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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: March 31, 2001
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Commission File Number: 001-15023
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THE YANKEE CANDLE COMPANY, INC.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04 259 1416
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
102 CHRISTIAN LANE, WHATELY, MASSACHUSETTS 01093
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(Address of principal executive office and zip code)
(413) 665-8306
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $ 0.01 par value New York Stock Exchange, Inc.
(Title of class) (Name of each exchange where registered)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
The registrant had 54,548,961 shares of Common Stock, par value $0.01,
outstanding as of May 14, 2001.
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THE YANKEE CANDLE COMPANY, INC.
FORM 10-Q - Quarter Ended March 31, 2001
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements. Any statements contained herein, including without limitation
statements to the effect that The Yankee Candle Company, Inc. (the "Company")
and its subsidiaries or its management "believes", "expects", "anticipates",
"plans" and similar expressions that 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. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. There are a number
of important factors that could cause the Company's 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."
Index
Item Page
- ---- ----
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
as of March 31, 2001 and December 30, 2000
Condensed Consolidated Statements of Operations 4
for the Thirteen weeks Ended March 31, 2001 and April 1, 2000
Condensed Consolidated Statements of Cash Flows for the Thirteen 5
weeks ended March 31, 2001 and April 1, 2000
Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II.Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
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PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 30,
2001 2000
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ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,381 $ 13,297
Accounts receivable, less allowance of $325 at March 31, 2001
and $352 at December 30, 2000 23,727 17,945
Inventory 37,141 35,036
Prepaid expenses and other current assets 6,597 5,419
Deferred tax assets 3,027 3,027
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TOTAL CURRENT ASSETS 75,873 74,724
PROPERTY, PLANT AND EQUIPMENT-NET 95,271 92,875
MARKETABLE SECURITIES 1,018 1,072
CLASSIC VEHICLES 874 874
DEFERRED FINANCING COSTS 3,650 3,929
DEFERRED TAX ASSETS 138,061 138,061
OTHER ASSETS 642 293
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TOTAL ASSETS $ 315,389 $ 311,828
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,042 $ 16,133
Accrued interest 1,560 2,524
Accrued payroll 7,559 7,757
Accrued income taxes -- 12,006
Other accrued liabilities 8,717 7,352
Current portion of long-term debt 30,000 30,000
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TOTAL CURRENT LIABILITIES 63,878 75,772
DEFERRED COMPENSATION OBLIGATION 1,089 1,074
LONG TERM DEBT - Less current portion 143,500 127,512
DEFERRED RENT 2,161 2,303
STOCKHOLDERS' EQUITY:
Common stock 1,041 1,041
Additional paid-in capital 224,842 224,381
Treasury stock (212,988) (212,988)
Retained earnings 93,561 93,740
Unearned stock compensation (1,007) (631)
Accumulated other comprehensive loss (688) (376)
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TOTAL STOCKHOLDERS' EQUITY 104,761 105,167
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 315,389 $ 311,828
========= =========
See notes to Condensed Consolidated Financial Statements
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the Thirteen Weeks Ended
----------------------------
March 31, April 1,
2001 2000
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Net sales $ 75,320 $ 63,490
Cost of sales 38,015 29,080
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Gross profit 37,305 34,410
Selling expenses 17,175 13,143
General and administrative expenses 9,191 7,786
Restructuring charge 8,000 --
-------- --------
Income from operations 2,939 13,481
Interest income (42) (67)
Interest expense 3,376 3,845
Other (income) expense (102) 54
-------- --------
Income (loss) before provision for (benefit from) income taxes (293) 9,649
Provision for (benefit from) income taxes (114) 3,859
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Net income (loss) $ (179) $ 5,790
======== ========
Basic earnings per share $ 0.00 $ 0.11
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Diluted earnings per share $ 0.00 $ 0.11
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Weighted average shares:
Basic 53,617 52,900
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Diluted 53,617 54,622
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See notes to Condensed Consolidated Financial Statements
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Thirteen Weeks Ended
