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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-15023
THE YANKEE CANDLE COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2591416
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
102 CHRISTIAN LANE, WHATELY, MASSACHUSETTS 01093
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (413) 665-8306
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE WHERE REGISTERED)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sale price of $13.09 on March 26, 2001, the aggregate
market value of the voting stock held by non-affiliates of the registrant was
$189,607,354.
On March 26, 2001 there were outstanding 54,513,961 shares of the
Registrant's Common Stock.
Documents incorporated by reference (to the extent indicated herein):
Registrant's proxy statement (specified portions) with respect to
the annual meeting of stockholders to be held on June 13, 2001 are incorporated
into Part III.
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This Annual Report on Form 10-K 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."
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business ....................................................................2
2. Properties ..................................................................8
3. Legal Proceedings ..........................................................11
4. Submission of Matters to a Vote of Security Holders.........................11
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.......12
6. Selected Financial Data ....................................................13
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................15
7A. Quantitative and Qualitative Disclosures About Market Risks.................24
8. Financial Statements and Supplementary Data ................................25
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 50
PART III
10. Directors and Executive Officers of the Registrant .........................50
11. Executive Compensation .....................................................50
12. Security Ownership of Certain Beneficial Owners and Management .............50
13. Certain Relationships and Related Transactions .............................50
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...........50
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PART I
ITEM 1. BUSINESS
The Yankee Candle Company, Inc. and subsidiaries ("Yankee Candle" or "the
Company") is the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. The Company has a
31-year history of offering its distinctive products and marketing them as
affordable luxuries and consumable gifts. Yankee Candle products are available
in more than 150 fragrances and include a wide variety of jar candles,
Samplers(R) votive candles, pillars, tapers, Tarts(R) wax potpourri and other
candle products, marketed as Yankee Candle(R) branded products primarily under
the trade names Housewarmer(R), Country Kitchen(R), Country Classics(TM), Aroma
Formula(TM), Flickers(TM) and Frosted Favorites(TM). The Company also sells a
wide range of candle accessories. The Company sells its products through several
channels including wholesale customers who operate approximately 12,900 gift
store locations nationwide, 147 Company-operated retail stores in 35 states as
of December 30, 2000, direct mail catalogs, its Internet website
(www.yankeecandle.com), international distributors and its distribution center
located in the United Kingdom. The Company has grown significantly during the
last five years, with net sales increasing from $115.2 million in 1996 to $338.8
million for the fifty-two weeks ended December 30, 2000 ("2000"), a compound
annual growth rate of 31%.
INDUSTRY OVERVIEW
Yankee Candle operates in the rapidly growing scented candle segment of the
giftware industry. The giftware industry has grown consistently since the early
1990's and generated U.S. sales of $55.0 billion in 1999, according to Unity
Marketing, an independent market research firm specializing in the giftware
industry. Industry sources also estimate that the domestic market for candles
has grown on average 10% to 15% per year since the early 1990's to reach $2.3
billion in 1999 according to the National Candle Association, an industry trade
association. The scented candle segment, in which the Company competes,
represents the fastest growing part of the candle and home fragrancing industry.
Based on a report by Kline & Company, an international consulting firm, the
retail market for scented candles in 1999 was estimated to be $2.1 billion.
The scented candle market is expected to continue to grow based on several
positive industry factors:
- Favorable consumer trends, including the aging of baby boomers and
increased spending on home decor. Consumers are drawn to candles because they
create a relaxing home environment.
- Consumers are increasingly buying candles as an attractive gift item.
According to Unity Marketing, 77% of candle customers also bought candles as
gifts in 1998.
- Consumers are increasingly burning candles year round because of their
affordable prices and broad range of scents and styles.
The Company believes consumers are becoming increasingly sophisticated about the
quality and fragrance of candles they purchase. According to independent market
research data, the prime consumer market for candles consists of women between
the ages of 25 and 54 with annual household incomes of over $25,000. The Company
believes that 85% of its candle consumers are women and that men represent a
growing and undeveloped consumer market segment.
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PRODUCTS
The Company develops and introduces new products and fragrances throughout the
year. It currently offers approximately 2,000 SKUs of Yankee Candle manufactured
products. Most products are marketed as Yankee Candle(R) branded products
primarily under the trade names Housewarmer(R), Country Kitchen(R), Country
Classics(TM), Aroma Formula(TM), Flickers(TM) and Frosted Favorites(TM) and
include the following product styles:
- Jar Candles--scented candles in decorative glass jars; available in 22
oz., 14.5 oz., 7.5 oz. and 3.7 oz. sizes and in various styles of glass
jars.
- Samplers(R) votive candles -- ideal for sampling different fragrances.
- Scented Tapers -- the oldest candle style, dipped more than 30 times.
- Scented Ionic(R) Pillars (grooved).
- Standard Pillars (smooth) -- both scented and unscented.
- Textured Pillars - both scented and unscented.
- Tarts(R) wax potpourri -- scented wax without wicks that releases its
fragrance when melted and warmed in a potpourri pot.
- Scented Tea Lights--small, colored and scented candles in clear cups made
for home fragrancing.
- Tart(R) Warmers -- white unscented candles in aluminum cups made for
potpourri pots.
- Kindle Candles(R)-- unscented wax in a paper cup for use in a fireplace or
campfire as a firestarter.
- Car Jars(R) air fresheners - air fresheners in the shape of Yankee's
distinctive Housewarmer(R) jars, available in several of the Company's
more popular fragrances.
These candle products are available in a wide range of fragrances and colors.
Currently, the Company's retail stores, depending on store size, generally offer
approximately 150 fragrances, with approximately 75 of the best-selling
fragrances available nationwide to its wholesale customers. In addition to
distinctive fragrances, the Company promotes its brand through consistent
product packaging and labeling and the use of a distinctive trade dress. The
Yankee Candle name is typically embossed on the top of its glass containers and
is displayed on every product. The Company also packages its products in
attractive gift baskets and holders for sale in its retail stores. Numerous
candle-related accessories are offered at its retail stores in a variety of
styles, sizes and shapes.
The Company seeks to maintain a moderate price for almost all of its products in
order to reinforce customer perception of its products as highly affordable. As
a result, retail prices for most candle products currently range from $0.99 for
Wax Potpourri Tarts(R) to $19.99 for 22 oz. jar candles.
