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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 FORM 10-Q Quarterly report
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended: April 2, 2005 Commission File Number: 001-15023 THE YANKEE CANDLE COMPANY, INC. 
  MASSACHUSETTS
    
    04 259 1416(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 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 þ   No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes þ   No o The registrant had 45,403,048 shares of Common Stock, par value $0.01, outstanding as of May 9,
2005.




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THE YANKEE CANDLE COMPANY, INC. FORM 10-Q  Quarter Ended April 2, 2005 This Quarterly Report on Form 10-Q contains a number of forward-looking statements. Any statements
contained herein, including without limitation statements to the effect that The Yankee Candle
Company, Inc. and its subsidiaries (Yankee Candle, the Company, we, and us) or its
management believes, expects, anticipates, plans and similar expressions, that relate to
prospective events or developments should be considered forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date the statement was made. There are a number of important factors that could cause its
actual results to differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below in Managements Discussion and Analysis
of Financial Condition and Results of Operations  Future Operating Results. Management undertakes
no obligation to publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Table of Contents Item
    
    PagePART I. Financial InformationItem 1. Financial Statements-UnauditedCondensed Consolidated Balance Sheets as of April 2, 2005 and January 1, 2005
    
    
    3Condensed Consolidated Statements of Income
for the Thirteen weeks ended April 2, 2005 and April 3, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Thirteen weeks ended April 2, 2005 and April 3, 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    18PART II. Other InformationItem 1. Legal Proceedings
    
    
    19Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    21EX-10.1 FORM OF COMMITMENT LETTER DATED APRIL 25, 2005EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO




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PART I. Financial Information 
 Item 1. Financial Statements THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES 
 
 April 2,
    
    
    January 1,2005
    
    
    2005(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    18,135
    
    
    $
    36,424Accounts receivable, net
    
    
    33,919
    
    
    
    28,231Inventory
    
    
    47,905
    
    
    
    46,901Prepaid expenses and other current assets
    
    
    8,606
    
    
    
    8,112Deferred tax assets
    
    
    4,129
    
    
    
    3,876TOTAL CURRENT ASSETS
    
    
    112,694
    
    
    
    123,544PROPERTY, PLANT AND EQUIPMENT-NET
    
    
    124,976
    
    
    
    126,365MARKETABLE SECURITIES
    
    
    1,807
    
    
    
    1,499DEFERRED TAX ASSETS
    
    
    82,439
    
    
    
    84,697GOODWILL
    
    
    3,939
    
    
    
    3,939INTANGIBLE ASSETS
    
    
    6,137
    
    
    
    5,860OTHER ASSETS
    
    
    458
    
    
    
    455TOTAL ASSETS
    
    $
    332,450
    
    
    $
    346,359LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    20,793
    
    
    $
    20,246Accrued payroll
    
    
    10,185
    
    
    
    14,492Accrued income taxes
    
    
    5,164
    
    
    
    26,264Other accrued liabilities
    
    
    11,752
    
    
    
    18,435TOTAL CURRENT LIABILITIES
    
    
    47,894
    
    
    
    79,437DEFERRED COMPENSATION OBLIGATION
    
    
    1,848
    
    
    
    1,659LONG-TERM DEBT
    
    
    120,000
    
    
    
    75,000DEFERRED RENT
    
    
    10,791
    
    
    
    10,600STOCKHOLDERS EQUITY
    
    
    151,917
    
    
    
    179,663TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    332,450
    
    
    $
    346,359
 See notes to Condensed Consolidated Financial Statements 3




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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES 
  
 For the Thirteen Weeks EndedApril 2,
    
    
    April 3,2005
    
    
    2004Sales
    
    $
    119,255
    
    
    $
    106,519Cost of sales
    
    
    54,424
    
    
    
    47,372Gross profit
    
    
    64,831
    
    
    
    59,147Selling expenses
    
    
    32,493
    
    
    
    27,852General and administrative expenses
    
    
    13,532
    
    
    
    13,240Income from operations
    
    
    18,806
    
    
    
    18,055Interest income
    
    
    (6
    )
    
    
    (5
    )Interest expense
    
    
    936
    
    
    
    809Other expense (income)
    
    
    218
    
    
    
    (92
    )Income before provision for income taxes
    
    
    17,658
    
    
    
    17,343Provision for income taxes
    
    
    6,887
    
    
    
    6,850Net income
    
    $
    10,771
    
    
    $
    10,493Basic earnings per share
    
    $
    0.23
    
    
    $
    0.21Diluted earnings per share
    
    $
    0.23
    
    
    $
    0.21Weighted average shares:Basic
    
    
    46,877
    
    
    
    50,281Diluted
    
    
    47,312
    
    
    
    50,692
 See notes to Condensed Consolidated Financial Statements 4




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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES 
  
 For the Thirteen Weeks EndedApril 2,
    
    
    April 3,2005
    
    
    2004CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:Net income
    
    $
    10,771
    
    
    $
    10,493Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    5,908
    
    
    
    5,107Unrealized loss (gain) on marketable securities
    
    
    36
    
    
    
    (53
    )Stock-based compensation expense
    
    
    746
    
    
    