----------------------------
March 31, April 1,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (179) $ 5,790
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 3,288 2,174
Write-down of Utah equipment 2,124 --
Unrealized loss (gain) on marketable equity securities 88 (30)
Non-cash stock compensation 85 152
(Gain) loss on disposal of fixed assets and classic vehicles (28) 2
Changes in assets and liabilities:
Accounts receivable-net (5,867) (2,921)
Inventory (2,258) (11,720)
Prepaid expenses and other assets (1,564) (1,280)
Accounts payable (79) 2,954
Accrued expenses and other liabilities (11,920) (8,899)
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NET CASH USED IN OPERATING ACTIVITIES (16,310) (13,778)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (7,670) (10,211)
Investments in marketable equity securities (34) (148)
Proceeds from sale of equipment 25 --
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NET CASH USED IN INVESTING ACTIVITIES (7,679) (10,359)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings(repayments) under bank credit agreements 23,646 14,172
Principal payments on long-term debt and capital lease obligations (7,512) (7,500)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 16,134 6,672
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EFFECT OF EXCHANGE RATE ON CASH (61) 97
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,916)
(17,368)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,297 23,569
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,381 $ 6,201
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 4,340 $ 4,019
Income taxes 12,573 10,698
See notes to Condensed Consolidated Financial Statements
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of The Yankee
Candle Company, Inc. (the "Company") and its subsidiaries have been prepared in
accordance with 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 contains all adjustments necessary for a fair presentation of the
results for such periods. In addition, the Company believes such information
reflects all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position, results of operations, cash flows and
comprehensive loss for such periods. All intercompany transactions and balances
have been eliminated. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full fiscal year
ending December 29, 2001.
Certain information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission, although
the Company believes the disclosure is adequate to make the information
presented not misleading. The accompanying unaudited condensed financial
statements should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 30, 2000.
2. INVENTORIES
Inventory quantities are substantiated through the completion of quarter end
physical inventory counts. Inventories are stated at the lower of cost or market
on a last-in first-out ("LIFO") basis.
The components of inventory were as follows:
March 31, December 30,
2001 2000
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Finished goods $ 31,977 $ 27,461
Work-in-process 26 15
Raw materials and packaging 5,912 8,334
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37,915 35,810
Less LIFO reserve (774) (774)
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$ 37,141 $ 35,036
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3. INCOME TAXES
The Company's effective tax rate in the first quarter of fiscal 2001 and fiscal
2000 was 39% and 40%, respectively. The Company provides for income taxes at the
end of each interim period based on the estimated effective tax rate for a full
fiscal year.
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4. EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of earnings per share
("EPS") on a basic and diluted basis. The computation of basic earnings per
share is based on the weighted average number of common shares outstanding
during the period. The computation of diluted earnings per share includes the
dilutive effect of common stock equivalents consisting of certain shares subject
to stock options. The number of common stock equivalents which could dilute
basic earnings per share in the future, that were not included in the
computation of diluted earnings per share because to do so would have been
antidilutive was 1,045 and 144 for the thirteen weeks ended March 31, 2001 and
April 1, 2000, respectively. The following summarizes the effects of the assumed
issuance of dilutive securities on weighted-average shares.
For the Thirteen Weeks Ended
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March 31, 2001 April 1, 2000
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Weighted average basic shares
outstanding 53,617 52,900
Adjustments:
Contingently returnable shares and
shares issuable pursuant to stock
option grants -- 1,722
------ ------
Weighted average diluted shares
outstanding 53,617 54,622
====== ======
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all changes in equity during the period. It
has two components: net income (loss) and other comprehensive income (loss).