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WHOLESALE OPERATIONS
The Company's domestic wholesale operations serve an extensive base of retailers
primarily consisting of small, independent and credit-worthy gift store
retailers, that operated approximately 12,900 locations in 50 states at the end
of 2000. Approximately 90% of these locations are not in malls. From 1998 to
2000, sales to wholesale customers have grown at a compound annual growth rate
of 23% from $107.5 million to $163.5 million. Yankee Candle's strong brand name,
the popularity and profitability of its products, and its emphasis on customer
service and support programs have established Yankee Candle as the top selling
brand for many of its wholesale customers. According to Giftbeat, an independent
publication that monitors the gift industry, Yankee Candle continues to rank
number one in specialty gift store candle sales across the United States, and is
the top seller in each of the four regions of the country within the specialty
gift store industry as well. The Company has consistently been ranked number one
in these categories since 1993, when Giftbeat first began publishing these
surveys. Moreover, Yankee Candle products are ranked number one in customer
reorders across the entire gift industry and have consistently ranked first or
second (behind only Beanie Babies) in this category since 1993. Approximately
70% of the Company's wholesale customers have been customers for over five
years. No individual wholesale buying group accounts for more than approximately
6% of the Company's wholesale sales.
The Company actively seeks to increase the average size and frequency of
wholesale orders through its innovative display system, promotional programs,
new products and telemarketing activities. The Company's primary "Shop Within A
Shop" display system presents Yankee Candle products vertically by fragrance and
horizontally by color in a distinctive wood hutch. This display system enhances
Yankee Candle's brand recognition in the marketplace and the Company believes
that it positively impacts the Company's wholesale sales.
The Company employs a selective dealer approval process, designed to create
consistent standards for all of its wholesale customers. As a result of these
high credit standards, the Company had a bad debt expense of 0.08% of wholesale
sales in 2000. The Company also utilizes a dedicated in-house direct sales force
to service its wholesale customers. The direct sales force has enabled the
Company to gain greater control over the sales process, provide customers with
better and more accurate information, faster order turn-around and improved
customer service, create more consistent merchandising nationwide and reduce
costs.
The Company expanded its international wholesale business with the opening of a
Company-operated 27,000 square foot distribution center in Bristol, England in
January, 1999. By the end of 2000, business relationships had been established
with approximately 1,150 UK direct accounts, approximately 100 direct accounts
on the European continent and 17 distributors covering 20 countries. The size of
the European candle market has been estimated at $1 billion annually.
RETAIL OPERATIONS
Retail Stores
The Company's retail operations include retail stores, catalog and Internet
operations and Chandler's restaurant. From 1998 to 2000, retail sales have grown
at a 47% compound annual growth rate from $81.2 million to $175.3 million.
The Company opened 45 new retail stores and entered 5 new states during 2000 and
ended the year with 147 retail stores in 35 states. Premium malls, and to a
lesser extent, strip centers and tourist destinations are
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targeted for new store development. There were 111 mall and 36 non-mall
locations at the end of 2000. The Company currently plans to open 45 additional
stores and enter 3 new states in 2001.
The non-mall store count includes the Company's flagship South Deerfield, MA
store, which is a unique store. This store is the world's largest candle and
Christmas store with over 90,000 square feet of retail and entertainment space.
This store promotes Yankee Candle's image and culture and is an important
testing ground for new product introductions. The store carries over 20,000 SKUs
of gift items supplied by over 750 vendors, and generates 65% of its revenues
from the sale of Yankee Candle products. This store is a major tourist
destination, attracting an estimated 2.5 million visitors annually. It provides
visitors with a total shopping and entertainment experience and includes the
Yankee Candlemaking Museum, the Yankee Candle Car Museum and the 240-seat
Chandler's restaurant.
Excluding the flagship store, the target size for retail stores is 1,500 to
2,000 square feet. The average store size for the 146 retail stores, excluding
the flagship store, at the end of 2000 was 1,645 square feet. These stores are
designed with a warm, home-like atmosphere to attract customers and provide a
convenient and enjoyable shopping experience. Each store has candle displays
sorted by color, fragrance type and product category. The store design uses rich
wood and other traditional elements to convey a high quality image that
complements our product and company identity. The display fixtures hold
sufficient inventory to support fast turning sales at peak season. These stores,
depending on store size, generally offer approximately 150 fragrances and carry
approximately 1,200 SKUs of candles and approximately 300 SKUs of candle
accessories. The 101 stores, excluding the flagship store, that were open for
all of 2000, achieved sales per selling square foot of approximately $1,000.
Superior customer service and a knowledgeable employee base are key elements of
Yankee Candle's retail store operations. The Company emphasizes formal employee
training, particularly with respect to product quality, candle manufacturing and
the heritage of Yankee Candle. The Company has a well developed, 14-day training
program for managers and assistant managers and an 8-hour training program for
sales associates. High customer service is an integral part of the Company's
ongoing success, and each store is responsible for implementing and maintaining
these customer service standards.
Direct Mail Catalog and Internet
The Company also markets its products through direct mail catalogs and its
Internet website. The direct mail catalogs feature wholesale product, specialty
retail product and candle accessories. The Company mailed six catalogs during
2000. The Internet website, WWW.YANKEECANDLE.COM, was introduced as an
informational site in 1996 and upgraded for retail transactions in 1997. In
2000, the Company entered into a contract with Usinternetworking, Inc. to
implement and host a new redesigned website featuring improved graphics, easier
navigation, faster shopping and new customer service features such as one to one
marketing, guest registration and a wholesale and retail store locator.
Beginning in 2001 the Company plans to improve the business-to-business
capabilities of the website to serve its wholesale customers, including adding
features such as on-line ordering, purchase history, order status information
and enhanced personalization. In addition to these on-line ordering features,
the site provides information regarding the South Deerfield flagship store and
Yankee Candle's history. The Company plans to continue to develop and enhance
its Internet capabilities.
NEW PRODUCT DEVELOPMENT
Yankee Candle has a long history as a product and market innovator in the
premium candle segment of the giftware industry. The Company has a strong
in-house product design and development team comprised of artists, fragrance
specialists, designers, packagers and buyers who work collaboratively to design
new products that are attractive to customers and can be manufactured
cost-effectively. A typical new product
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introduction, from the initial fragrance selection and label design to
production and distribution, is completed in less than one year. Yankee Candle
introduced 14 new fragrances to its Housewarmer(R) line during 2000. In
addition, during 2000 the Company's retail division introduced Country
Classics(TM), a line of Yankee candles and accessories featuring the artwork of
Warren Kimble, America's best-known living folk artist. The Company will be
introducing Country Classics(TM) in its wholesale division during 2001. The
Company also introduced in 2000 Car Jars(R) air fresheners, a non-candle air
freshener line designed after the Company's popular Housewarmer(R) jar candles,
in both its retail and wholesale divisions. Other new product introductions in
2000 included new product sizes and combinations, new packaging and variations
of existing fragrances.