    283Deferred taxes
    
    
    2,004
    
    
    
    3,350Loss on disposal of fixed assets
    
    
    2
    
    
    
    8Changes in assets and liabilities:Accounts receivable, net
    
    
    (5,795
    )
    
    
    (5,188
    )Inventory
    
    
    (1,113
    )
    
    
    (8,217
    )Prepaid expenses and other assets
    
    
    (550
    )
    
    
    (1,857
    )Investments in marketable securities
    
    
    (344
    )
    
    
    (296
    )Accounts payable
    
    
    564
    
    
    
    (5,440
    )Accrued expenses and other liabilities
    
    
    (31,496
    )
    
    
    (24,765
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (19,267
    )
    
    
    (26,575
    )CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (3,956
    )
    
    
    (3,000
    )Purchase of intangible assets
    
    
    (604
    )
    
    
    Proceeds from sale of property and equipment
    
    
    10
    
    
    
    6NET CASH USED IN INVESTING ACTIVITIES
    
    
    (4,550
    )
    
    
    (2,994
    )CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:Net borrowings under bank credit agreements
    
    
    45,000
    
    
    
    35,000Payments for redemption of common stock
    
    
    (39,911
    )
    
    
    (22,846
    )Principal payments on long-term debt
    
    
    
    
    
    
    (9,500
    )Net proceeds from issuance of common stock
    
    
    465
    
    
    
    1,856NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    5,554
    
    
    
    4,510EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    (26
    )
    
    
    18NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (18,289
    )
    
    
    (25,041
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    36,424
    
    
    
    40,730CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    18,135
    
    
    $
    15,689SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for:Interest
    
    $
    462
    
    
    $
    242Income taxes
    
    $
    25,846
    
    
    $
    20,070
 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 periods 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 1, 2005 included in the Companys Annual Report on Form 10-K. 2. NEW ACCOUNTING POLICY During the first quarter of 2005, the Company adopted a new accounting policy related to rent
expense as it relates to operating leases. Under the new accounting policy, rent expense is
recognized on a straight-line basis, including consideration of rent holidays and applicable rent
escalations over the term of the lease. The Company begins to recognize rent expense on the earlier
of the date when the Company becomes legally obligated for the rent payments or the date when the
Company takes possession of the leased premises or has rights to use the property for construction
purposes. Straight-line rent recorded during the construction period is capitalized as a component
of the historical cost of leasehold improvements included in property and equipment. The
capitalized rent is amortized over the useful life of the related asset or the lease term,
whichever is shorter. Straight-line rent recorded during the Companys pre-opening period
(generally from the date of construction completion through store open date) is recorded as a
pre-opening expense. 3. INVENTORIES The components of inventory were as follows: April 2,
    
    
    January 1,2005
    
    
    2005Finished goods
    
    $
    42,424
    
    
    $
    41,227Work-in-process
    
    
    406
    
    
    
    284Raw materials and packaging
    
    
    6,850
    
    
    
    7,16549,680
    
    
    
    48,676Less LIFO adjustment
    
    
    (1,775
    )
    
    
    (1,775
    )$
    47,905
    
    
    $
    46,901
 6




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4. GOODWILL AND INTANGIBLE ASSETS The following sets forth the intangible assets, excluding goodwill, by major category: April 2, 2005
    
    
    
    
    
    
    
    
    
    
    January 1, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net Book
    
    
    Carrying
    
    
    Accumulated
    
    
    Net BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueIndefinite life:Tradename
    
    $
    1,960
    
    
    $
    
    
    
    $
    1,960
    
    
    $
    1,960
    
    
    $
    
    
    
    $
    1,960Finite life:Deferred financing
costs
    
    
    644
    
    
    
    (270
    )
    
    
    374
    
    
    
    644
    
    
    
    (193
    )
    
    
    451Customer list
    
    
    3,160
    
    
    
    (653
    )
    
    
    2,507
    
    
    
    3,160
    
    
    
    (456
    )
    
    
    2,704Non-competes
    
    
    963
    
    
    
    (163
    )
    
    
    800
    
    
    
    790
    
    
    
    (114
    )
    
    
    676Trademarks
    
    
    231
    
    
    
    (166
    )
    
    
    65
    
    
    
    231
    
    
    
    (162
    )
    
    
    69Formulas
    
    
    431
    
    
    
    
    
    
    
    431
    
    
    
    
    
    
    
    
    
    
    
    5,429
    
    
    
    (1,252
    )
    
    
    4,177
    
    
    
    4,825
    
    
    
    (925
    )
    
    
    3,900Total intangible assets
    
    $
    7,389
    
    
    $
    (1,252
    )
    
    $
    6,137
    
    
    $
    6,785
    
    
    $
    (925
    )
    