Comprehensive income (loss), net of related tax effects, is as follows:
For the Thirteen Weeks Ended
----------------------------
March 31, 2001 April 1, 2000
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Net income (loss) $ (179) $5,790
Other comprehensive income (loss):
Translation adjustment (312) 14
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Total other comprehensive income (loss) (312) 14
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Comprehensive income (loss) $ (491) $5,804
====== ======
Accumulated other comprehensive income (loss) reported on the Company's
Condensed Consolidated Balance Sheets consists of foreign currency translation
adjustments.
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6. SEGMENT INFORMATION
The Company has segmented its operations in a manner that reflects how its chief
operating decision-maker (the "CEO") currently reviews the results of the
Company and its subsidiaries' businesses. The Company has two reportable
segments - retail and wholesale. The identification of these segments results
from management's recognition that while the product sold is similar, the type
of customer for the product and services and the methods used to distribute the
product are different.
Balance per
Thirteen Weeks Unallocated/ Condensed
Ended Corporate/ Consolidated
March 31, 2001 Retail Wholesale Other Financial Statements
- -------------- ------ --------- ------------ --------------------
Net sales $ 34,756 $ 40,564 $ -- $ 75,320
Gross profit 20,847 16,458 -- 37,305
Operating margin 5,883 14,248 (17,192) 2,939
Unallocated costs -- -- (3,232) (3,232)
Loss before benefit
from income taxes -- -- -- (293)
Balance per
Thirteen Weeks Unallocated/ Condensed
Ended Corporate/ Consolidated
April 1, 2000 Retail Wholesale Other Financial Statements
- -------------- ------ --------- ------------ --------------------
Net sales $ 24,717 $ 38,773 $ -- $ 63,490
Gross profit 16,165 18,245 -- 34,410
Operating margin 4,977 16,290 (7,786) 13,481
Unallocated costs -- -- (3,832) (3,832)
Income before provision
for income taxes -- -- -- 9,649
7. RESTRUCTURING CHARGE
On February 14, 2001, the Company announced plans to consolidate and restructure
its distribution, manufacturing and supply chain operations. In connection with
this decision the Company shut-down its Utah distribution facility and
restructured its distribution and manufacturing work-force. As a result of this
plan, the Company recorded a pre-tax restructuring charge of approximately $8.0
million in the first quarter of fiscal 2001. The major components of this charge
were severance costs and other employee related costs, the write-down of
non-recoverable leasehold improvements, fixture and equipment investments and
estimated continuing occupancy expense, net of anticipated sub-lease income. The
Company's workforce was reduced by approximately 450 employees as a result of
this restructuring. An analysis of the restructuring reserve is as follows:
Accrued as of
Expense Costs Paid March 31, 2001
------- ---------- --------------
Occupancy $ 2,635 $ (134) $ 2,501
Employee related 2,635 (1,386) 1,249
Other 606 (476) 130
------- ------- -------
Total $ 5,876 $(1,996) $ 3,880
======= ======= =======
In addition, as described above, the Company recorded a pre-tax non-cash
write-down of property, plant and equipment at its Utah facility of $2,124.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - Thirteen weeks ended March 31, 2001 versus thirteen
weeks ended April 1, 2000.
NET SALES
Net sales increased 18.6% to $75.3 million for the thirteen weeks ended March
31, 2001 from $63.5 million for the thirteen weeks ended April 1, 2000. This
growth was achieved by increasing the number of retail stores, increasing sales
in existing retail stores and mail-order operations, and increasing sales to
wholesale customers.
Wholesale sales increased 4.6% to $40.6 million for the thirteen weeks ended
March 31, 2001 from $38.8 million for the thirteen weeks ended April 1, 2000.
This growth was achieved by increasing sales to existing customers and
increasing the number of wholesale locations. The Company believes this
wholesale sales growth has been and will continue to be positively impacted by
increased promotional spending, the addition of new wholesale locations and the
continued growth of its European operations.
