 249 as of March 29, 2003 to 300 as of April
3, 2004. The increase in selling expense as a percentage of sales for the
thirteen weeks ended April 3, 2004 is attributable to the decrease in retail
comparable store sales since the fixed components of labor and occupancy do not
decrease with negative comparable store sales. SEGMENT PROFITABILITY Segment profitability is sales less cost of goods sold and selling expenses.
Segment profitability for our wholesale operations, including Europe, was $25.3
million, or 41.7% of wholesale sales, for the thirteen weeks ended April 3,
2004 compared to $22.0 million, or 41.4% of wholesale sales, for the thirteen
weeks ended March 29, 2003. The increase in wholesale segment profitability
was primarily attributable to increased wholesale sales and increased wholesale
gross profit dollars and rate. Segment profitability for the Companys retail
operations was $6.0 million or 13.1% of retail sales for the thirteen weeks
ended April 3, 2004 compared to $6.3 million or 14.3% of retail sales for the
thirteen weeks ended March 29, 2003. The decrease in retail segment
profitability in dollars and as a percentage of sales was primarily
attributable to lower profitability in our Catalog and Internet operations,
which was planned. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, which consist primarily of
personnel-related costs incurred in support functions, increased 6.4% to $13.2
million for the thirteen weeks ended April 3, 2004 from $12.4 million for the
thirteen weeks ended March 29, 2003. As a percentage of sales, general and
administrative expenses decreased to 12.4% for the thirteen weeks ended April
3, 2004 from 12.8% for the thirteen weeks ended March 29, 2003. The increase
in general and administrative expenses was primarily attributable to labor and
stock option expense. The increase in labor dollars is due primarily to new
hires made subsequent to the first quarter of 2003. In the third quarter of 2003, we adopted the fair value recognition provisions
of SFAS No. 123. Under the prospective transition method selected by us as
described in SFAS No. 148, all stock option grants beginning with grants made
in fiscal 2003 are being expensed over the vesting period, based on the fair
value at the date of the grant. This resulted in $0.3 million of incremental
stock compensation expense in the first quarter of 2004 that was not incurred
in the first quarter of 2003. 12




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NET OTHER EXPENSE Net other expense was $0.7 million for the thirteen weeks ended April 3, 2004,
compared to $0.9 million for the thirteen weeks ended March 29, 2003. The
primary component of the expense in each of these periods was interest expense,
which was $0.8 million for both the thirteen weeks ended April 3, 2004 and
March 29, 2003. The average daily debt outstanding increased in the thirteen
weeks ended April 3, 2004 compared to the thirteen weeks ended March 29, 2003,
offset by a reduction in our borrowing rates under our existing credit
facility. PROVISION FOR INCOME TAXES The effective tax rate for the thirteen weeks ended April 3, 2004 and March 29,
2003 was 39.5%. We have provided and expect to continue to provide in 2004 a
valuation allowance against the deferred tax asset for our international
operations. As a result, it is anticipated that our effective tax rate for
2004 will be approximately 39.5%. We re-evaluate our effective tax rate on a
quarterly basis. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents as of April 3, 2004 decreased by $25.0 million
compared to January 3, 2004. This decrease was due mainly to cash used in
operating activities of $26.2 million, which includes total payments of $20.1
million of corporate income taxes for fiscal 2003 and fiscal 2004. Capital
expenditures for the thirteen weeks ended April 3, 2004 were $3.0 million,
primarily related to the capital requirements to open fourteen new stores as
well as investments in information systems and supply chain operations. Net
cash provided by financing activities was $4.5 million for the thirteen weeks
ended April 3, 2004, which represents net borrowings of $35.8 million under our
credit facility used to fund operations and repurchase common stock. On February 18, 2004, we announced that our Board of Directors had approved a
stock repurchase program authorizing us to repurchase up to $100.0 million of
Yankee Candle common stock. During the fiscal 2004 first quarter we
repurchased a total of 806,100 shares of common stock for an aggregate
purchase price of $22.8 million. We opened 14 stores during the thirteen weeks ended April 3, 2004 and we expect
to open approximately 31 additional stores during the last three quarters of
fiscal 2004. We expect to meet our cash requirements through a combination of
available cash, operating cash flow and borrowings under our credit facility. As of April 3, 2004, we were in compliance with all covenants under our credit
facility. Available borrowings under the revolving credit facility were
approximately $69.0 million. See our most recent Annual Report on Form 10-K
for a description of the credit facility. We expect that the principal sources of funding for our planned store openings
and other working capital needs, capital expenditures, debt service obligations
and stock repurchase program will be a combination of our available cash and
cash equivalents, funds generated from operations, and borrowings under our
credit facility. We believe that our current funds and sources of funds will
be sufficient to fund our liquidity needs for at least the next 12 months.
However, there are a number of factors that may negatively impact our available
sources of funds. The amount of cash generated from operations will be
dependent upon factors such as the successful execution of our business plan
and general economic conditions. In addition, borrowings under our credit
facility are dependent upon our continued compliance with the financial and
other covenants contained therein and will cease as of July 2004. Our existing credit facility
expires  on July 7, 2004. We are currently engaged in active negotiations with various commercial banks
to replace our existing credit facility with a new credit facility. We believe
that a new credit facility will be finalized and in place prior to the
expiration of our existing facility. 13