    $
    5,860
 During the thirteen weeks ended April 2, 2005 the Company purchased certain product formulas from
Innovation2, LLC and entered into non-compete agreements with certain related principals from
Innovation2, LLC. These product formulas and non-compete agreements will be amortized over their
estimated useful lives of three years commencing in the second fiscal quarter of 2005. The
previously existing non-compete agreements and customer lists assets acquired from GBI Marketing,
Inc. are being amortized over their estimated useful lives of four years. Amortization expense
related to the customer list and non-compete agreements for the thirteen weeks ended April 2, 2005
was $246. The trademark asset is being amortized over 15 years. Amortization expense related to the
trademark asset was $4 and zero for the thirteen weeks ended April 2, 2005 and April 3, 2004,
respectively. The deferred financing costs are being amortized over the life of the Credit
Facility. Amortization expense related to the deferred financing costs was $77 and $278 for the
thirteen weeks ended April 2, 2005 and April 3, 2004, respectively. Aggregate amortization expense related to intangible assets at April 2, 2005 in the remainder of
fiscal 2005 and in each of the next three fiscal years is expected to be as follows: 2005
    
    $
    1,0482006
    
    
    1,3722007
    
    
    1,2672008
    
    
    490Total
    
    $
    4,177
 5. LONG-TERM DEBT The Company has a $200 million senior unsecured revolving credit facility (the Credit Facility)
with Citizens Bank of Massachusetts and a syndicate of lenders. The Credit Facility has two
Tranches, a $150 million Tranche (Tranche A) that expires on May 19, 2007 and a $50 million
Tranche (Tranche B) that expires on May 18, 2005. The Credit Facility is being used by the
Company for, among other things, working capital, letters of credit, repurchase of the Companys
common stock and other general corporate purposes. Amounts outstanding under the Credit Facility bear interest at a rate equal to, at the Companys
option, the Citizens Bank Base Rate, or Eurodollar Rate. Eurodollar borrowings under Tranche A of
the Credit Facility include a margin rate ranging from 0.70% to 1.00% and borrowings under Tranche
B include a margin rate ranging from 0.75% to 1.05%. These rates vary depending on the Companys
outstanding borrowings. In addition, the Company is required to pay the lenders a quarterly
commitment fee on the unused revolving loan commitment amount. The commitment fee under Tranche A
ranges from 0.15% to 0.25% and under Tranche B ranges from 0.10% to 0.20%. Fees for outstanding
commercial and standby letters of credit range from 0.70% to 1.00%. The Company is also required
to pay a utilization fee on the total Credit Facility of 0.125% once outstanding borrowings exceed
$100 million. The Credit Facility requires 7




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that the Company comply with several financial and other covenants, including requirements that the
Company maintain at the end of each fiscal quarter the following financial ratios as set forth in
the Credit Facility:  
    a consolidated total debt to consolidated EBITDA ratio of no more than 2.00 to 1.00 at
January 1, 2005 and for subsequent fiscal quarters (at April 2, 2005 this ratio was 0.74 to
1.00 ).
    a fixed charge coverage ratio (the ratio of the sum of consolidated EBITDA plus rent
expense, less cash taxes paid and capital expenditures to the sum of consolidated cash
interest expense plus rent expense and dividends) of no less than 2.00 to 1.00 for fiscal
2005; and no less than 2.25 to 1.00 during fiscal 2006 and thereafter (at April 2, 2005
this ratio was 4.26 to 1.00). The Credit Facility defines EBITDA as the Companys consolidated net income, plus the amount of net
interest expense, depreciation and amortization, income taxes, and certain non-cash compensation
expenses. As of April 2, 2005, $120 million was outstanding under the revolving credit facility and $0.9
million was outstanding for letters of credit, leaving $79.1 million in availability. As of April
2, 2005, the Company was in compliance with all covenants under the Credit Facility. The Company is currently in negotiations to amend its Credit Facility to provide a $250 million
senior unsecured revolving credit facility with a five-year term, and has signed a commitment
letter with Citizens Bank and RBS Securities Corporation relating to this amendment. The amended
facility would replace Tranches A and B described above. The Company currently anticipates
executing an amendment prior to May 18, 2005. 6. INCOME TAXES The Companys effective tax rate in the first quarters of fiscal 2005 and 2004 was 39.0% and 39.5%,
respectively. The decrease from 39.5% is due to the deduction for Domestic Production Activities
Income available to the Company under the new American Jobs Creation Act. The Company has provided
and expects to continue to provide in 2005 a valuation allowance against the deferred tax asset for
its international operations. As a result, it is anticipated that the effective tax rate for 2005
will be approximately 39.0%. Management re-evaluates the Companys effective tax rate on a
quarterly basis. 7. 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 2, 2005
    
    
    April 3, 2004(in thousands)Basic
    
    
    46,877
    
    
    
    50,281Add:Shares issuable pursuant to stock
option grants
    
    
    435
    
    
    
    411Diluted
    
    
    47,312
    
    
    
    50,692
 At April 2, 2005 and April 3, 2004 approximately 27 and 34 shares, respectively, issuable pursuant
to option grants were excluded from the computation of diluted earnings per share due to their
anti-dilutive effect. 8. 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 8