Retail sales increased 40.6% to $34.8 million for the thirteen weeks ended March
31, 2001 from $24.7 million for the thirteen weeks ended April 1, 2000. This
growth was achieved by increasing the number of retail stores and increasing
sales in existing retail stores and mail-order operations. There were 154 retail
stores open as of March 31, 2001 compared to 116 retail stores open as of April
1, 2000 and 147 retail stores open as of December 30, 2000. Comparable store and
mail-order hub sales for the thirteen weeks ended March 31, 2001 increased 14%
over the thirteen weeks ended April 1, 2000. Retail comparable store sales
increased 8%. There were 109 retail stores included in the comparable store base
as of March 31, 2001.
GROSS PROFIT
Gross profit increased 8.4% to $37.3 million for the thirteen weeks ended March
31, 2001 from $34.4 million for the thirteen weeks ended April 1, 2000. This
increase was almost entirely attributable to the increase in sales. As a
percentage of sales, gross profit decreased to 49.5% for the thirteen weeks
ended March 31, 2001 from 54.2% for the thirteen weeks ended April 1, 2000. The
decrease in the gross profit rate was primarily due to inefficiencies in supply
chain operations; and to a lesser extent a higher mix of non-manufactured sales
in the retail business and discounts associated with the sell-through of holiday
merchandise in the retail business. The supply chain inefficiencies were
addressed during the first quarter of fiscal 2001 as part of the Company's
restructuring plan.
SELLING EXPENSES
Selling expenses increased 30.7% to $17.2 million for the thirteen weeks ended
March 31, 2001 from $13.1 million for the thirteen weeks ended April 1, 2000.
These expenses are related to both wholesale and retail operations and consist
of payroll, occupancy, advertising and other operating costs. As a percentage of
sales, selling expenses increased to 22.8% for the thirteen weeks ended March
31, 2001 from 20.7% for the thirteen weeks ended April 1, 2000. The increase in
selling expense in dollars and as a percentage of sales for the quarter was
primarily related to the shift in business mix between retail and wholesale.
Retail sales, which have a higher gross margin and higher selling expenses as a
percentage of sales, represented 46.1% of total sales in the first quarter of
2001 compared to 38.9% in the same quarter last year. Retail selling expense as
a percentage of retail sales decreased, demonstrating the Company's ability to
leverage selling expense as store sales increase.
SEGMENT PROFITABILITY
Segment profitability is net sales less cost of sales and selling expenses.
Segment profitability for the Company's wholesale operations, including Europe,
was $14.2 million, or 35.1% of wholesale sales in 2001 compared to $16.3 million
or 42.0% of wholesale sales in 2000. Segment profitability for the Company's
retail operations was $5.9 million or 16.9% of retail sales in 2001 compared to
$5.0 million or 20.1% of retail sales in 2000. The decrease in wholesale and
retail segment profitability as a percentage of net sales was primarily due to
inefficiencies in supply chain operations; and to a lesser extent a higher mix
of non-manufactured sales in the retail business, discounts associated with the
sell-through of holiday merchandise in the retail business and higher than
anticipated display expenses in the wholesale business. The supply chain
inefficiencies were addressed during the first quarter of fiscal 2001 as part of
the Company's restructuring plan.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which consist primarily of
personnel-related costs incurred in the administration of support functions,
increased 18.1% to $9.2 million for the thirteen weeks ended March 31, 2001 from
$7.8 million for the thirteen weeks ended April 1, 2000. As a percentage of
sales, general and administrative expenses decreased to 12.2% for the thirteen
weeks ended March 31, 2001 from 12.3% for the thirteen weeks ended April 1,
2000. The increase in general and administrative expenses in dollars for the
thirteen weeks ended March 31, 2001 was due primarily to the new systems
infrastructure installed in the last half of fiscal 2000.
