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: SEPTEMBER 28, 2002
Commission File Number: 001-15023
THE YANKEE CANDLE COMPANY, INC.
-------------------------------
(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)
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 Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The registrant had 54,359,460 shares of Common Stock, par value $0.01,
outstanding as of November 11, 2002.
THE YANKEE CANDLE COMPANY, INC.
FORM 10-Q - Quarter Ended September 28, 2002
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 (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 our 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." We undertake 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 PAGE
- ---- -----
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 28, 2002 and December 29, 2001 3
Condensed Consolidated Statements of Operations for the Thirteen
and Thirty-Nine Weeks Ended September 28, 2002 and September 29, 2001 4
Condensed Consolidated Statements of Cash Flows for the
Thirty-Nine Weeks ended September 28, 2002 and September 29, 2001 5
Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
PART II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
2
PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 28, December 29,
2002 2001
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,022 $ 30,531
Accounts receivable, less allowance of $325 at September 28, 2002
and December 29, 2001 33,784 23,141
Inventory 50,322 23,680
Prepaid expenses and other current assets 6,884 4,340
Deferred tax assets 3,544 3,544
--------- ---------
TOTAL CURRENT ASSETS 104,556 85,236
PROPERTY, PLANT AND EQUIPMENT-NET 110,553 103,975
MARKETABLE SECURITIES 862 961
DEFERRED FINANCING COSTS 1,980 2,815
DEFERRED TAX ASSETS 118,029 127,029
OTHER ASSETS 394 1,268
--------- ---------
TOTAL ASSETS $ 336,374 $ 321,284
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 26,233 $ 19,044
Accrued payroll 9,901 9,170
Accrued income taxes - 14,462
Other accrued liabilities 11,919 12,367
Current portion of long-term debt 32,000 31,500
------- ---------
TOTAL CURRENT LIABILITIES 80,053 86,543
DEFERRED COMPENSATION OBLIGATION 799 1,055
LONG TERM DEBT - Less current portion 78,622 83,500
DEFERRED RENT 2,658 2,082
STOCKHOLDERS' EQUITY:
Common stock 1,042 1,041
Additional paid-in capital 225,544 224,850
Treasury stock (213,752) (213,752)
Retained earnings 161,757 137,025
Unearned stock compensation (136) (522)
Accumulated other comprehensive loss (213) (538)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 174,242 148,104
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 336,374 $ 321,284
========= =========
See notes to Condensed Consolidated Financial Statements
3
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
For the Thirteen Weeks Ended For the Thirty-Nine Weeks Ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
---- ---- ---- ----
Sales $99,037 $84,939 $268,517 $222,489
Cost of goods sold 44,840 39,910 124,688 108,057
------- ------- -------- --------
Gross profit 54,197 45,029 143,829 114,432
Selling expenses 23,634 18,657 67,305 52,989
General and administrative expenses 10,818 10,093 32,383 28,938
Restructuring charge -- -- -- 8,000
------- ------- -------- --------
Income from operations 19,745 16,279 44,141 24,505
Interest income (2) (4) (20) (64)
Interest expense 1,253 2,401 3,719 8,773
Other (income) expense (108) 28 (102) (100)
------- ------- -------- --------
Income before provision for income taxes 18,602 13,854 40,544 15,896
Provision for income taxes 7,254 5,403 15,812 6,200
------- ------- -------- --------
Net income $11,348 $ 8,451 $ 24,732 $ 9,696
======= ======= ======== ========
Basic earnings per share $0.21 $0.16 $0.46 $0.18
===== ===== ===== =====
Diluted earnings per share $0.21 $0.16 $0.45 $0.18
===== ===== ===== =====
Weighted average shares:
Basic 53,882 53,309 53,798 53,514
====== ====== ====== ======
Diluted 54,652 54,506 54,724 54,661
====== ====== ====== ======
See notes to Condensed Consolidated Financial Statements
4
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
FOR THE THIRTY-NINE WEEKS ENDED
-------------------------------
September 28, September 29,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,732 $ 9,696
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 12,635 10,271
Impairment -- 2,124
Unrealized loss on marketable securities 195 137
Non-cash stock compensation 386 408
Deferred taxes 9,000 9,000
(Gain) loss on disposal of fixed assets and classic vehicles (99) 8
Changes in assets and liabilities:
Accounts receivable (10,514) (12,909)
Inventory (26,432) (9,190)
Prepaid expenses and other assets (2,121) (9,801)
Accounts payable 7,174 6,213
Accrued expenses and other liabilities (13,876) (7,561)
-------- --------
NET CASH FROM OPERATING ACTIVITIES 1,080 (1,604)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (19,449) (22,569)
Investments in marketable securities (359) (167)
Proceeds from sale of fixed assets and classic vehicles 1,666 230
Proceeds from sale of marketable securities 263 255
-------- --------
NET CASH FROM INVESTING ACTIVITIES (17,879) (22,251)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock on option exercises 695 --
Net borrowings (repayments) under bank credit agreements and other 19,030 41,534
Principal payments on long-term debt (23,500) (22,500)
Payments for redemption of common stock -- (764)
-------- --------
NET CASH FROM FINANCING ACTIVITIES (3,775) 18,270
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 65 (14)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (20,509) (5,599)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,531 13,297
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,022 $ 7,698
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $3,560 $8,888
Income taxes 21,670 14,389
See notes to Condensed Consolidated Financial Statements
5
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. 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 year ending December 28, 2002.