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fair value method of accounting defined in SFAS No. 123 Accounting for Stock Based Compensation
had been applied. Effective in the third quarter of fiscal 2003, the Company adopted the fair
value recognition provisions of SFAS No. 123 using the prospective transition method provided by
SFAS No. 148 Accounting for Stock Based Compensation-Transition and Disclosure, an amendment of
SFAS No. 123. Under the prospective transition method, the Company has valued all stock option
grants beginning with grants made in fiscal 2003. The fair value of these options is being
expensed over the vesting period based on the fair value at the date of the grant. Stock-based
compensation charges amounted to $746 and $283 for the thirteen weeks ended April 2, 2005 and April
3, 2004, respectively. In the first quarter of fiscal 2006 in accordance with SFAS No. 123(R),
Share-Based Payment, the Company will be required to record the fair value of stock options for
all unvested options granted prior to 2003. The Company estimates this will result in additional
stock compensation expense of approximately $0.3 million during fiscal 2006. Awards under the Companys option plans 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. 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 2, 2005
    
    
    April 3, 2004Net income, as reported
    
    $
    10,771
    
    
    $
    10,493Add: Stock-based compensation expense
included in reported net income, net of
related tax effects
    
    
    455
    
    
    
    171Deduct: Total stock-based compensation
expense determined under fair value
based method for all awards, net of
related tax effects
    
    
    (584
    )
    
    
    (453
    )Pro forma net income
    
    $
    10,642
    
    
    $
    10,211Earnings per share:Basic-as reported
    
    $
    0.23
    
    
    $
    0.21Basic-pro forma
    
    $
    0.23
    
    
    $
    0.20Weighted average basic shares outstanding
    
    
    46,877
    
    
    
    50,281Diluted-as reported
    
    $
    0.23
    
    
    $
    0.21Diluted-pro forma
    
    $
    0.22
    
    
    $
    0.20Weighted average diluted shares
outstanding
    
    
    47,312
    
    
    
    50,692
 The following weighted-average assumptions were used to compute the pro forma stock-based
compensation expense for fiscal 2005 and 2004 and the stock option expense that was recorded in the
Condensed Consolidated Statements of Income in the first quarter of fiscal 2005 and 2004: 2005
    
    
    2004Volatility
    
    
    34
    %
    
    
    36
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    3.14
    %
    
    
    3.00
    %Expected lives
    
    4 years
    
    4 years
 9




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9. STOCK REPURCHASE PROGRAM On December 7, 2004 the Company announced that its Board of Directors had approved a stock
repurchase program authorizing the Company to repurchase up to $100.0 million of Yankee Candle
common stock commencing in fiscal 2005. During the thirteen weeks ended April 2, 2005 the Company
repurchased a total of 1,286 shares of common stock for an aggregate purchase price of $39.9
million. During the thirteen weeks ended April 3, 2004, under a separate authorization from the
Board of Directors, the Company repurchased a total of 806 shares of common stock for an aggregate
purchase price of $22.8 million. 10. 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 ofThirteen weeks ended April 2, 2005
    
    Retail
    
    
    Wholesale
    
    
    Other
    
    
    IncomeSales
    
    $
    51,819
    
    
    $
    67,436
    
    
    $
    
    
    
    $
    119,255Gross Profit
    
    
    31,441
    
    
    
    33,390
    
    
    
    
    
    
    
    64,831Operating Margin
    
    
    3,102
    
    
    
    29,236
    
    
    
    (13,532
    )
    
    
    18,806Other expense
    
    
    
    
    
    
    
    
    
    
    (1,148
    )
    
    
    (1,148
    )Income before provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,658
 Balance perUnallocated/
    
    
    ConsolidatedCorporate/
    
    
    Statements ofThirteen weeks ended April 3, 2004
    
    Retail
    
    
    Wholesale
    
    
    Other
    
    
    IncomeSales
    
    $
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,343
 10




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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 condensed 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. Sales/receivables We sell our products both directly to retail customers and through wholesale channels. Sales to
retail customers are recognized at the time of sale, while sales to wholesale customers are
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. Sales are 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 sales
recognition because we have a long history with such returns, which we use in constructing a
reserve. This reserve, however, is subject to change. In 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 net deferred tax asset recorded on our condensed consolidated balance sheet.
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. Value of long-lived assets, including intangibles Long-lived assets on our balance sheet consist primarily of property, plant and equipment, customer
list, tradename, goodwill and trademarks. We periodically review the carrying value of all of
these assets based, in part, upon our projections of anticipated undiscounted future cash flows.
We undertake this review when facts and circumstances suggest that cash flows emanating from those
assets may be diminished and at least annually in the case of tradename and goodwill. Any
impairment charge that we record reduces our earnings. While we believe that our future estimates
are reasonable, different assumptions regarding items such as future cash flows and the volatility
inherent in markets which we serve could affect our evaluations and result in impairment charges
against the carrying value of those assets. 11




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Operating Leases Rent expense is recognized on a straight-line basis, including consideration of rent holidays and
applicable rent escalations over the term of the lease. We begin to recognize rent expense on the
earlier of the date when we become legally obligated for the rent payments or the date when we take
possession of the leased premises or have rights to use the property for construction purposes.
Straight-line rent recorded during the construction period is capitalized as a component of the
historical cost of leasehold improvements included in property and equipment. The capitalized rent
is amortized over the useful life of the related asset or the lease term, whichever is shorter.
Straight-line rent recorded during our pre-opening period (generally from the date of construction
completion through store open date) is recorded as a pre-opening expense. 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 $0.7 million and $0.3 million for the
thirteen weeks ended April 2, 2005 and April 3, 2004, respectively. In the first quarter of fiscal
2006 in accordance with SFAS No. 123(R), Share-Based Payment, we will be required to record the
fair value of stock options for all unvested options granted prior to 2003. We estimate this will
result in additional stock compensation expense of approximately $0.3 million during fiscal 2006. 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, occupancy costs, 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 2, 2005 versus thirteen weeks ended April 3,
2004 12