RESTRUCTURING CHARGE
Restructuring charge was $8.0 million for the thirteen weeks ended March 31,
2001 to record costs associated with the Company's decision to consolidate and
restructure its distribution, manufacturing and supply chain operations. The
Company shut-down its Utah distribution facility and restructured its
distribution and manufacturing work-force during the thirteen weeks ended March
31, 2001. Included in the restructuring charge are severance and other employee
related costs, the non-cash write-down of non-recoverable leasehold
improvements, fixture and equipment investments of $2.1 million and estimated
continuing occupancy expense, net of anticipated sub-lease income. An analysis
of the restructuring reserve is as follows:
Accrued as of
Expense Costs Paid March 31, 2001
------- ---------- --------------
Occupancy $ 2,635 $ (134) $ 2,501
Employee related 2,635 (1,386) 1,249
Other 606 (476) 130
------- ------- -------
Total $ 5,876 $(1,996) $ 3,880
======= ======= =======
NET OTHER EXPENSE
Net other expense was $3.2 million for the thirteen weeks ended March 31, 2001,
compared to $3.8 million for the thirteen weeks ended April 1, 2000. The primary
component of the expense in each of these periods was interest expense, which
was $3.4 million in the thirteen weeks of 2001 compared to $3.8 million in the
thirteen weeks of 2000. Interest expense in the thirteen weeks ended March 31,
2001 decreased compared to the thirteen weeks ended April 1, 2000 primarily due
to a reduction in the total debt outstanding from $194.1 million at April 1,
2000 compared to $173.5 million at March 31, 2001.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for the thirteen weeks ended March 31, 2001 and
April 1, 2000 was 39% and 40%, respectively. Management estimates that the
current effective tax rate will remain in place for the entire year based on its
current tax structure.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $7.9 million compared to December 30,
2000. This decrease was partially attributable to cash used in operating
activities of $16.3 million, which includes a $12.6 million payment of corporate
income taxes for fiscal 2000 and fiscal 2001. Capital expenditures for the
thirteen weeks ended March 31, 2001 were $7.7 million, primarily related to the
capital requirements to open seven new stores, investments in logistics
operations including the opening of a new distribution center in April 2001,
information systems and manufacturing operations. Net cash provided by financing
activities was $16.1 million in the thirteen weeks ended March 31, 2001 which
primarily represents net borrowings during the quarter on the Company's credit
facility.
The Company opened seven stores during the thirteen weeks ended March 31, 2000
and expects to open approximately 38 additional stores during the next
thirty-nine weeks of fiscal 2001. The Company expects to use approximately $11.5
million for store openings during the last thirty-nine weeks of fiscal 2001. In
addition, the Company plans to continue to make investments in manufacturing
equipment, information systems, logistics operations and store redesign to
improve operational efficiencies and customer service. The Company expects to
meet these cash requirements through a combination of available cash, operating
cash flow and borrowings under its credit facility.
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As of March 31, 2001, the Company was in compliance with all covenants under its
credit facility. Available borrowings under the revolving credit facility were
$81.5 million.
The Company expects that its current cash and cash equivalents and the funds
available under its revolving credit and term loan facility will be sufficient
to fund its planned store openings, other recurring operational cash needs and
costs associated with its restructuring for the next twelve months.
IMPACT OF INFLATION
The Company does not believe inflation has a significant impact on its
operations. The prices of its products have not varied based on the movement of
the consumer price index. The majority of material and labor costs are not
materially affected by inflation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks relate primarily to changes in interest rates. The
Company bears this risk in its outstanding debt. At March 31, 2001, there was
$173.5 million of debt outstanding, which consisted of $105.0 million in term
loans and $68.5 million from its revolving credit facility. Because this debt
carries a variable interest rate pegged to market indices, the Company's
statements of operations and cash flows are exposed to changes in interest
rates.
The Company buys a variety of raw materials for inclusion in its products. The
only raw material that it considers to be of a commodity nature is wax. Wax is a
petroleum-based product, however, its market price has not historically
fluctuated with the movement of oil prices. Rather, over the past five years wax
prices have moved with inflation.
At this point in time, the Company's operations outside of the United States are
immaterial. Accordingly, it is not exposed to substantial risks arising from
foreign currency exchange rates.