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 29, 2001 included in the
Company's Annual Report on Form 10-K.
In August 2001, Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" was issued.
This statement amends the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
Accounting Principles Board No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." This statement, which
excludes goodwill from its scope, establishes the methodology to be used for
evaluating (i) long-lived assets to be held and used, (ii) long-lived assets to
be disposed of other than by sale, and (iii) long-lived assets to be disposed of
by sale, for both ongoing and discontinued operations. In addition, SFAS No. 144
broadens the treatment of discontinued operations to include components of an
entity rather than just segments of a business. SFAS No. 144 was adopted by the
Company in the first quarter of fiscal 2002, and did not have any impact on the
Company's financial position and results of operations.
2. INVENTORIES
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:
September 28, December 29,
2002 2001
------------- ------------
Finished goods $ 44,746 $19,523
Work-in-process 804 275
Raw materials and packaging 5,375 4,485
-------- -------
50,925 24,283
Less LIFO reserve (603) (603)
-------- -------
$ 50,322 $23,680
=-====== =======
3. INCOME TAXES
The Company's effective tax rate in the thirteen and thirty-nine weeks ended
September 28, 2002 and September 29, 2001 was 39%. 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. Management re-evaluates the Company's effective
tax rate on a quarterly basis.
6
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 and certain contingently returnable shares. The number of
common stock equivalents which could have diluted basic earnings per share, that
were not included in the computation of diluted earnings per share because to do
so would have been antidilutive, was 304 for the thirteen and thirty-nine weeks
ended September 28, 2002 and 259 and 331 for the thirteen and thirty-nine weeks
ended September 29, 2001, respectively. The following summarizes the effects of
the assumed issuance of dilutive securities on weighted-average shares.
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
September 28, September 29, September 28, September 29,
--------------- -------------- --------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Weighted average basic shares outstanding 53,882 53,309 53,798 53,514
Contingently returnable shares and shares
issuable pursuant to stock option grants 770 1,197 926 1,147
------ ------ ------ ------
Weighted average diluted shares outstanding 54,652 54,506 54,724 54,661
====== ====== ====== ======
5. COMPREHENSIVE INCOME
Comprehensive income includes all changes in equity during the period except
those resulting from transactions with owners of the Company. It has two
components: net income and other comprehensive income (loss). Comprehensive
income, net of related tax effects, is as follows:
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------------------- --------------------------------
September 28, September 29, September 28, September 29,
-------------- -------------- -------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $11,348 $8,451 $24,732 $9,696
Other comprehensive income (loss):
Foreign currency translation adjustment 52 288 325 (74)
------- ------ ------- ------
Total other comprehensive income (loss) 52 288 325 (74)
------- ------ ------- -----
Comprehensive income $11,400 $8,739 $25,057 $9,622
======= ====== ======= ======
Accumulated other comprehensive loss reported on the Company's Condensed
Consolidated Balance Sheets consists of foreign currency translation
adjustments.
7
6. SEGMENT INFORMATION
The Company has segmented its operations in a manner that reflects how its chief
operating decision-maker (its CEO) currently reviews the results of the Company
and its subsidiaries' businesses. The Company has two reportable segments -
retail and wholesale. The identification of these segments results from
management's recognition that while the product produced is similar, the type of
customer for the product and services and the methods used to distribute the
product are different.
The CEO evaluates both its retail and wholesale operations based on an
"operating earnings" measure. Such measure gives recognition to specifically
identifiable operating costs such as cost of sales and selling expenses.
Administrative charges are generally not allocated to specific operating
segments and are accordingly reflected in the unallocated/corporate/other
category. Other components of the statement of operations, which are classified
below operating income, are also not allocated by segments. The Company does not
account for or report assets, capital expenditures or depreciation and
amortization by segment to the CEO.