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SALES Sales increased 12.0% to $119.3 million for the thirteen weeks ended April 2, 2005 from $106.5
million for the thirteen weeks ended April 3, 2004. Wholesale sales, including European
operations, increased 11.3% to $67.4 million for the thirteen weeks ended April 2, 2005 from $60.6
million for the thirteen weeks ended April 3, 2004. This growth was achieved primarily by
increasing sales to existing locations and to a lesser extent by increasing the number of wholesale
locations. Retail sales increased 12.9% to $51.8 million for the thirteen weeks ended April 2, 2005 from $45.9
million for the thirteen weeks ended April 3, 2004. The increase in retail sales was due primarily
to increased sales attributable to the 60 stores opened in 2004 (which in 2004 were open for less
than a full year), and to a lesser extent to the addition of 13 new stores in the thirteen weeks
ended April 2, 2005. We closed one underperforming retail store during the thirteen weeks ended
April 2, 2005. Comparable store and catalog and Internet sales for the thirteen weeks ended April
2, 2005 increased 2.0% compared to the thirteen weeks ended April 3, 2004. Retail comparable store
sales for the thirteen weeks ended April 2, 2005 increased 1.0% compared to the thirteen weeks
ended April 3, 2004. 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
fourteenth fiscal month of operation. There were 295 stores included in the comparable store base
as of April 2, 2005, and 45 of these stores were included for less than a full year. There were
357 retail stores open as of April 2, 2005 compared to 300 retail stores open as of April 3, 2004
and 345 retail stores open as of January 1, 2005. GROSS PROFIT Gross profit increased 9.6% to $64.8 million for the thirteen weeks ended April 2, 2005 from $59.1
million for the thirteen weeks ended April 3, 2004. As a percentage of sales, gross profit
decreased to 54.4% for the thirteen weeks ended April 2, 2005 from 55.5% for the thirteen weeks
ended April 3, 2004. The increase in gross profit dollars was primarily attributable to an
increase in sales. The decrease in gross profit rate was primarily the result of discounts
associated with the sell-through of holiday and discontinued merchandise in the retail business
during our extended January clearance program offset, in part, by improved productivity in supply
chain operations. SELLING EXPENSES Selling expenses increased 16.7% to $32.5 million for the thirteen weeks ended April 2, 2005 from
$27.9 million for the thirteen weeks ended April 3, 2004. These expenses are related to both
wholesale and retail operations and consist of payroll, occupancy, advertising and other operating
costs, as well as pre-opening costs, which are expensed as incurred. As a percentage of sales,
selling expenses increased to 27.2% for the thirteen weeks ended April 2, 2005 from 26.1% for the
thirteen weeks ended April 3, 2004. The increase in selling expenses in dollars and as a
percentage of sales was primarily related to the continued growth in the number of retail stores,
from 300 as of April 3, 2004 to 357 as of April 2, 2005. These new stores are considered immature
stores, which are generally stores that are less than three years old. Immature stores typically
generate higher selling expenses as a percentage of sales than stores that have been open for more
than three years since fixed costs, as a percent of sales, are higher in the early sales maturation
period. SEGMENT PROFITABILITY Segment profitability is sales less cost of goods sold and selling expenses. Segment profitability
for our wholesale operations, including Europe, was $29.2 million, or 43.4% of wholesale sales, for
the thirteen weeks ended April 2, 2005 compared to $25.3 million, or 41.7% of wholesale sales, for
the thirteen weeks ended April 3, 2004. The increase in wholesale segment profitability was
primarily attributable to increased wholesale sales and increased wholesale gross profit dollars
and rate. Segment profitability for our retail operations was $3.1 million or 6.0% of retail sales
for the thirteen weeks ended April 2, 2005 compared to $6.0 million or 13.1% of retail sales for
the thirteen weeks ended April 3, 2004. The decrease in retail segment profitability in dollars
and as a percentage of sales was primarily the result of discounts associated with the sell-through
of holiday and discontinued merchandise in the retail business during our extended January
clearance program. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, which consist primarily of personnel-related costs incurred in
support functions, increased 2.2% to $13.5 million for the thirteen weeks ended April 2, 2005 from
$13.2 million for the thirteen weeks ended April 3, 2004. As a percentage of sales, general and
administrative expenses decreased to 11.3% for the thirteen 13