FORWARD-LOOKING INFORMATION
As referenced above, there are a number of factors that might cause the
Company's actual results to differ significantly from the results reflected by
the forward-looking statements contained herein. In addition to factors
generally affecting the political, economic and competitive conditions in the
United States and abroad, such factors include those set forth below.
FUTURE OPERATING RESULTS
The following factors could adversely affect the Company's future operating
results.
THE COMPANY MAY NOT BE ABLE TO GROW ITS BUSINESS AS PLANNED.
Yankee Candle intends to continue to pursue a business strategy of increasing
sales and earnings by expanding its retail and wholesale operations both in the
United States and internationally. The Company's retail growth strategy depends
in large part on its ability to open new stores in both existing and new
geographic markets. Because Yankee Candle's ability to implement its growth
strategy successfully will be dependent in part on factors beyond its control,
including changes in consumer preferences and in its competitive environment,
the Company may not be able to achieve its planned growth or sustain its
financial performance. Yankee Candle's ability to anticipate changes in the
candle and giftware industries, and identify industry trends will be critical
factors in its ability to remain competitive. The Company expects that, as it
grows, it will become more difficult to maintain the Company's growth rate. The
Company cannot give assurances that it will continue to grow at a rate
comparable to Yankee Candle's historic growth rate or that its historic
financial performance will continue as the Company grows.
THE COMPANY FACES SIGNIFICANT COMPETITION IN THE GIFTWARE INDUSTRY, WHICH COULD
ADVERSELY AFFECT ITS FUTURE OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY
AND ITS ABILITY TO CONTINUE TO GROW ITS BUSINESS.
Yankee Candle competes generally for the disposable income of consumers with
other producers in the giftware industry. The giftware industry is highly
competitive with a large number of both large and small participants. Yankee
Candle's products compete with other scented and unscented candle products and
with other gifts within a comparable price range, like boxes of candy, flowers,
wine, fine soap and related merchandise. Yankee Candle's competitors include
candle manufacturers and a variety of retail formats such as franchised candle
store chains, specialty candle stores, gift and houseware retailers, department
stores, mass market stores and mail order houses. Some of these competitors are
part of large, diversified companies having greater financial resources and a
wider range of product
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offerings than Yankee Candle. This competitive environment could adversely
affect the Company's future revenues and profits, financial condition and
liquidity and its ability to continue to grow its business.
YANKEE CANDLE INCURRED INDEBTEDNESS IN CONNECTION WITH ITS 1998
RECAPITALIZATION, AND SERVICING ITS INDEBTEDNESS COULD REDUCE FUNDS AVAILABLE TO
GROW ITS BUSINESS.
At March 31, 2001, there was $173.5 million of debt outstanding, which consisted
of $105.0 million in term loans and $68.5 million from its revolving credit
facility. Although Yankee Candle believes that its cash flow from operations and
its available financing should be sufficient to meet its anticipated
requirements for growing the business and servicing its debt, the Company's
level of long-term indebtedness could reduce funds available to grow its
business in the future.
YANKEE CANDLE'S SUCCESS DEPENDS ON ITS SENIOR EXECUTIVE OFFICERS, THE LOSS OF
WHOM COULD DISRUPT THE COMPANY'S BUSINESS.
The Company's success is substantially dependent upon the retention of its
senior executive officers. If the Company's senior executive officers become
unable or unwilling to participate in the business of Yankee Candle, its future
business and financial performance could be materially affected.
BECAUSE YANKEE CANDLE IS NOT A DIVERSIFIED COMPANY AND IS DEPENDENT UPON ONE
INDUSTRY, YANKEE CANDLE HAS LESS FLEXIBILITY IN REACTING TO UNFAVORABLE CONSUMER
TRENDS, ADVERSE ECONOMIC CONDITIONS OR BUSINESS CYCLES.