Balance per
Condensed
Thirteen Weeks Unallocated/ Consolidated
Ended Corporate/ Statements of
September 28, 2002 Retail Wholesale Other Operations
- ------------------ ------ --------- ----- ----------
Sales $45,843 $53,194 $ -- $ 99,037
Gross profit 28,809 25,388 -- 54,197
Operating margin 7,980 22,583 (10,818) 19,745
Unallocated costs -- -- (1,143) (1,143)
Income before provision for income taxes -- -- -- 18,602
Balance per
Condensed
Thirteen Weeks Unallocated/ Consolidated
Ended Corporate/ Statements of
September 29, 2001 Retail Wholesale Other Operations
- ------------------ ------ --------- ----- ----------
Sales $40,661 $44,278 $ -- $84,939
Gross profit 25,163 19,866 -- 45,029
Operating margin 8,681 17,691 (10,093) 16,279
Unallocated costs -- -- (2,425) (2,425)
Income before provision for income taxes -- -- -- 13,854
Balance per
Condensed
Thirty-Nine Weeks Unallocated/ Consolidated
Ended Corporate/ Statements Of
September 28, 2002 Retail Wholesale Other Operations
- ------------------ -------- --------- ------------ --------------
Sales $129,059 $139,458 $ -- $268,517
Gross profit 79,111 64,718 -- 143,829
Operating margin 19,846 56,678 (32,383) 44,141
Unallocated costs -- -- (3,597) (3,597)
Income before provision for income taxes -- -- -- 40,544
Balance per
Condensed
Thirty-Nine Weeks Unallocated/ Consolidated
Ended Corporate/ Statements of
September 29, 2001 Retail Wholesale Other Operations
- ------------------ ------ --------- ----- ----------
Sales $109,531 $112,958 $ -- $222,489
Gross profit 66,029 48,403 -- 114,432
Operating margin 19,477 41,966 (36,938) 24,505
Unallocated costs -- -- (8,609) (8,609)
Income before provision for income taxes -- -- -- 15,896
8
7. RESTRUCTURING CHARGE
On February 14, 2001, the Company announced plans to consolidate and restructure
its distribution, manufacturing and supply chain operations. The Company's Form
10-K for the fifty-two weeks ended December 29, 2001 disclosed the principal
components of this restructuring plan. An analysis of the activity within the
restructuring reserve since December 29, 2001 is as follows:
For the thirteen weeks ended For the thirteen Weeks Ended For the thirteen weeks ended
March 30, 2002 June 29, 2002 September 28, 2002
------------------------------ ---------------------------- ---------------------------------------------
Reserve as of Reserve as of Reserve as of Reserve as of
December 29, 2001 Costs Paid March 30, 2002 Costs Paid June 29, 2002 Costs Paid September 28, 2002
----------------- ---------- -------------- ---------- ------------- ---------- ------------------
Occupancy $ 1,854 $254 $1,600 $202 $1,398 $175 $1,223
Employee
related 331 73 258 71 187 70 117
-------- ---- ------ ---- ------ ----- ------
Total $ 2,185 $327 $1,858 $273 $1,585 $ 245 $1,340
======== ==== ====== ==== ====== ===== ======
During the second quarter of fiscal 2002, the Company was successful in
subletting the facility covered under the "Occupancy" heading for the remaining
lease term. Management believes that the remaining reserve at September 28, 2002
appropriately reflects the Company's lease commitment exposure in light of the
sub-lease arrangement and that the total reserve is adequate and not excessive.
8. NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, SFAS No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. It is to be
implemented for restructuring or disposal activities occurring after December
31, 2001. The Company's fiscal 2001 restructuring activities, as described in
Note 7, occurred prior to the effective date of SFAS No. 146 and were therefore
accounted for under previously promulgated accounting guidance then in effect -
specifically, EITF Consensus No. 94-3 "Liability Recognition for certain
Employee Termination Benefits and Other Costs to Exit an Activity."
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and judgements 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 judgements, including those related to inventories,
restructuring costs, bad debts, intangible assets, income taxes, debt service
and contingencies and litigation. Management bases its estimates and judgements
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 judgements 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 judgements and are therefore
particularly important to an understanding of our results of operations and
financial position.
As described in the Notes to the Condensed Consolidated Financial Statements, we
sell our products both directly to retail customers and through wholesale
channels. Revenue from the sale of merchandise to retail customers is recognized
at the time of sale, while revenue from wholesale customers is recognized when
shipped. Customers, be they retail or wholesale, do have the right to return
product to us in certain limited situations. Such rights of return have not
precluded revenue recognition because we have a long history with such returns,
which we use in constructing a reserve. This reserve, however, is subject to
change. In addition to returns, we bear credit risk relative to our wholesale
customers. We have provided a reserve for bad debts in our financial statements
based on our estimates of the creditworthiness of our customers. However, this
reserve is also subject to change. Changes in these reserves would affect our
operating results.
9
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.
We have a significant deferred tax asset recorded on our financial statements.
This asset arose at the time of our recapitalization in 1998 and is a future tax
deduction for us. The recoverability of this future tax deduction 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 deduction 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.
In fiscal 2001, we closed our distribution facility in Utah, recorded a
restructuring charge and established a reserve for future expenses related to
the restructuring. Part of the restructuring charge related to the lease
commitment that we have through 2005. In connection with the restructuring, we
did not record the entire lease commitment as a liability because we believed we
would be able to sublet the facility. During the second quarter of fiscal 2002,
we were successful in subletting the facility for the remaining lease term.
Management believes that the remaining reserve at September 28, 2002 is adequate
and not excessive.
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 have been seasonality and new
store openings.