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FUTURE OPERATING RESULTS As referenced above, there are a number of factors that might cause our actual
results to differ significantly from the results reflected by the
forward-looking statements contained herein. In addition to factors generally
affecting the political, economic and competitive conditions in the United
States and abroad, such factors include those set forth below. If we fail to grow our business as planned, our business could suffer and
financial results could decline. As we grow it will be difficult to maintain
our historical growth rates. We intend to continue to pursue a business strategy of increasing sales and
earnings by expanding our retail and wholesale operations both in the United
States and internationally. Our current plans are to grow internally and not by
acquisition, although from time to time we do consider possible acquisition
candidates. In particular, our retail growth strategy depends in large part on
our ability to open new stores in both existing and new geographic markets.
Since our ability to implement our growth strategy successfully will be
dependent in part on factors beyond our control, including consumer preferences
and the competitive environment, we may not be able to achieve our planned
growth or sustain our financial performance. Our ability to anticipate changes
in the candle and giftware industries, and identify industry trends, will be
critical factors in our ability to remain competitive. We expect that, as we grow, it will become more difficult to maintain our
historical growth rate, which could negatively impact our operating margins and
results of operations. New stores typically generate lower operating margin
contributions than mature stores because fixed costs, as a percentage of sales,
are higher and because pre-opening costs are fully expensed in the year of
opening. In addition, our retail sales generate lower operating margins than
our wholesale sales. Our wholesale business has grown by increasing sales to
existing customers and by adding new customers. If we are not able to continue
this, our sales growth and profitability could be adversely affected. We
cannot assure you that we will continue to grow at a rate comparable to our
historic growth rate or that our historic financial performance will continue
as we grow. We face significant competition in the giftware industry. This competition
could cause our revenues or margins to fall short of expectations which could
adversely affect our future operating results, financial condition and
liquidity and our ability to continue to grow our business. We compete generally for the disposable income of consumers with other
producers in the giftware industry. The giftware industry is highly
competitive with a large number of both large and small participants. Our
products compete with other scented and unscented candle and personal care
products and with other gifts within a comparable price range, like boxes of
candy, flowers, wine, fine soap and related merchandise. Our retail stores
compete with franchised candle store chains, specialty candle stores and gift
and houseware retailers. Some of our competitors are part of large,
diversified companies which have greater financial resources and a wider range
of product offerings than we do. This competitive environment could adversely
affect our future revenues and profits, financial condition and liquidity and
our ability to continue to grow our business. A material decline in consumers discretionary income could cause our sales and
income to decline. Our results depend on consumer spending, which is influenced by general
economic conditions and the availability of discretionary income. Accordingly,
we may experience declines in sales during economic downturns or during periods
of uncertainty like that which followed the September 11, 2001 terrorist
attacks on the United States, the outbreak of the war in Iraq or the
possibility of further terrorist attacks. Any material decline in the amount
of discretionary spending could have a material adverse effect on our sales and
income. Because we are not a diversified company and are effectively dependent upon one
industry, we have less flexibility in reacting to unfavorable consumer trends,
adverse economic conditions or business cycles. We rely primarily on the sale of premium scented candles and related products
in the giftware industry. In the event that sales of these products decline or
do not meet our expectations, we cannot rely on the sales of other products to
offset such a shortfall. As a significant portion of our expenses is comprised
of fixed costs, such as lease payments, our ability to decrease expenses in
response to adverse business conditions is limited in the short term. As a
result, unfavorable consumer trends, adverse economic conditions or changes in
the business cycle could have a material and adverse impact on our earnings. 14