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weeks ended April 2, 2005 from 12.4% for the thirteen weeks ended April 3, 2004. The increase in
general and administrative expense in dollars in 2005 compared to 2004 was primarily attributable
to labor costs associated with new hires made during the latter part of 2004 and to an increase in
stock-based compensation expense in 2005 compared to 2004. The decrease in general and
administrative expense as a percentage of sales for 2005 compared to 2004 was primarily due to our
leveraging of these expenses over a larger sales base. NET OTHER EXPENSE Net other expense was $1.1 million for the thirteen weeks ended April 2, 2005, compared to $0.7
million for the thirteen weeks ended April 3, 2004. The increase in interest expense is primarily
attributable to an increase in the average daily debt outstanding for the thirteen weeks ended
April 2, 2005 compared to the thirteen weeks ended April 3, 2004 along with an increase in the
borrowing rates under our credit facility. PROVISION FOR INCOME TAXES The effective tax rate for the thirteen weeks ended April 2, 2005 and April 3, 2004 was 39.0% and
39.5%, respectively. The decrease from 39.5% is due to the deduction for Domestic Production
Activities Income available to us under the new American Jobs Creation Act. We have provided and
expect to continue to provide in 2005 a valuation allowance against the deferred tax asset for our
international operations. As a result, it is anticipated that our effective tax rate for 2005 will
be approximately 39.0%. We re-evaluate our effective tax rate on a quarterly basis. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents as of April 2, 2005 decreased by $18.3 million compared to January 1,
2005. This decrease was due mainly to cash used in operating activities of $19.3 million, which
includes total payments of $25.8 million for corporate income taxes for fiscal 2004 and fiscal
2005. Capital expenditures for the thirteen weeks ended April 2, 2005 were $4.0 million, primarily
related to the capital requirements to open 13 new stores, construction costs associated with our
65,000 square foot flagship store in Williamsburg, Virginia as well as investments in supply chain
operations. Net cash provided by financing activities was $5.5 million for the thirteen weeks
ended April 2, 2005, which represents net borrowings of $45.0 million under our credit facility
used primarily to repurchase common stock and to fund operations. On December 7, 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 commencing
in fiscal 2005. During the thirteen weeks ended April 2, 2005 we repurchased a total of 1,286,475
shares of common stock for an aggregate purchase price of $39.9 million. We opened 13 stores during the thirteen weeks ended April 2, 2005 and we expect to open
approximately 33 additional stores during the last three quarters of fiscal 2005. 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 2, 2005, we were in compliance with all covenants under our credit facility. We had
$120 million outstanding under the revolving credit facility and $0.9 million of outstanding
letters of credit, leaving $79.1 million in availability. On February 14, 2005 we announced that our Board of Directors authorized us to initiate an annual
cash dividend at the annual rate of $0.25 per share of outstanding common stock. The first
semi-annual payment of $0.125 per share will be paid on June 1, 2005, to shareholders of record on
May 11, 2005. Under the terms of the existing Credit Facility, we may not declare or pay dividends
on common stock unless our Consolidated Net Worth (as defined in the Credit Facility) is more than
the sum of $100 million plus 25% of our 2004 net income, plus 25% of our net income for each fiscal
quarter thereafter. Our net income for fiscal 2004 was $82.7 million, and 25% of our 2004 net
income was therefore approximately $20.7 million. Our net income for the thirteen weeks ended
April 2, 2005 was $10.8 million, and 25% of our net income for the first fiscal quarter was
therefore approximately $2.7 million. As of April 2, 2005, our Consolidated Net Worth was
approximately $151.9 million, in excess of the $123.4 million required under the Credit Facility
for the declaration or payment of dividends. We anticipate that our Consolidated Net Worth as of
June 1, 2005, the date on which the first semi-annual payment is scheduled to be made, will
likewise exceed the required amount under the Credit Facility. While it is our current intention
to pay annual cash dividends in years following 2005, any decision to pay future cash dividends
will be made by our Board of Directors and will depend upon our earnings, financial condition and
other factors. 14