Seasonality. We have historically realized higher revenues and operating income
in our fourth quarter, particularly in our retail business. We believe that this
has been due primarily to the increase in the number of our retail stores and to
increased sales in the giftware industry during the holiday season of the fourth
quarter.
New Store Openings. The timing of our new store openings may also have an impact
on our quarterly results. First, we incur certain one-time expenses related to
opening each new store. These expenses, which consist primarily of salaries,
supplies and marketing costs, are expensed as incurred. Second, most store
expenses vary proportionately with sales, but there is a fixed cost component.
This typically results in lower store profitability when a new store opens
because new stores generally have lower sales than mature stores. Due to both of
these factors, during periods when new store openings as a percentage of the
base are higher, operating profit may decline in dollars and/or as a percentage
of sales. As the overall store base matures, the fixed cost component of selling
expenses is spread over an increased level of sales, resulting in a decrease in
selling and other expenses as a percentage of sales.
RESULTS OF OPERATIONS
SALES
Sales increased 16.6% to $99.0 million for the thirteen weeks ended September
28, 2002 from $84.9 million for the thirteen weeks ended September 29, 2001; and
increased 20.7% to $268.5 million for the thirty-nine weeks ended September 28,
2002 from $222.5 million for the thirty-nine weeks ended September 29, 2001.
Wholesale sales increased 20.1% to $53.2 million for the thirteen weeks ended
September 28, 2002 from $44.3 million for the thirteen weeks ended September 29,
2001; and increased 23.4% to $139.5 million for the thirty-nine weeks ended
September 28, 2002 from $113.0 million for the thirty-nine weeks ended September
29, 2001. The increase in wholesale sales was primarily due to the increase in
the number of wholesale locations and to an increase in sales to existing
customers.
Retail sales increased 12.7% to $45.8 million for the thirteen weeks ended
September 28, 2002 from $40.7 million for the thirteen weeks ended September 29,
2001; and increased 17.8% to $129.1 million for the thirty-nine weeks ended
September 28, 2002 from $109.5 million for the thirty-nine weeks ended September
29, 2001. This growth was
10
achieved by increasing the number of retail stores and increasing sales in
catalog and Internet operations. There were 236 retail stores open as of
September 28, 2002 compared to 182 retail stores open as of September 29, 2001
and 192 retail stores open as of December 29, 2001. Comparable store and catalog
and Internet sales decreased 8% for the thirteen weeks ended September 28, 2002
as compared to the thirteen weeks ended September 29, 2001 and decreased 3% for
the thirty-nine weeks ended September 28, 2002 as compared to the thirty-nine
weeks ended September 29, 2001. Retail comparable store sales decreased 9% for
the thirteen weeks ended September 28, 2002 as compared to the thirteen weeks
ended September 29, 2001 and decreased 6% for the thirty-nine weeks ended
September 28, 2002 as compared to the thirty-nine weeks ended September 29,
2001. There were 168 retail stores included in the comparable store base as of
September 28, 2002.
GROSS PROFIT
Gross profit increased 20.4% to $54.2 million for the thirteen weeks ended
September 28, 2002 from $45.0 million for the thirteen weeks ended September 29,
2001; and increased 25.7% to $143.8 million for the thirty-nine weeks ended
September 28, 2002 from $114.4 million for the thirty-nine weeks ended September
29, 2001. As a percentage of sales, gross profit increased to 54.7% for the
thirteen weeks ended September 28, 2002 from 53.0% for the thirteen weeks ended
September 29, 2001; and increased to 53.6% for the thirty-nine weeks ended
September 28, 2002 from 51.4% for the thirty-nine weeks ended September 29,
2001. The increase in the gross profit dollars in both periods was primarily
attributable to the increase in sales and more efficient supply chain
operations. The improvement in gross profit rate for the thirteen weeks ended
September 28, 2002 compared to the thirteen weeks ended September 29, 2001 was
primarily the result of improved productivity in supply chain operations. The
improvement in gross profit rate for the thirty-nine weeks ended September 28,
2002 compared to the thirty-nine weeks ended September 29, 2001 was primarily
the result of improved productivity in supply chain operations in 2002 and to
supply chain inefficiencies in early 2001 that were not experienced in the first
nine months of 2002.