MANUFACTURING
Approximately 90% of Yankee Candle's sales are generated by products
manufactured in the Company's 294,000 square foot facility in Whately,
Massachusetts. As a manufacturer, the Company is able to closely monitor product
quality and control production costs, which ensures high quality products and
maintains affordable pricing. Products are manufactured using filled, molded,
extruded, compressed or dipped manufacturing methods. Yankee Candle uses high
quality fragrances, premium grade, highly refined paraffin waxes, and superior
wicks and dyes to create premium products. The Company's manufacturing processes
are designed to ensure the highest quality and quantity of candle fragrance,
wick quality and placement, color, fill level, shelf life and burn rate. The
Company is continuously engaged in efforts to maximize quality and reduce costs
by using efficient production and distribution methods and technological
advancements. The Company plans to expand its manufacturing capacity by
converting approximately 100,000 square feet of existing distribution space in
its Whately, Massachusetts facility to manufacturing space subsequent to the
opening of the Company's new distribution center in neighboring Deerfield,
Massachusetts, anticipated to occur in the second quarter of 2001.
SUPPLIERS
The Company maintains strong relationships with its principal suppliers. The
Company believes it uses the highest-quality suppliers in the industry and
maintains back-up suppliers who are able to provide services and materials of
similar quality. Yankee Candle has been in the business of manufacturing premium
scented candles for many years and is therefore knowledgeable about the
different levels of quality of raw materials used in manufacturing candles. The
Company has developed, jointly with its suppliers, several proprietary
fragrances, which are exclusive to Yankee Candle. Raw materials used in the
manufacturing process, including wax, glassware, hutches and packaging
materials, are readily available from multiple sources at comparable prices. In
2000, no single supplier represented 10% or more of Yankee Candle's total cost
of goods sold, except for ARC International, which supplied the Company with
glassware and represented approximately 14% of total cost of goods sold in 2000.
DISTRIBUTION
Yankee Candle currently operates three distribution facilities to supply product
to wholesale and retail locations. Two are located within a four-mile radius in
Deerfield and Whately, Massachusetts and one in Bristol, England. Computer
systems are utilized in each facility for efficient order processing and
inventory management and accuracy. The Company's distribution centers maintain
inventory levels that allow for the timely fulfillment of orders at high fill
rates. Since the distribution centers maintain backup inventory, store level
inventory requirements at wholesale and retail locations are reduced. Yankee
Candle's square footage requirements for its retail locations are therefore also
lessened, which reduces rental costs.
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The Company is currently in the process of restructuring its distribution and
supply chain operations. In the second quarter of 2001, the Company plans to
open a new 256,000 square foot distribution center in Deerfield, Massachusetts.
This facility will allow the Company to subsequently convert approximately
100,000 square feet of existing distribution space in its Whately, Massachusetts
facility to additional manufacturing space. In addition, in February 2001, as
part of this restructuring process the Company closed its Salt Lake City, Utah
distribution facility.
Products sold by Yankee Candle in the United States are generally shipped by
national freight carriers. The Company also leases a small number of trucks
primarily used to ship products to select Company-operated retail stores.
INTELLECTUAL PROPERTY
Yankee Candle has obtained 36 U.S. trademark registrations, including Yankee(R)
(for candles),Yankee Candle(R), Housewarmer(R), Samplers(R), Wax Potpourri
Tarts(R), Country Kitchen(R), Car Jars(R) and Kindle Candles(R), and has pending
several additional trademark applications with respect to its products. The
Company also registers certain of its trademarks in various foreign countries.
Trademark registrations allow the Company to use those trademarks on an
exclusive basis in connection with its products. These registrations are in
addition to various copyright registrations and patents held by the Company, and
all trademark, copyright and other intellectual property rights of the Company
under statutory and common law, including those rights relating to the Company's
distinctive "trade dress." The Company believes its trademarks and intellectual
property rights are valuable assets and intends to maintain and renew its
trademarks and their registrations and vigorously defend them and all of the
Company's intellectual property rights from and against infringement.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, local and foreign laws and
regulations governing the generation, storage, use, emission, discharge,
transportation and disposal of hazardous materials and the health and safety of
its employees. In addition, the Company is subject to environmental laws which
may require investigation and cleanup of any contamination at facilities it owns
or operates or at third party waste disposal sites it uses. These laws could
impose liability even if the Company did not know of, or was not responsible
for, the contamination.
Yankee Candle has in the past and will in the future incur costs to comply with
environmental laws. The Company is not, however, currently aware of any costs or
liabilities relating to environmental matters, including any claims or actions
under environmental laws or obligations to perform any cleanups at any of its
facilities or any third party waste disposal sites, that are expected to have a
material adverse effect on its operations, cash flow or financial condition. It
is possible, however, that material environmental costs or liabilities may arise
in the future.
COMPETITION
Yankee Candle competes generally for the disposable income of consumers with
other products in the giftware industry. The giftware industry is highly
competitive with a large number of both large and small participants. Yankee
Candle products compete with other scented and unscented candle products and
with other gifts within a comparable price range, like boxes of candy, flowers,
wine, fine soap and related merchandise. The principal bases of competition for
candles and other comparably priced giftware include brand loyalty, quality,
perceived value, design, product display, consumer appeal, service and price.
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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 offerings than
Yankee Candle.
EMPLOYEES
As part of the restructuring of its manufacturing and supply chain operations,
in February 2001 the Company closed its Salt Lake City, Utah distribution
facility, resulting in a lay-off of approximately 180 employees, and that it was
streamlining its Massachusetts-based manufacturing and distribution operations,
resulting in a lay-off of approximately 270 employees.
Yankee Candle currently employs over 3,000 associates, approximately 1,950 of
whom are employed full-time. The Company is not subject to any collective
bargaining agreements and believes its relationship with its associates to be
good. The Company has also hired seasonal workers to supplement its labor force
during the peak selling season.