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If we lose our senior executive officers, our business could be disrupted and
our financial performance could suffer. Our success is substantially dependent upon the retention of our senior
executive officers. If our senior executive officers become unable or
unwilling to participate in our business, our future business and financial
performance could be materially affected. Many aspects of our manufacturing and distribution facilities are customized
for our business; as a result, the loss of one of these facilities would
disrupt our operations. Approximately 74% of our sales in 2003 were generated by products we
manufacture at our manufacturing facility in Whately, Massachusetts and we rely
primarily on our distribution facilities in South Deerfield, Massachusetts to
distribute our products. Because most of our machinery is designed or
customized by us to manufacture our products, and because we have strict
quality control standards for our products, the loss of our manufacturing
facility, due to natural disaster or otherwise, would materially affect our
operations. Similarly, our distribution facilities rely upon customized
machinery, systems and operations, the loss of which would materially affect
our operations. Although our manufacturing and distribution facilities are
adequately insured, we believe it would take up to twelve months to resume
operations at a level equivalent to current operations. Seasonal, quarterly and other fluctuations in our business, and general
industry and market conditions, could affect the market for our common stock. Our sales and operating results vary from quarter to quarter. We have
historically realized higher sales and operating income in our fourth quarter,
particularly in our retail business, which accounts for a larger portion of our
sales. We believe that this has been due primarily to an increase in giftware
industry sales during the holiday season of the fourth quarter. As a result of
this seasonality, we believe that quarter to quarter comparisons of our
operating results are not necessarily meaningful and that these comparisons
cannot be relied upon as indicators of future performance. In addition, we may
also experience quarterly fluctuations in our sales and income depending on
various factors, including, among other things, the number of new retail stores
we open in a particular quarter, changes in the ordering patterns of our
wholesale customers during a particular quarter, and the mix of products sold.
Most of our operating expenses, such as rent expense, advertising and
promotional expense and employee wages and salaries, do not vary directly with
sales and are difficult to adjust in the short term. As a result, if sales for
a particular quarter are below our expectations, we might not be able to
proportionately reduce operating expenses for that quarter, and therefore a
sales shortfall could have a disproportionate effect on our operating results
for that quarter. Further, our comparable store sales from our retail business
in a particular quarter could be adversely affected by competition, economic or
other general conditions or our inability to execute a particular business
strategy. As a result of these factors, we may report in the future sales,
operating results or comparable store sales that do not match the expectations
of market analysts and investors. This could cause the trading price of our
common stock to decline. In addition, broad market and industry fluctuations
may adversely affect the price of our common stock, regardless of our operating
performance. Public health epidemics such as Severe Acute Respiratory Syndrome may affect
our operating results. Approximately 11% of our sales in 2003 were generated by products, primarily
accessories, that we purchased overseas. Substantially all of these products
were purchased from East Asia. A sustained interruption of the operations of
our suppliers, as a result of the impact of Severe Acute Respiratory Syndrome
or other similar health epidemics, could have an adverse effect on our ability
to receive timely shipments of certain of our products and could result in
scrutiny or embargoing of goods produced in infected areas. Provisions in our corporate documents and Massachusetts law could delay or
prevent a change in control of Yankee Candle. Our Articles of Organization and By-Laws may discourage, delay or prevent a
merger or acquisition involving Yankee Candle that our stockholders may
consider favorable, by:  
    
    authorizing the issuance of preferred stock, the terms of which may be determined at the sole discretion of the board of
directors,
    
    providing for a classified board of directors, with staggered three-year terms, and
    
    establishing advance notice requirements for nominations for election to the board of directors or for proposing matters
that can be acted on by stockholders at meetings. Massachusetts law may also discourage, delay or prevent someone from acquiring
or merging with us. 15