SELLING EXPENSES
Selling expenses increased 26.7% to $23.6 million for the thirteen weeks ended
September 28, 2002 from $18.7 million for the thirteen weeks ended September 29,
2001; and increased 27.0% to $67.3 million for the thirty-nine weeks ended
September 28, 2002 from $52.9 million for the thirty-nine weeks ended September
29, 2001. These expenses are related to both wholesale and retail operations and
consist of payroll, occupancy, advertising and other operating costs, as well as
preopening costs, which are expensed as incurred. As a percentage of sales,
selling expenses increased to 23.9% for the thirteen weeks ended September 28,
2002 from 22.0% for the thirteen weeks ended September 29, 2001; and increased
to 25.1% for the thirty-nine weeks ended September 28, 2002 from 23.8% for the
thirty-nine weeks ended September 29, 2001. The increase in selling expense in
dollars and as a percentage of sales for the thirteen and thirty-nine weeks
ended September 28, 2002 was primarily related to the continued growth in the
number of retail stores, from 182 as of September 29, 2001 to 236 as of
September 28, 2002. The increase in selling expense as a percentage of sales is
also explained by the decrease in retail comparable store sales and by the heavy
weighting of immature stores. Immature stores are generally stores that are less
than four years old. Immature stores typically generate higher selling expense
as a percentage of sales than stores that have been open for more than four
years since fixed costs, as a percent of sales, are higher during the early
sales maturation period. Excluding the sales and selling expenses of our most
immature stores, the 2001 and 2002 store classes, selling expenses as a
percentage of sales were 19.5% and 21.4% for the thirteen and thirty-nine weeks
ended September 28, 2002, respectively, compared to 20.6% and 23.0% for the
thirteen and thirty-nine weeks ended September 29, 2001, respectively.
SEGMENT PROFITABILITY
Segment profitability is sales less cost of goods sold and selling expenses.
Segment profitability for our wholesale operations, including Europe, was $22.6
million, or 42.4% of wholesale sales, for the thirteen weeks ended September 28,
2002 compared to $17.7 million, or 40.0% of wholesale sales, for the thirteen
weeks ended September 29, 2001. Segment profitability for our retail operations
was $8.0 million, or 17.4% of retail sales, for the thirteen weeks ended
September 28, 2002 compared to $8.7 million, or 21.4% of retail sales, for the
thirteen weeks ended September 29, 2001. The increase in wholesale segment
profitability for the thirteen weeks ended September 28, 2002 was primarily
attributable to increased wholesale sales and improved productivity in supply
chain operations. The decrease in retail segment profitability was primarily
attributable to a decline in retail comparable store sales and a decline in
operating profit in catalog and Internet operations, partially offset by
improved productivity in supply chain operations.
Segment profitability for our wholesale operations, including Europe, was $56.7
million, or 40.6% of wholesale sales, for the thirty-nine weeks ended September
28, 2002 compared to $42.0 million, or 37.2% of wholesale sales, for the
thirty-nine weeks ended September 29, 2001. Segment profitability for our retail
operations was $19.8 million, or 15.4% of retail sales, for the thirty-nine
weeks ended September 28, 2002 compared to $19.5 million, or 17.8% of retail
sales, for the thirty-nine weeks ended September 29, 2001. The increase in
wholesale segment profitability for the thirty-nine weeks ended September 28,
2002 was primarily attributable to increased wholesale sales, improved
11
productivity in supply chain operations and to supply chain inefficiencies in
early 2001 that were not experienced in the first nine months of 2002. The
decrease in retail segment profitability as a percentage of sales was primarily
attributable to a decline in retail comparable store sales, a decline in
operating profit in catalog and Internet operations and an increase in
preopening expenses associated with new store openings, partially offset by
improved productivity in supply chain operations. We opened 44 new stores in
the thirty-nine weeks ended September 28, 2002 compared to 35 new stores opened
in the thirty-nine weeks ended September 29, 2001. The increase in retail
segment profitability in dollars was primarily attributable to increased retail
sales, improved productivity in supply chain operations and to supply chain
inefficiencies in early 2001 that were not experienced in the first nine months
of 2002.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which consist primarily of
personnel-related costs, increased 7.2% to $10.8 million for the thirteen weeks
ended September 28, 2002 from $10.1 million for the thirteen weeks ended
September 29, 2001; and increased 11.9% to $32.4 million for the thirty-nine
weeks ended September 28, 2002 from $28.9 million for the thirty-nine weeks
ended September 29, 2001. As a percentage of sales, general and administrative
expenses decreased to 10.9% for the thirteen weeks ended September 28, 2002 from
11.9% for the thirteen weeks ended September 29, 2001; and decreased to 12.1%
for the thirty-nine weeks ended September 28, 2002 from 13.0% for the
thirty-nine weeks ended September 29, 2001. The increase in general and
administrative expenses in dollars for the thirteen and thirty-nine weeks ended
September 28, 2002 compared to the thirteen and thirty-nine weeks ended
September 29, 2001 was primarily attributable to headcount additions in the
latter part of 2001 and in 2002 and to bonus program accruals for fiscal 2002
that assume a higher payout rate than was achieved for fiscal 2001. The increase
in general and administrative dollars for the thirty-nine weeks ended September
28, 2002 was also attributable to occupancy expenses associated with our new
headquarters opened in May 2001. The decrease in general and administrative
expenses as a percentage of sales for the thirteen and thirty-nine weeks ended
September 28, 2002 is primarily attributable to the Company's leveraging of
these expenses over a larger sales base and its continued focus on expense
control.