ITEM 2. PROPERTIES
Yankee Candle owns facilities totaling 537,600 square feet, located on 82 acres,
within a four mile radius in Deerfield and Whately, Massachusetts, as described
in the table below:
TYPE OF FACILITY LOCATION SIZE
- ---------------- -------- ----
Manufacturing, distribution and offices Whately, Mass. 294,000sq. ft.
Flagship retail store, car museum, restaurant and offices South Deerfield, Mass. 101,000sq. ft.
Warehouse and distribution center South Deerfield, Mass. 60,000sq. ft.
Administrative offices South Deerfield, Mass. 48,000sq. ft.
Administrative offices Whately, Mass. 16,000sq. ft.
Employee health and fitness center South Deerfield, Mass. 12,000sq. ft.
Administrative offices South Deerfield, Mass. 6,600sq. ft.
The Company leases a 27,000 square foot distribution facility in Bristol,
England.
In 2000, the Company entered into leases for two buildings being constructed on
adjoining parcels of land in Deerfield, Massachusetts. The first of these new
facilities is a 256,000 square foot distribution center which the Company
expects to open in the second quarter of 2001. This facility will allow the
Company to subsequently convert approximately 100,000 square feet of existing
distribution space in its Whately, Massachusetts facility to manufacturing use.
The second new facility is a 75,000 square foot office building which the
Company expects to occupy in the Summer of 2001 and which will allow the Company
to consolidate the majority of its administrative functions under one roof.
As part of the restructuring of its supply chain operations, in February 2001
the Company closed its Salt Lake City, Utah distribution facility. As of the end
of the first quarter of 2001, approximately 50 months will remain in the initial
term of the lease. The Company is in the process of exploring multiple options
for the disposition of the space.
The Company believes that the above facilities are suitable and adequate and
have sufficient capacity to meet its current needs.
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Other than the South Deerfield flagship store and three smaller retail
locations, located in Lenox, Sturbridge and Stockbridge, Massachusetts, the
Company leases its other retail stores. Initial store leases for mall locations
typically range from eight to ten years. For non-mall locations, most leases are
five years, with a five-year renewal option.
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Retail stores were located in the following states as of December 30, 2000:
STORE COUNT
-----------
STATE MALL NON-MALL TOTAL
- ----- ---- -------- -----
ARIZONA 2 2
CALIFORNIA 10 10
COLORADO 3 3
CONNECTICUT 6 2 8
DELAWARE 1 1
FLORIDA 6 1 7
GEORGIA 6 6
ILLINOIS 3 3
INDIANA 4 4
KANSAS 1 1
KENTUCKY 2 2
LOUISIANA 1 1
MAINE 1 2 3
MARYLAND 4 3 7
MASSACHUSETTS 7 10 17
MICHIGAN 4 4
MINNESOTA 3 3
NEBRASKA 1 1 2
NEVADA 1 1
NEW HAMPSHIRE 2 1 3
NEW JERSEY 6 6
NEW YORK 11 2 13
NORTH CAROLINA 5 5
OHIO 5 1 6
OKLAHOMA 1 1
PENNSYLVANIA 3 1 4
RHODE ISLAND 1 2 3
SOUTH CAROLINA 2 2 4
SOUTH DAKOTA 1 1
TENNESSEE 3 3
TEXAS 3 1 4
UTAH 1 1
VERMONT 2 2
VIRGINIA 3 1 4
WASHINGTON 2 2
TOTALS 111 36 147
35 STATES
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in ordinary routine legal proceedings
relating to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting will be held on June 13, 2001. No matter was
submitted to a vote of security holders in the fourth quarter of the fiscal year
ended December 30, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of all current
executive officers for the Company.
Name Age Position
- ---- --- --------
Michael J. Kittredge 49 Chairman of the Board
Michael D. Parry 49 President, Chief Executive Officer
Robert R. Spellman 53 Senior Vice President of Finance and Chief Financial Officer
Gail M. Flood 41 Senior Vice President of Retail Operations
Stephen T. Williams 50 Senior Vice President of Wholesale Operations
Paul J. Hill 46 Senior Vice President of Operations
MICHAEL J. KITTREDGE is the Chairman of the Board. Mr. Kittredge is the founder
of Yankee Candle. He served as a Director until April 1998 and was reappointed a
Director in April 1999. Mr. Kittredge served as Chairman and Chief Executive
Officer from July 1996 until November 1998 when he relinquished the position of
Chief Executive Officer. Prior to July 1996, he served as Chairman, President,
Treasurer and Clerk. Mr. Kittredge has been honored several times by the United
States Small Business Administration (S.B.A.), once in 1985 as the winner of the
"Entrepreneurial Success Award," and again in 1986 as the "Businessman of the
Year" for Massachusetts and the New England region. In 1996, Mr. Kittredge
received USA Today's and Ernst & Young's Retail Entrepreneur of the Year Award.
MICHAEL D. PARRY is a Director, the President and Chief Executive Officer. Mr.
Parry joined Yankee Candle in 1982 as General Manager, and was appointed Vice
President in January 1989 and President in July 1996. Mr. Parry has served as a
Director of Yankee Candle since May 1998. He was promoted to his current
position of Chief Executive Officer in November 1998. Since 1989, he has been in
charge of all of the Company's operations including general oversight of
wholesale and retail activities and manufacturing and distribution.
ROBERT R. SPELLMAN is the Senior Vice President of Finance and Chief Financial
Officer. Prior to joining Yankee Candle in November 1998, Mr. Spellman was
Senior Vice President of Finance of Staples, Inc. from 1988 through 1994, and
Chief Financial Officer of Star Markets Company, Inc. from 1994 through 1998.
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GAIL M. FLOOD is the Senior Vice President of Retail Operations. Ms. Flood
joined Yankee Candle in 1982 as Retail Store Manager. Since 1988, she has been
in charge of the Company's retail operations. She was appointed Vice President
of Retail Operations in July 1996, and promoted to her current position in
November 1998.
STEPHEN T. WILLIAMS is the Senior Vice President of Wholesale Operations. Mr.
Williams joined Yankee Candle in 1982, and held a number of different positions
in a variety of areas including Production, Packaging and Shipping prior to
being appointed National Sales Manager in 1987. In July 1996, Mr. Williams was
made Vice President of Wholesale Operations, and was promoted to Senior Vice
President in November 1998. Since 1987, he has been in charge of the Company's
wholesale operations.