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We do not currently intend to pay dividends on our capital stock. We have never paid a cash dividend on our common stock as a public company.
Instead, we have retained earnings to repurchase our common stock and for the
future operation of our business. While we have no current plan to pay any
cash dividends, we intend to periodically evaluate the advisability of a
dividend program. Any determination to pay dividends in the future will be at
the discretion of our board of directors and will be dependent upon our results
of operations, our financial condition, contractual and legal restrictions, and
other factors deemed relevant by our board of directors. Under the terms of
our existing credit agreement (which is scheduled to expire on July 7, 2004),
we may not declare or pay dividends on our common stock unless our ratio of
consolidated total debt to consolidated EBITDA (as defined in our credit
agreement) is less than or equal to 2:1 or our aggregate principal amount of
loans and letters of credit outstanding is less than $100 million. Although we
currently meet this requirement, we have no current plan to pay dividends. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Our market risks relate primarily to changes in interest rates. We bear this
risk in our outstanding bank debt. At April 3, 2004, there was $90.5 million
of bank debt outstanding, which consisted of $9.5 million in term loans and
$81.0 million from our revolving credit facility. Because this bank debt
carries a variable interest rate pegged to market indices, our results of
operations and cash flows are exposed to changes in interest rates. Based on
April 3, 2004 borrowing levels, a 1.00% increase or decrease in current market
interest rates would have the effect of causing an approximately $0.9 million
additional annual pre-tax charge or credit to the statements of income. The second component of interest rate risk involves the short-term investment
of excess cash. This risk impacts fair values, earnings and cash flows.
Excess cash is primarily invested in interest bearing accounts that fluctuate
with market interest rates. Based on April 3, 2004 cash equivalents, a 1.00%
increase or decrease in current market interest rates would have the effect of
causing an approximately $0.2 million additional pre-tax credit or charge to
the annual statements of income. We buy a variety of raw materials for inclusion in our products. The only raw
material that we consider 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, our operations outside of the United States are
immaterial. Accordingly, we are not exposed to substantial risks arising from
foreign currency exchange rates. 
 Item 4. Controls and Procedures Our management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)) as of April 3, 2004. Based on this
evaluation, our chief executive officer and chief financial officer concluded
that, as of April 3, 2004, our disclosure controls and procedures were (1)
designed to ensure that material information relating to us, including our
consolidated subsidiaries, is made known to our chief executive officer and
chief financial officer by others within those entities, particularly during
the period in which this report was being prepared and (2) effective, in that
they provide reasonable assurance that information that we are required to
disclose in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms. No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended April 3, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. 16




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings Not Applicable 
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities The following table provides information about purchases by us of our common stock during the thirteen weeks ended
April 3, 2004. Remaining FundsTotal Number of Shares
    
    Available toPurchased as Part of
    
    Repurchase SharesTotal Number of
    
    Average Price
    
    Publicly Announced
    
    Under the PlansPeriod
    
    Shares Purchased (1)
    
    Paid per Share
    
    Plans or Programs (2)
    
    or Programs1/4/04-2/7/04
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    100,000,0002/8/04-3/6/04
    
    
    500,200
    
    
    
    28.52
    
    
    
    500,200
    
    
    $
    85,734,2963/7/04-4/3/04
    
    
    305,900
    
    
    
    28.05
    
    
    
    305,900
    
    
    $
    77,153,659Total
    
    
    806,100
    
    
    $
    28.34
    
    
    
    806,100
 (1) All repurchases by us of our common stock during the thirteen weeks ended
April 3, 2004 were done pursuant to the repurchase program that we publicly
announced on February 18, 2004 (the Program). (2) Our Board of Directors approved the repurchase of up to $100,000,000 of
our common stock pursuant to the
Program. There is currently no expiration date for the Program. Unless
terminated earlier by resolution of our Board
of Directors, the Program will expire when we have reached the $100,000,000
threshold. 
 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 (a) Exhibits  31.1
    
    Certification of Craig W. Rydin Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, dated May 12, 2004.31.2
    
    Certification of Robert R. Spellman Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, dated May 12, 2004.32.1
    
    Certification of Craig W. Rydin Pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934, dated May 12, 2004. 17




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32.2
    
    Certification of Robert R. Spellman Pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934, dated May 12, 2004. (b) Reports on Form 8-K We furnished a current report on Form 8-K dated February 18, 2004
pursuant to which we furnished, under Items 7 and 9, our earnings
release for the period ended January 3, 2004. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. THE YANKEE CANDLE COMPANY, INC./s/ Robert R. SpellmanDate: May 12, 2004
    
    By: Robert R. SpellmanSenior Vice President, Financeand Chief Financial Officer(Principal Financial Officer)
 18