RESTRUCTURING CHARGE
On February 14, 2001, the Company announced plans to consolidate and restructure
its distribution, manufacturing and supply chain operations. The Company's Form
10-K for the fifty-two weeks ended December 29, 2001 disclosed the principal
components of this restructuring plan. An analysis of the activity within the
restructuring reserve since December 29, 2001 is as follows:
For the thirteen weeks ended For the thirteen Weeks Ended For the thirteen weeks ended
March 30, 2002 June 29, 2002 September 28, 2002
------------------------------ ---------------------------- ---------------------------------------------
Reserve as of Reserve as of Reserve as of Reserve as of
December 29, 2001 Costs Paid March 30, 2002 Costs Paid June 29, 2002 Costs Paid September 28, 2002
----------------- ---------- -------------- ----------- ------------- ---------- ------------------
Occupancy $ 1,854 $254 $1,600 $202 $1,398 $175 $1,223
Employee
related 331 73 258 71 187 70 117
-------- ---- ------ ---- ------ ----- ------
Total $ 2,185 $327 $1,858 $273 $1,585 $ 245 $1,340
======== ==== ====== ==== ====== ===== ======
During the second quarter of fiscal 2002, we were successful in subletting the
facility covered under the "Occupancy" heading for the remaining lease term.
Management believes that the remaining reserve at September 28, 2002
appropriately reflects the Company's lease commitment exposure in light of the
sub-lease arrangement and that the total reserve is adequate and not excessive.
12
NET OTHER EXPENSE
Net other expense was $1.1 million, or 1.2% of sales, for the thirteen weeks
ended September 28, 2002 compared to $2.4 million, or 2.9% of sales, for the
thirteen weeks ended September 29, 2001; and $3.6 million, or 1.3% of sales, for
the thirty-nine weeks ended September 28, 2002 compared to $8.6 million, or 3.9%
of sales, for the thirty-nine weeks ended September 29, 2001. The primary
component of the expense in each of these periods was interest expense, which
was $1.3 million in the thirteen weeks ended September 28, 2002 compared to $2.4
million in the thirteen weeks ended September 29, 2001; and $3.7 million for the
thirty-nine weeks ended September 28, 2002 compared to $8.8 million for the
thirty-nine weeks ended September 29, 2001. Interest expense in the thirteen
weeks and the thirty-nine weeks ended September 28, 2002 decreased when compared
to the same periods in the prior year primarily due to a reduction in the total
bank debt outstanding from $176.5 million at September 29, 2001 to $110.5
million at September 28, 2002.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for the thirteen and the thirty-nine week
periods ended September 28, 2002 and September 29, 2001 was 39%. Management
estimates that such rate will remain in place for the entire year based on its
current tax structure. Management re-evaluates the Company's effective tax rate
on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $20.5 million compared to December 29,
2001. This decrease was primarily attributable to seasonal increases in
inventory and accounts receivable, net cash used in investing activities of
$17.9 million, final payments of corporate income taxes for fiscal 2001 and net
debt paydowns of $4.5 million. Capital expenditures for the thirty-nine weeks
ended September 28, 2002, which are included in investing activities, were $19.4
million, primarily related to the capital requirements to open 44 new stores,
investments in our new Yankee Candle Home store located in our Flagship location
in South Deerfield, Massachusetts, which opened in the second quarter of 2002,
and investments in manufacturing operations. Net cash provided by operating
activities was $1.1 million for the thirty-nine weeks ended September 28, 2002,
which included $21.7 million of corporate income tax payments for fiscal 2001
and fiscal 2002.
As of September 28, 2002, we were in compliance with all covenants under our
credit facility. Available borrowings under the revolving credit facility were
$98.5 million. See our most recent Annual Report on Form 10-K for a description
of the credit facility.
We opened 44 stores during the thirty-nine weeks ended September 28, 2002 and we
expect to open up to three additional stores during the final thirteen weeks of
fiscal 2002.
We expect that the principal sources of funding for our planned store openings
and other working capital needs, capital expenditures and debt service
obligations 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 worldwide economic conditions. In
addition, borrowings under our credit facility are dependent upon our continued
compliance with the financial and other covenants contained therein.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, SFAS No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. It is to be
implemented for restructuring or disposal activities occurring after December
31, 2001. Our fiscal 2001 restructuring activities, as described in Note 7,
occurred prior to the effective date of SFAS No. 146 and were therefore
accounted for under previously promulgated accounting guidance then in effect -
specifically, EITF Consensus No. 94-3 "Liability Recognition for certain
Employee Termination Benefits and Other Costs to Exit an Activity."
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 or which might adversely affect the
market price
13
of our common stock. In addition to factors generally affecting the political,
economic and competitive conditions in the United States and abroad, such
factors include those set forth below.
IF WE FAIL TO GROW OUR BUSINESS AS PLANNED, OUR BUSINESS COULD SUFFER AND
FINANCIAL RESULTS COULD DECLINE; AS WE GROW IT WILL BE DIFFICULT TO MAINTAIN OUR
HISTORICAL GROWTH RATES.
We intend to continue to pursue a business strategy of increasing sales and
earnings by expanding our retail and wholesale operations both in the United
States and internationally. We intend to grow internally and not by acquisition.