PAUL J. HILL is the Senior Vice President of Operations. Mr. Hill joined the
Company in September 2000 and is responsible for the Company's manufacturing and
distribution operations. Prior to joining Yankee Candle, Mr. Hill served in
several capacities for Kraft Foods, Inc., where he was employed from 1987
through 2000, most recently as the Plant Manager for Kraft's Dover, Delaware
manufacturing and distribution facility.
There are no family relationships among any of the executive officers.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
- ------------------
The Company's common stock is listed for trading on the New York Stock Exchange
under the symbol "YCC". For the fiscal periods indicated, the high and low sales
prices per share of the common stock as reported on the New York Stock Exchange
- - Composite Transaction Reporting System were as follows:
Fifty-two Weeks Ended December 30, 2000 High Low
- --------------------------------------- ---- ---
First Quarter $17.81 $12.38
Second Quarter 25.94 14.13
Third Quarter 24.50 17.00
Fourth Quarter 21.00 10.00
Fifty-two Weeks Ended January 1, 2000 High Low
- ------------------------------------- ---- ---
First Quarter N/A N/A
Second Quarter $24.25 $18.00
Third Quarter 24.63 16.50
Fourth Quarter 19.75 14.19
There were 265 holders of record of the Company's common stock as of March 26,
2001. The closing price per share of the Company's common stock as of March 26,
2001, as reported under the New York Stock Exchange - Composite Transaction
Reporting System, was $13.09.
Page 12
14
Dividends
- ---------
The Company does not intend to pay any cash dividends in the foreseeable future
but instead intends to retain earnings, if any, for the future operation of the
business. Any determination to pay dividends in the future will be at the
discretion of the board of directors and will be dependent upon results of
operations, financial condition, contractual restrictions, restrictions imposed
by applicable law and other factors deemed relevant by the board of directors.
It should further be noted that under the terms of the existing credit agreement
dated July 7, 1999, the Company is limited in its ability to declare or pay cash
dividends on its common stock. Future indebtedness may also prohibit or restrict
the Company's ability to pay dividends and make distributions to stockholders.
Use of proceeds
- ---------------
Not applicable
Sales of unregistered securities
- --------------------------------
None
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial and other data that follows should be read in
conjunction with the "Consolidated Financial Statements", the accompanying notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this Annual Report on Form 10-K. The
historical financial data as of December 31, 1998 and for the fifty-two weeks
ended January 1, 2000 and December 30, 2000 have been derived from the audited
consolidated financial statements and the accompanying notes included in this
document at Item 8.
The historical financial data as of December 31, 1996 and 1997 have been derived
from audited financial statements for the corresponding period, which are not
contained in this document.
In May 2000, EITF 00-10, "Accounting for Shipping and Handling Fees and Costs"
was issued by the Emerging Issues Task Force. This pronouncement addressed the
classification of (i) amounts billed to customers for shipping and handling
activities and (ii) costs incurred by sellers for shipping and handling
activities in the statement of operations. The Company implemented this
pronouncement during the fifty-two week period ended December 30, 2000. All
statements of operations data presented have been reclassified to reflect the
provisions of this pronouncement.
Before its recapitalization on April 27, 1998, the Company was an S corporation
for federal and state income tax purposes. As a result, taxable earnings were
taxed directly to the then existing sole stockholder. Since the 1998
recapitalization, the Company has been a C corporation subject to federal and
state income taxes.
The data set forth for the following items assumes that the Company was subject
to federal and state income taxes and was taxed as a C corporation at the
effective tax rates that would have applied for all periods:
- Pro forma provision (benefit) for income taxes,
- Pro forma net income (loss), and
- Pro forma earnings per share (basic and diluted).
Page 13
15
FIFTY-TWO WEEKS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 1, DECEMBER 30,
1996 1997 1998 2000 2000
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales $ 115,203 $ 147,364 $ 188,722 $ 262,075 $ 338,805
Cost of sales 56,211 65,330 83,350 115,119 153,667
--------- --------- --------- --------- ---------
Gross profit 58,992 82,034 105,372 146,956 185,138
Selling expenses 23,244 26,935 30,546 44,547 64,464
General and administrative expenses 21,687 27,031 19,753 26,023 31,576
Bonus related to the Recapitalization -- -- 61,263 -- --
--------- --------- --------- --------- ---------
Income (loss) from operations 14,061 28,068 (6,190) 76,386 89,098
Interest income (165) (151) (219) (627) (235)
Interest expense 1,913 2,154 16,268 19,971 16,900
Other (income) expense 221 334 737 (116) (165)
--------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes 12,092 25,731 (22,976) 57,158 72,598
Provision for income taxes 410 1,360 9,656 22,863 29,039
--------- --------- --------- --------- ---------
Income (loss) before extraordinary loss on
early extinguishment of debt 11,682 24,371 (32,632) 34,295 43,559
Extraordinary loss on early extinguishment of
debt -- -- -- 3,162 --
--------- --------- --------- --------- ---------
Net income (loss) $ 11,682 $ 24,371 $ (32,632) $ 31,133 $ 43,559
--------- --------- --------- --------- ---------
BASIC EARNINGS (LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.12 $ 0.25 $ (0.51) $ 0.69 $ 0.82
========= ========= ========= ========= =========
NET INCOME (LOSS) $ 0.12 $ 0.25 $ (0.51) $ 0.62 $ 0.82
========= ========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.12 $ 0.25 $ (0.51) $ 0.66 $ 0.80
========= ========= ========= ========= =========
NET INCOME (LOSS) $ 0.12 $ 0.25 $ (0.51) $ 0.60 $ 0.80
========= ========= ========= ========= =========
Pro forma provision (benefit) from income taxes 4,830 10,686 (8,731)
--------- --------- ---------
Pro forma net income (loss) $ 7,262 $ 15,045 $ (14,245)
========= ========= =========
Pro forma basic earnings (loss) per share $ 0.07 $ 0.15 $ (0.22)
Pro forma diluted earnings (loss) per share $ 0.07 $ 0.15 $ (0.22)
OTHER DATA
Number of retail stores (at period end) 34 47 62 102 147
Gross profit margin 51.2% 55.7% 55.8% 56.1% 54.6%
Adjusted EBITDA margin (1) 23.8% 28.6% 31.4% 31.7% 29.2%
Depreciation and amortization $ 3,094 $ 3,581 $ 4,662 $ 6,709 $ 10,762
Capital expenditures 10,076 9,173 9,433 22,749 37,122
CASH FLOW DATA
EBITDA (2) $ 16,934 $ 31,315 $ (2,865) $ 82,237 $ 98,861
Adjusted EBITDA (3) 27,451 42,139 59,251 83,150 99,300
Net cash flows from operating activities 17,230 30,035 (11,578) 55,430 57,310
Net cash flows from investing activities (10,987) (9,961) (9,305) (22,676) (37,457)
Net cash flows from financing activities (9,112) (13,541) 43,917 (39,683) (30,042)
BALANCE SHEET DATA
Cash and cash equivalents $ 844 $ 7,377 $ 30,411 $ 23,569 $ 13,297