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We expect that the principal sources of funding for our planned store openings and other working
capital needs, capital expenditures, debt service obligations, payment of dividends and stock
repurchase program will be a combination of our available cash and cash equivalents, funds
generated from operations, and borrowings under our credit facility. We believe that our current
funds and sources of funds will be sufficient to fund our liquidity needs for at least the next 12
months. However, there are a number of factors that may negatively impact our available sources of
funds. The amount of cash generated from operations will be dependent upon factors such as the
successful execution of our business plan and general economic conditions. In addition, borrowings
under our credit facility are dependent upon our continued compliance with the financial and other
covenants contained therein. 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 future operating results may suffer. As we grow, it
will be difficult to maintain our historical growth rates. We intend to continue to pursue a business strategy of increasing sales and earnings by expanding
our retail and wholesale operations both in the United States and internationally. Because our
ability to implement our growth strategy successfully will be dependent in part on factors beyond
our control, including consumer preferences, macro-economic conditions, the competitive environment
in the markets in which we compete and other factors, we may not be able to achieve our planned
growth or sustain our financial performance. Our ability to anticipate changes in the candle, home
fragrance and giftware industries, and identify industry trends, will be critical factors in our
ability to grow as planned and remain competitive. We expect that, as we continue to grow, it will become more difficult to maintain our historical
growth rate, which could negatively impact our operating margins and results of operations. New
stores typically generate lower operating margin contributions than mature stores because fixed
costs, as a percentage of sales, are higher and because pre-opening costs are fully expensed in the
year of opening. In addition, our retail sales generate lower margins than our wholesale sales. Our
wholesale business has grown by increasing sales to existing customers and by adding new customers.
If we are not able to continue this, our sales growth and profitability could be adversely
affected. In addition, as we expand our wholesale business into new channels of trade that we
believe to be appropriate, sales in some of these new channels may, for competitive reasons within
the channels, generate lower margins than do our existing wholesale sales. Similarly, as we
continue to broaden our product offerings in order to meet consumer demand, we may do so in part by
adding products that, while still very profitable, have lower product margins than those of our
extremely profitable core candle products. We cannot assure you that we will continue to grow at a
rate comparable to our historic growth rate or that our historic financial performance will
continue as we grow. We may be unable to continue to open new stores successfully. Our retail growth strategy depends in large part on our ability to successfully open new stores in
both existing and new geographic markets. For our growth strategy to be successful, we must
identify and lease favorable store sites on favorable economic terms, hire and train managers and
associates and adapt management and operational systems to meet the needs of our expanded
operations. These tasks may be difficult to accomplish successfully. If we are unable to open new
stores as quickly as planned, then our future sales and profits could be materially adversely
affected. Even if we succeed in opening new stores, these new stores may not achieve the same sales
or profit levels as our existing stores. Also, our retail growth strategy includes opening new
stores in markets where we already have a presence so we can take advantage of economies of scale
in marketing, distribution and supervision costs, or the opening of new malls or centers n the
market. However, these new stores may result in the loss of sales in existing stores in nearby
areas, thereby negatively impacting our comparable store sales. Our retail growth strategy also
depends upon our ability to successfully renew the expiring leases of our profitable existing
stores. If we are unable to do so at planned levels and upon favorable economic terms, then our
future sales and profits could be negatively affected. 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. 15




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We compete generally for the disposable income of consumers with other producers and retailers in
the giftware industry. The giftware industry is highly competitive with a large number of both
large and small participants and relatively low barriers to entry. Our products compete with other
scented and unscented candle, home fragrance and personal care products and with other gifts within
a comparable price range, like boxes of candy, flowers, wine, fine soap and related merchandise.
Our retail stores compete primarily with specialty candle retailers and a variety of other
retailers including department stores, gift stores and national specialty retailers that carry
candles along with personal care items, giftware and houseware. In addition, while we focus
primarily on the premium scented candle segment, scented and unscented candles are also sold
outside of that segment by a variety of retailers including mass merchandisers. In our wholesale
business, we compete with numerous manufacturers and importers of candles, home fragrance products
and other home décor and gift items for the limited space available in our wholesale customer
locations for the display and sale of such products to consumers. Some of our competitors are part
of large, diversified companies which have greater financial resources and a wider range of product
offerings than we do. Many of our competitors source their products from low cost manufacturers
outside of the United States. This competitive environment could adversely affect our future
revenues and profits, financial condition and liquidity and our ability to continue to grow our
business. A material decline in consumers discretionary income could cause our sales and income to decline. Our results depend on consumer spending, which is influenced by general economic conditions and the
availability of discretionary income. Accordingly, we may experience declines in sales during
economic downturns or during periods of uncertainty like that which followed the September 11, 2001
terrorist attacks on the United States or which result from the threat of war or the possibility of
further terrorist attacks. Any material decline in the amount of discretionary spending could have
a material adverse effect on our sales and income. Because we are not a diversified company and are effectively dependent upon one industry, we have
less flexibility in reacting to unfavorable consumer trends, adverse economic conditions or
business cycles. We rely primarily on the sale of premium scented candles and related products in the giftware
industry. In the event that sales of these products decline or do not meet our expectations, we
cannot rely on the sales of other products to offset such a shortfall. As a significant portion of
our expenses is comprised of fixed costs, such as lease payments, our ability to decrease expenses
in response to adverse business conditions is limited in the short term. As a result, unfavorable
consumer trends, adverse economic conditions or changes in the business cycle could have a material
and adverse impact on our earnings. If we lose our senior executive officers, or are unable to attract and retain the talent required
for our business, our business could be disrupted and our financial performance could suffer. Our success is 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. In addition, as our business
grows in size and complexity we must be able to continue to attract, develop and retain qualified
personnel sufficient to allow us to adequately manage and grow our business. If we are unable to
do so, our operating results could be negatively impacted. We cannot guarantee that we will be
able to attract and retain personnel as and when necessary in the future. Many aspects of our manufacturing and distribution facilities are customized for our business; as a
result, the loss of one of these facilities would disrupt our operations. Approximately 74% of our sales in 2004 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. 16