In particular, our retail growth strategy depends in large part on our ability
to open new stores in both existing and new geographic markets. Since our
ability to implement our growth strategy successfully will be dependent in part
on factors beyond our control, including consumer preferences and our
competitive environment, we may not be able to achieve our planned growth or
sustain our financial performance. Our ability to anticipate changes in the
candle and giftware industries, and identify industry trends, will be critical
factors in our ability to remain competitive.
We expect that, as we grow, it will become more difficult to maintain our
historical growth rate, which could negatively impact our operating margins and
results of operations. New stores typically generate lower operating margin
contributions than mature stores because fixed costs, as a percentage of sales,
are higher and because preopening costs are fully expensed as incurred. 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, if we do not effectively
manage our growth, we may experience problems such as the supply chain
inefficiencies that occurred in 2000 and early 2001 due to overstaffing in our
manufacturing and logistics operations. These inefficiencies were corrected in
2001 through a workforce reduction and the closing of our Salt Lake City
distribution center, but resulted in a decline in our gross profit in the last
quarter of 2000 and a restructuring charge of $8.0 million in 2001. We cannot
assure that we will continue to grow at a rate comparable to our historic growth
rate or that our historic financial performance will continue as we grow.
WE FACE SIGNIFICANT COMPETITION IN THE GIFTWARE INDUSTRY. THIS COMPETITION COULD
CAUSE OUR REVENUES OR MARGINS TO FALL SHORT OF EXPECTATIONS, WHICH COULD
ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY
AND OUR ABILITY TO CONTINUE TO GROW OUR BUSINESS.
We compete generally for the disposable income of consumers with other producers
in the approximately $55 billion giftware industry. The giftware industry is
highly competitive with a large number of both large and small participants. Our
products compete with other scented and unscented candle and personal care
products and with other gifts within a comparable price range, like boxes of
candy, flowers, wine, fine soap and related merchandise. Our retail stores
compete with franchised candle store chains, specialty candle stores and gift
and houseware retailers. Some of our competitors are part of large, diversified
companies which have greater financial resources and a wider range of product
offerings than we do. This competitive environment could adversely affect our
future revenues and profits, financial condition and liquidity and our ability
to continue to grow our business.
A MATERIAL DECLINE IN CONSUMERS' DISCRETIONARY INCOME COULD CAUSE OUR SALES AND
INCOME TO DECLINE.
Our results depend on consumer spending, which is influenced by general economic
conditions and the availability of discretionary income. Accordingly, we may
experience declines in sales during economic downturns or during periods of
uncertainty like that which followed the September 2001 terrorist attacks on the
United States or which result from 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 DEPENDENT UPON ONE INDUSTRY, WE
HAVE LESS FLEXIBILITY IN REACTING TO UNFAVORABLE CONSUMER TRENDS AND ADVERSE
ECONOMIC CONDITIONS AND BUSINESS CYCLES.
We rely primarily on the sale of premium scented candles and related products in
the giftware industry. In the event that sales of these products decline or do
not meet our expectations, we cannot rely on the sales of other products to
offset such a shortfall. As a significant portion of our expenses is comprised
of fixed costs, such as lease payments, our ability to decrease expenses in
response to adverse business conditions is limited in the short term. As a
result, unfavorable consumer trends, adverse economic conditions or changes in
the business cycle could have a material and adverse impact on our earnings.
14
IF WE LOSE OUR SENIOR EXECUTIVE OFFICERS, OUR BUSINESS COULD BE DISRUPTED AND
OUR FINANCIAL PERFORMANCE COULD SUFFER.
Our success is substantially dependent upon the retention of our senior
executive officers. If one or more of our senior executive officers become
unable or unwilling to participate in our business, our future business and
financial performance could be materially affected.
MANY ASPECTS OF OUR MANUFACTURING AND DISTRIBUTION FACILITIES ARE CUSTOMIZED FOR
OUR BUSINESS; AS A RESULT, THE LOSS OF ONE OF THESE FACILITIES WOULD DISRUPT OUR
OPERATIONS.
Approximately 80% of our sales are 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 PRICE OF OUR COMMON STOCK.
Our sales and operating results vary from quarter to quarter. We have
historically realized higher sales and operating income in our fourth quarter,
particularly in our retail business. We believe that this has been due primarily
to an increase in giftware industry sales during the holiday season of the
fourth quarter. As a result of this seasonality, we believe that quarter to
quarter comparisons of our operating results are not necessarily meaningful and
that these comparisons cannot be relied upon as indicators of future
performance. In addition, we may also experience quarterly fluctuations in our
sales and income depending on various factors, including, among other things,
the number of new retail stores we open in a particular quarter, changes in the
ordering patterns of our wholesale customers during a particular quarter, and
the mix of products sold. Most of our operating expenses, such as rent expense,
advertising and promotional expense and employee wages and salaries, do not vary
directly with sales and are difficult to adjust in the short term. As a result,
if sales for a particular quarter are below our expectations, we might not be
able to proportionately reduce operating expenses for that quarter, and
therefore a sales shortfall could have a disproportionate effect on our
operating results for that quarter. Further, our comparable store sales from our
retail business in a particular quarter could be adversely affected by
competition, economic or other general conditions or our inability to execute a
particular business strategy. As a result of these factors, we may report in the
future sales, operating results or comparable store sales that do not match the
expectations of market analysts and investors. This could cause the trading
price of our common stock to decline. In addition, broad market and industry
fluctuations may adversely affect the price of our common stock, regardless of
our operating performance.