Working capital (excluding cash and cash
equivalents) 1,817 (12,363) 594 (25,269) (14,345)
Total assets 59,550 73,096 275,345 286,474 311,828
Total debt 12,045 25,264 320,000 187,568 157,512
Total stockholders' equity (deficit) 37,180 34,791 (68,591) 61,435 105,167
Page 14
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(1) Adjusted EBITDA margin reflects adjusted EBITDA as a percentage of net
sales.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. For this purpose, amortization does not include amortization of
deferred financing costs of $1,164 in 2000, $974 in 1999 and $600 in 1998, which
amounts are included in interest expense. EBITDA is presented because it is a
widely accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. EBITDA as
presented may not be comparable to similarly titled measures reported by other
companies since not all companies necessarily calculate EBITDA in an identical
manner and therefore is not necessarily an accurate means of comparison between
companies. EBITDA is not intended to represent cash flows for the period or
funds available for management's discretionary use nor has it been represented
as an alternative to operating income as an indicator of operating performance
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
(3) Adjusted EBITDA reflects adjustments to eliminate (a) the bonus of $61,263
in 1998 related to the 1998 recapitalization, (b) other (income) expense, (c)
non-cash stock based compensation, and (d) compensation and benefits, net of
current annual compensation and benefits of $338, paid to the former sole
stockholder of the S corporation of $10,296 and $10,490 for 1996 and 1997,
respectively. Adjusted EBITDA does not reflect adjustments to eliminate
commissions paid through March 1998 to independent manufacturer representatives,
which were replaced by a direct sales force. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further
discussion.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIFTY-TWO WEEKS ENDED DECEMBER 30, 2000 ("2000") COMPARED TO FIFTY-TWO WEEKS
ENDED JANUARY 1, 2000 ("1999")
NET SALES
Net sales increased 29.3% to $338.8 million in 2000 from $262.1 million in 1999.
This growth was primarily achieved by increasing the number of retail stores
from 102 to 147, increasing sales in existing retail stores and mailorder
operations and increasing sales to wholesale customers.
Wholesale sales, including European operations, increased 17.8% to $163.5
million from $138.9 million for 1999. This growth was achieved primarily by
increasing sales to existing customers. The Company believes that wholesale
sales growth has been and will continue to be positively impacted by increased
promotional spending, the addition of new wholesale locations and the
anticipated growth of its European operations.
Retail sales increased 42.3% to $175.3 million in 2000 from $123.2 million for
1999. This growth was achieved primarily through the addition of 45 new stores,
increased sales in existing stores and increased sales in mailorder operations.
Comparable store and mailorder hub sales in 2000 increased 12.8% over 1999.
Retail comparable store sales in 2000 increased 8.9% over 1999. There were 102
stores included in the comparable store base at the end of 2000, and 40 of these
stores were included for less than a full year. The Company's continued growth
in comparable store sales is attributable to the increased number and strong
performance of new stores entering the comparable store base and continued sales
growth in stores opened prior to 1999.
Page 15
17
GROSS PROFIT
Gross profit increased 26.0% to $185.1 million in 2000 from $147.0 million in
1999. As a percentage of net sales, gross profit decreased to 54.6% in 2000 from
56.1% in 1999. The decrease in gross profit as a percentage of net sales was
primarily due to inefficiencies in supply chain operations. In anticipation of a
significantly stronger December holiday selling season, the Company increased
its logistics and manufacturing infrastructure more rapidly than was ultimately
required in 2000. As a result, during the fourth quarter the Company incurred
excess labor and support costs in both its manufacturing and logistics
operations. Other factors that contributed to the decline in gross profit as a
percentage of sales were approximately $1.3 million of unexpected distribution
costs incurred during the third quarter of 2000, due to shipping inefficiencies
caused during the implementation of new distribution software; and the cost of
operating the Company's Salt Lake City distribution center for a full year in
2000 compared to approximately 18 weeks in 1999.
SELLING EXPENSES
Selling expenses increased 45.0% to $64.5 million in 2000 from $44.5 million in
1999. These expenses were related to both wholesale and retail operations and
consist of payroll, advertising, occupancy and other operating costs. As a
percentage of net sales, selling expenses were 19.0% in 2000 and 17.0% in 1999.
The primary factor behind the increase in selling expense in dollars and as a
percentage of sales was the increase in the number of retail stores operated by
the Company and the resulting shift in business mix between retail and wholesale
sales. Retail sales, which have higher selling expenses as a percentage of sales
than wholesale sales, represented 51.7% of total sales in 2000 compared to 47.0%
in 1999. The number of retail stores increased from 102 in 1999 to 147 in 2000.
Selling expenses as a percentage of sales in new stores are generally higher
than in stores that have been open for more than one year since fixed costs, as
a percentage of sales, are higher during the early sales maturation period and
since preopening costs are fully expensed in the year of opening.
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 $64.7 million, or 39.6% of wholesale sales in 2000 compared to $59.4 million
or 42.7% of wholesale sales in 1999. Segment profitability for the Company's
retail operations was $55.9 million or 31.9% of retail sales in 2000 compared to
$43.1 million or 35.0% of retail sales in 1999. The decrease in wholesale and
retail segment profitability as a percentage of net sales was largely
attributable to inefficiencies in supply chain operations, as described above.
Other factors that contributed significantly to the decline in segment
profitability as a percentage of net sales were approximately $1.3 million of
unexpected distribution costs incurred during the third quarter of 2000, due to
shipping inefficiencies caused during the implementation of new distribution
software; and the cost of operating the Company's Salt Lake City distribution
center for a full year in 2000 compared to approximately 18 weeks in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which consist primarily of
personnel-related costs incurred in support functions, increased 21.3% to $31.6
million in 2000 from $26.0 million in 1999. As a percentage of net sales,
general and administrative expenses decreased to 9.3% from 9.9% The increase in
general and administrative expense in dollars was primarily attributable to the
Company's continued investment in building its
Page 16
18
organizational infrastructure. The decrease in general and administrative
expenses as a percentage of net sales was attributable to the Company's
leveraging of these expenses over a larger sales base.