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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, pricing and promotional activities of our competitors, and the mix of products
sold. Most of our operating expenses, such as rent expense, advertising and promotional expense and
employee wages and salaries, do not vary directly with sales and are difficult to adjust in the
short term. As a result, if sales for a particular quarter are below our expectations, we might not
be able to proportionately reduce operating expenses for that quarter, and therefore a sales
shortfall could have a disproportionate effect on our operating results for that quarter. Further,
our comparable store sales from our retail business in a particular quarter could be adversely
affected by competition, the opening nearby of new retail stores or wholesale locations, economic
or other general conditions or our inability to execute a particular business strategy. As a result
of these factors, we may report in the future sales, operating results or comparable store sales
that do not match the expectations of market analysts and investors. This could cause the trading
price of our common stock to decline. In addition, broad market and industry fluctuations may
adversely affect the price of our common stock, regardless of our operating performance. Public health epidemics such as Severe Acute Respiratory Syndrome may affect our operating results. Approximately 11% of our sales in 2004 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, natural disasters such as the 2004 tsunami,
or other factors could have an adverse effect on our ability to receive timely shipments of certain
of our products. 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. We are subject to a class action lawsuit in California. A class action lawsuit has been filed against us for alleged violations of certain California state
wage and hour and employment laws with respect to certain employees in our California retail
stores. This complaint was filed in February 2005 and we have therefore only begun to investigate
the allegations and have yet to file our answer. While we intend to vigorously defend ourselves
against the allegations, it is too early in the litigation process for us to fully evaluate or
predict the outcome of the litigation. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Our market risks relate primarily to changes in interest rates. We bear this risk in two specific
ways. First, we have debt outstanding. At April 2, 2005, we had $120 million outstanding under
our Credit Facility, which bears interest at variable rates. At April 2, 2005, the
weighted-average interest rate on outstanding borrowings was 4.06%. This facility is intended to
fund operating needs and stock repurchases if necessary. Because this facility carries a variable
interest rate pegged to market indices, our results of operations and cash flows will be exposed to
changes in interest rates. Based on 17




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April 2, 2005 borrowing levels, a 1.00% increase or decrease in current market interest rates would
have the effect of causing an approximately $1.2 million additional annual pre-tax charge or credit
to the statement 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 2, 2005 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 is
considered to be of a commodity nature is wax. Wax is a petroleum-based product. However, its
market price has not historically fluctuated with the movement of oil prices and has instead
generally moved with inflation. In 2004, however, significant increases in the price of crude oil
resulted in corresponding increases in the price of petroleum-based wax. These crude oil price
increases also negatively impacted our transportation costs. Future significant increases in wax
prices could have an adverse affect on our cost of goods sold and could lower our margins. At this point in time, operations outside of the United States are 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
2, 2005. Based on this evaluation, our chief executive officer and chief financial officer
concluded that, as of April 2, 2005, our disclosure controls and procedures were (1) designed to
ensure that material information relating to us, including our consolidated subsidiaries, is made
known to our chief executive officer and chief financial officer by others within those entities,
particularly during the period in which this report was being prepared and (2) effective, in that
they provide reasonable assurance that information that we are required to disclose in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms. 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 2, 2005 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. 18




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings Not Applicable 
 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities Under The Yankee Candle Company, Inc. 401(k) and Profit Sharing Plan (the Plan), participating employees may, as one
of several investment options, direct their Plan contributions to the purchase of shares of our common stock. If a
Plan participant directs his or her contribution to the purchase of our common stock, the Plan trustee purchases shares
of our common stock in the open market for the benefit of that participants Plan account. Neither the shares of our
common stock that have been offered and sold under the Plan to Plan participants, nor the interests in the Plan, have
been registered under Section 5 of the Securities Act of 1933. Since April 1, 2002, a total 27,662 shares of our
common stock were purchased under the Plan by Plan participants for an aggregate purchase price of $681,765 (or an
average of $24.65 per share). We recently discovered that those offers and sales of our common stock and Plan
interests may have been done in contravention of the registration requirements of Section 5 of the Securities Act of
1933. When our management discovered this situation, we promptly suspended the right of Plan participants to buy our
common stock under the Plan. We plan to file a Registration Statement on Form S-8 covering both the shares of our
common stock that may be purchased under the Plan as well as the interests in the Plan. The following table provides information about purchases by us of our common stock during the thirteen weeks ended
April 2, 2005. 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 Programs1/1/05-2/5/05
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    100,000,0002/6/05-3/5/05
    
    
    871,475
    
    
    
    30.92
    
    
    
    871,475
    
    
    $
    73,053,9933/6/05-4/2/05
    
    
    415,000
    
    
    
    31.23
    
    
    
    415,000
    
    
    $
    60,093,543Total
    
    
    1,286,475
    
    
    $
    31.02
    
    
    
    1,286,475
    (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 10.1
    
    Form of Commitment Letter dated
April 25, 2005 by and among the Yankee
Candle Company, Inc., Citizens Bank of Massachusetts and RBS Securities Corporation
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31.1
    
    Certification of Craig W. Rydin Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, dated May 9, 2005.31.2
    
    Certification of Bruce H. Besanko Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, dated May 9, 2005.32.1
    
    Certification of Craig W. Rydin Pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934, dated May 9, 2005.32.2
    
    Certification of Bruce H. Besanko Pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934, dated May 9, 2005.
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE YANKEE CANDLE COMPANY, INC./s/ Bruce H. BesankoDate: May 9, 2005
    
    By: Bruce H. BesankoSenior Vice President, Financeand Chief Financial Officer(Principal Financial Officer)
 21