OUR TWO LARGEST STOCKHOLDERS, WHO ARE AFFILIATES OF FORSTMANN LITTLE & CO.,
EFFECTIVELY CONTROL US AND THEIR INTERESTS MAY CONFLICT WITH THOSE OF OTHER
STOCKHOLDERS.
Partnerships affiliated with Forstmann Little & Co. own approximately 40% of our
outstanding common stock and effectively control us. Accordingly, they are able
to:
- - influence the election of our entire board of directors and, until they no
longer own any shares of our common stock, they have the contractual right
to nominate two directors to our board of directors,
- - influence our management and policies, and
- - affect the outcome of any corporate transaction or other matter submitted to
our stockholders for approval, including mergers, consolidations and the
sale of all or substantially all of our assets, even where the transaction
is not in the best interests of all stockholders.
They may also be able to prevent or cause a change in control of Yankee Candle
and may be able to amend our Articles of Organization and By-Laws. The interests
of the Forstmann Little partnerships may conflict with the interests of the
other holders of common stock.
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:
15
- - 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.
THE PLEDGE OF SUBSTANTIALLY ALL OF OUR ASSETS TO SECURE OUR OBLIGATIONS UNDER
OUR CREDIT AGREEMENT MAY HINDER OUR ABILITY TO OBTAIN ADDITIONAL DEBT FINANCING
ON FAVORABLE TERMS.
We have pledged substantially all of our assets to secure our obligations under
our credit agreement. Subject to restrictions contained in our credit agreement,
we may incur additional indebtedness in the future. However, due to the pledge
of our assets, a creditor lending to us on a senior unsecured basis would be
effectively subordinated to our bank lenders. This could limit our ability to
obtain, or obtain on favorable terms, and may make it more costly to obtain
additional debt financing outside of our credit agreement. While we do not
expect to require additional financing prior to the expiration of our credit
agreement, if we need to do so and are unable to obtain additional financing on
favorable terms, this could adversely impact our results of operations and
inhibit our ability to realize our growth strategy.
WE DO NOT CURRENTLY INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
We have never paid a cash dividend on our common stock as a public company and
we do not intend to pay any cash dividends in the foreseeable future. Instead we
intend to retain earnings for the future operation of our business. Any
determination to pay dividends in the future will be at the discretion of our
board of directors and will be dependent upon our results of operations, our
financial condition, contractual and legal restrictions and other factors deemed
relevant by our board of directors. Under the terms of our existing credit
agreement, we may not declare or pay dividends on our common stock unless our
ratio of consolidated total bank debt to consolidated EBITDA is less than or
equal to 2:1 or our aggregate principal amount of loans and letters of credit
outstanding is less than $100 million. Although we meet this requirement, we do
not currently intend to pay dividends.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risks relate primarily to changes in interest rates. We bear this
risk in our outstanding bank debt. At September 28, 2002, there was $110.5
million of bank debt outstanding, which consisted of $59.0 million in term loans
and $51.5 million from our revolving credit facility. Because this bank debt
carries a variable interest rate pegged to market indices, our results of
operations and cash flows are exposed to changes in interest rates.
We buy a variety of raw materials for inclusion in our products. The only raw
material that we consider to be of a commodity nature is wax. Wax is a
petroleum-based product; however, its market price has not historically
fluctuated with the movement of oil prices. Rather, over the past five years wax
prices have moved with inflation.
At this point in time, our operations outside of the United States are
immaterial. Accordingly, we are not exposed to substantial risks arising from
foreign currency exchange rates.
Item 4. Controls and Procedures
(a.) Evaluation of disclosure controls and procedures. Based on their
evaluation of our disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934) as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-Q, our chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures are
(i) designed to ensure that information required to be disclosed by us
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 and (ii) operating in an
effective manner.
(b.) Changes in internal controls. There were no significant changes in
our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their most recent
evaluation.
16
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
Exhibit 99.1 Certification of Craig W. Rydin Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification of Robert R. Spellman Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
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.
------------------------------------
Date: November 12, 2002 By: /s/ Robert R. Spellman
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATIONS
I, Craig W. Rydin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Yankee
Candle Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
17
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operations of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Craig W. Rydin
------------------------------------
Dated: November 12, 2002 Craig W. Rydin
Chief Executive Officer
CERTIFICATIONS
I, Robert R. Spellman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Yankee
Candle Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
18
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operations of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Robert R. Spellman
------------------------------------
Dated: November 12, 2002 Robert R. Spellman
Chief Financial Officer
19