INCOME FROM OPERATIONS
Income from operations increased 16.6% to $89.1 million in 2000 from $76.4
million for 1999. Income from operations as a percentage of net sales decreased
to 26.3% in 2000 compared to 29.1% in 1999.
NET OTHER EXPENSE
Net other expense was $16.5 million in 2000 compared to $19.2 million in 1999.
The primary component of this expense was interest expense, which was $17.0
million in 2000 compared to $20.0 million in 1999. The decrease in interest
expense was the result of the reduction in total debt outstanding from $187.5
million at January 1, 2000 compared to $157.5 million at December 30, 2000.
INCOME TAXES
The income tax provision for 2000 was $29.0 million compared to $22.9 million
for 1999. The 2000 and 1999 tax provision reflects an effective tax rate of 40%.
NET INCOME
Net income increased 40% to $43.6 million in 2000 from $31.1 million in 1999.
FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 ("1999") COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998 ("1998")
NET SALES
Net sales increased 38.9% to $262.1 million in 1999 from $188.7 million in 1998.
This growth was achieved by increasing the number of retail stores, from 62 to
102, increasing sales in existing retail stores and mailorder operations and
increasing sales to wholesale customers.
Wholesale sales, including European operations, increased 29.2% to $138.9
million from $107.5 million for 1998. This growth was achieved primarily by
increasing sales to existing customers. The Company believes that 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 51.7% to $123.2 million in 1999 from $81.2 million for
1998. This growth was achieved primarily through the addition of 40 new stores,
increased sales in existing stores and increased sales in mailorder operations.
Comparable store and mailorder hub sales in 1999 increased 16.8% over 1998.
Retail comparable store sales in 1999 increased 14.8% over 1998. There were 60
stores included in the comparable store base at the end of 1999, and 13 of these
stores were included for less than a full year.
GROSS PROFIT
Gross profit increased 39.5% to $147.0 million in 1999 from $105.4 million in
1998. This increase was almost entirely attributable to the increase in sales.
As a percentage of net sales, gross profit was relatively consistent from year
to year, increasing slightly to 56.1% in 1999 from 55.8% in 1998.
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SELLING EXPENSES
Selling expenses increased 45.9% to $44.5 million in 1999 from $30.5 million in
1998. These expenses were related to both wholesale and retail operations and
consist of payroll, advertising, occupancy and other operating costs. The 1998
amount also includes approximately $2 million of commissions paid to independent
manufacturer representatives which amount was paid in the first quarter of 1998
and concluded the Company's relationships with independent manufacturer
representatives. Excluding the commissions paid to independent manufacturer
representatives, selling expenses increased 56.1% to $44.5 million in 1999 from
$28.5 million in 1998. As a percentage of net sales, selling expenses, excluding
commissions paid to independent manufacturer representatives, were 17.0% in 1999
and 15.1% in 1998. The primary factor behind the increase in selling expense in
dollars and as a percentage of net sales was the increase in the number of
retail stores operated by the Company. Retail sales, which have higher selling
expenses as a percentage of sales than wholesale sales, represented 47.0% of
total sales in 1999 compared to 43.0% in 1998. The number of retail stores
increased from 62 in 1998 to 102 in 1999. Selling expenses as a percentage of
net sales in new stores are generally higher than stores that have been open for
more than one year since fixed costs, as a percentage of sales, are higher
during the early sales maturation period and since preopening costs are fully
expensed in the year of opening.
SEGMENT PROFITABILITY
Segment profitability is net sales less cost of sales and selling expenses.
Segment profitability for wholesale operations, including Europe, was $59.4
million or 42.7% of wholesale sales in 1999 compared to $45.1 million or 42.0%
of wholesale sales in 1998. The wholesale segment profitability increase as a
percentage of net sales was largely attributable to the leveraging of selling
expenses on higher 1999 sales. Segment profitability for retail operations was
$43.1 million or 35.0% of retail sales in 1999 compared to $29.7 million or
36.6% of retail sales in 1998. The retail segment profitability decrease as a
percentage of net sales was primarily attributable to the lower operating margin
contribution rate of the 40 new stores opened during 1999. New stores typically
generate lower operating margin contribution rates than stores that have been
open for more than one year since fixed costs, as a percentage of net sales, are
higher during the early sales maturation period and since preopening costs are
fully expensed in the year of opening. The 40 new stores opened during 1999
exceeded the number of new stores opened during the prior three years combined.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which consist primarily of
personnel-related costs incurred in support functions, increased 31.3% to $26.0
million in 1999 from $19.8 million in 1998. This increase was primarily caused
by investments in building the organizational infrastructure. The Company also
had non-cash compensation expenses of $1.0 million in 1999 compared to $116,000
in 1998 related to certain share and option awards. The Company anticipates that
such non-cash compensation charges will diminish in the future as these
below-market awards fully amortize. The Company does not intend to issue such
below-market awards in the future.
INCOME (LOSS) FROM OPERATIONS
Income from operations was $76.4 million for 1999. This compares to a loss from
operations of $6.2 million in 1998. The 1998 figure includes a non-recurring
bonus charge of $61.3 million related to the 1998 recapitalization. Excluding
this charge, the Company would have reported operating income of $55.1 million
in 1998.
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NET OTHER EXPENSE
Net other expense was $19.2 million in 1999 compared to $16.8 million in 1998.
The primary component of this expense was interest expense, which was $20.0
million in 1999 compared to $16.3 million in 1998. Interest expense was higher
in 1999 because borrowings made pursuant to the 1998 recapitalization did not
occur until April, 1998.
INCOME TAXES
The income tax provision for 1999 was $22.9 million compared to $9.7 million for
1998. The 1999 tax provision reflects an effective tax rate of 40%. The
effective tax rate in 1998 is quite different. The Company was an S corporation
until the 1998 recapitalization and was only required to pay taxes at the state
level. All other income taxes were paid directly by the sole stockholder. In
1998, the Company reported a pre-tax loss because of the bonus related to the
1998 recapitalization. The sole stockholder received the benefit of that
deduction. Starting in May 1998, the Company was taxed as a regular corporation.
The tax provision of $9.7 million applies to pre-tax income from the date of the
1998 recapitalization to the end of the year.