THE LOSS OF THE COMPANY'S MANUFACTURING FACILITY WOULD DISRUPT ITS OPERATIONS.
Yankee Candle relies exclusively on its manufacturing facility in Whately,
Massachusetts to produce its candle products. Because most of its machinery is
designed or customized by Yankee Candle to manufacture its products, and because
the Company has strict quality control standards for its products, the loss of
its manufacturing facility, due to natural disaster or otherwise, would
materially affect the Company's operations. Although Yankee Candle's
manufacturing facility is adequately insured, the Company believes it would take
a minimum of nine months to replace the plant and machinery to a level
equivalent to their current level of production and quality control standards.
THE COMPANY MAY EXPERIENCE A DECLINE IN ITS RETAIL COMPARABLE STORE SALES, WHICH
COULD CAUSE THE PRICE OF ITS COMMON STOCK TO DROP.
Comparable store sales from the Company's retail business have contributed to
Yankee Candle's overall sales growth. The Company's retail comparable store
sales could be adversely impacted by competition or Yankee Candle's inability to
execute its business strategy. If the Company's retail comparable store sales
decline for any reason, Yankee Candle could experience a decline in its revenues
and income, which could lower the price of the Company's common stock.
SEASONAL AND QUARTERLY FLUCTUATIONS IN THE COMPANY'S BUSINESS COULD AFFECT THE
MARKET FOR ITS COMMON STOCK.
Yankee Candle's net sales and operating results vary from quarter to quarter.
The Company has historically realized higher net sales and operating income in
its fourth quarter, particularly in its retail business, which is the larger
portion of the Company's sales. Yankee Candle believes that this has been due
primarily to an increase in giftware industry sales during the holiday season of
the fourth quarter. As a result of this seasonality, the Company believes that
quarter to quarter comparisons of its operating results are not necessarily
meaningful and that these comparisons cannot be relied upon as indicators of
future performance. In addition, Yankee Candle may also experience quarterly
fluctuations in its net sales and income depending on various factors,
including, among other things, the number of new retail stores the Company opens
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 the
Company's operating expenses, such as rent expense, advertising and promotional
expense and employee wages and salaries, do not vary directly with net sales and
are difficult to adjust in the short term. As a result, if net sales for a
particular quarter are below the Company's expectations, the Company could not
proportionately reduce operating expenses for that quarter, and therefore a net
sales shortfall could have a disproportionate effect on the Company's operating
results for that quarter. As a result of these factors, Yankee Candle may report
in the future net sales and operating results that do not match the expectations
of market analysts and investors. This could cause the trading price of the
Company's common stock to decline.
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YANKEE CANDLE IS CONTROLLED BY FORSTMANN LITTLE & CO., WHOSE INTERESTS MAY
CONFLICT WITH THOSE OF OTHER STOCKHOLDERS.
Partnerships affiliated with Forstmann Little & Co. own approximately 63% of the
Company's outstanding common stock and control the Company. Accordingly, they
are able to:
- - elect the Company's entire board of directors,
- - control the Company's management and policies, and
- - determine, without the consent of the Company's other stockholders, the
outcome of any corporate transaction or other matter submitted to the
Company's stockholders for approval, including mergers, consolidations and
the sale of all or substantially all of the Company's assets.
They are also able to prevent or cause a change in control of Yankee Candle and
are able to amend the Company's Articles of Organization and By-Laws at any
time. The interests of the Forstmann Little partnerships also may conflict with
the interests of the other holders of common stock.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the exhibit index accompanying this filing.
(b) Reports on Form 8-K
Not Applicable
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EXHIBIT INDEX
10.14 Employment Agreement, dated March 31, 2001 between The Yankee Candle
Company, Inc. and Craig W. Rydin.
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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 hereunto duly authorized.
THE YANKEE CANDLE COMPANY, INC.
/s/ Robert R. Spellman
-----------------------------------
Date: May 14, 2001 By: Robert R. Spellman
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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