NET INCOME BEFORE EXTRAORDINARY ITEM
Net income before extraordinary item for 1999 was $34.3 million compared to a
net loss of $32.6 in 1998, which included the $61.3 million non-recurring bonus
charge for which no tax benefit could be realized. Excluding this charge, net
income before extraordinary item for 1998 would have been $28.6 million.
NET INCOME
Net income for 1999 was $31.1 million compared to a net loss of $32.6 in 1998.
Excluding the non-recurring bonus charge, net income for 1998 would have been
$28.6 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has consistently generated positive cash flow from operations,
excluding the $61.3 million non-recurring bonus charge in 1998. This positive
cash flow has been sufficient, in the past, to allow the Company to grow its
business. For the first four months of 1998, the Company was an S corporation.
Any excess cash was distributed to the sole stockholder either in the form of
compensation or S corporation distributions. Those outflows totaled
approximately $17.5 million in 1998, which occurred in the first four months of
the year. Subsequent to the C corporation conversion, no such distributions have
been made. The absence of those distributions, combined with positive cash flow
from operations, has facilitated the Company's growth and is expected to
continue to do so.
Net cash provided by operating activities was $55.4 million and $57.3 million
for the fifty-two weeks ended January 1, 2000 and December 30, 2000,
respectively. Net cash used in operating activities was $11.6 million for the
year ended December 31, 1998. The Company believes that the liquidity provided
by operating cash flow can be better understood by reference to the Company's
adjusted EBITDA. Adjusted EBITDA reflects the elimination of various items,
unrelated to the Company's fundamental operating cash flow, from EBITDA. These
items include the one-time special bonus paid at the time of the 1998
recapitalization and the compensation and benefits, net of current annual
compensation and benefits, paid to the sole stockholder in the first four months
of 1998 prior to the 1998 recapitalization. It also eliminates non-cash
stock-based compensation and other income/expense items, which generally include
gains or losses from sales of fixed assets and other discretionary non-operating
cash flow items. Adjusted EBITDA totaled $59.3 million, $83.2
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million and $99.3 million in the year ended December 31, 1998 and the fifty-two
weeks ended January 1, 2000 and December 30, 2000, respectively.
The 1998 recapitalization resulted in a step-up in basis of the Company's assets
for tax purposes of approximately $462.0 million. This step-up reduces taxes
after April 1998 by approximately $175.7 million. On an annual basis, this
results in tax savings of approximately $11.7 million per year through 2013
assuming sufficient income to realize the full benefit of this deduction.
Capital expenditures in 2000 were $37.1 million, which included $12.2 million to
open 45 new stores, $8.8 million for new manufacturing equipment to increase
production volume and improve efficiency, $3.8 million in distribution
operations, $10.2 million in information systems and $2.1 million in all other
areas. The average capital expenditure for each new retail store was
approximately $265,000. Total capital expenditures in 1998 and the fifty-two
weeks ended January 1, 2000 were $9.4 million and $22.7 million, respectively.
There were 15 store openings in 1998 and 40 store openings in the fifty-two
weeks ended January 1, 2000.
The Company anticipates that capital expenditures in 2001 will total
approximately $32 million. These funds will be spent primarily to open 45 new
stores currently planned for 2001, new manufacturing equipment and in
distributions operations and for new information systems.
In July 1999, the Company sold 6 million shares of common stock at $18 per share
in an initial public offering and listed its stock on the New York Stock
Exchange under the symbol YCC. The proceeds to the Company, after deducting
underwriting fees and other expenses, were approximately $97 million. On July 7,
1999, the Company used these proceeds, together with $220 million of bank
borrowings under a new credit facility (described below) and available cash, to
redeem $320 million aggregate principal amount of outstanding subordinated
debentures. The redemption of these subordinated debentures resulted in an
extraordinary charge to the statement of operations of $3.2 million, net of tax.
These charges related to the write-off of financing fees that had previously
been deferred.
In July 1999, the Company entered into a new credit agreement with a consortium
of banks (the "New Credit Agreement"). The New Credit Agreement provided for a
maximum borrowing of $300 million and consists of a revolving credit facility
for $150 million and a term loan for $150 million. The weighted-average interest
rate on outstanding borrowings at December 30, 2000 was 8.04%.
The New Credit Agreement matures on July 7, 2004, with any outstanding amounts
due on that date; no payments of principal are due on the revolving credit
facility until this maturity date. The term loan is payable in quarterly
installments ranging from $7.5 million to $9.5 million in March, June, September
and December of each year commencing on December 31, 1999. As of December 30,
2000, $45,012,000 was outstanding under the revolving credit facility, thus
leaving $104,988,000 in availability under the New Credit Agreement.
The Company believes that cash flow from operations and funds available under
the New Credit Agreement will be sufficient for its working capital needs,
planned capital expenditures and debt service obligations for at least the next
twelve months.
RECENT DEVELOPMENTS
On February 14, 2001, the Company announced plans to consolidate and restructure
its distribution and supply chain operations. In connection with this decision
the Company shut-down its Utah distribution facility and restructured its
distribution work-force. As a result of this plan, the Company intends to record
a pre-tax restructuring charge of approximately $7.0 million in the first
quarter of fiscal 2001. The major components
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of this charge are severance costs, the write-off 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.
The Company plans to fund the costs incurred as a result of the restructuring
through funds to be generated from operating activities. Management believes
that future annual savings associated with the consolidating and restructuring
of its supply chain operations are estimated to be $10.0 million. The Company is
proceeding with its plan to open its new Deerfield distribution center in the
second quarter of fiscal 2001.
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 the Company's material and labor costs
have not been materially affected by inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2000, EITF 00-10, "Accounting for Shipping and Handling Fees and Costs"
was issued by the Emerging Issues Task Force. This pronouncement addressed the
classification of (i) amounts billed to customers for shipping and handling
activities and (ii) costs incurred by sellers for shipping and handling
activities in the statement of operations. The Company implemented this
pronouncement during the fifty-two week period ended December 30, 2000. All
financial statements presented have been reclassified to reflect the provisions
of this pronouncement.
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The SAB specifically sets forth
criteria which must be satisfied in order for revenue to be recognized. The
adoption of SAB No. 101 did not have an effect on the Company's consolidated
financial position or results of operations, as the Company's revenue
recognition policies already complied with the provisions of SAB No. 101.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
will be effective for fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The impact
of adopting SFAS 133 on the Company's financial statements at December 31, 2000
was not material.
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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 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 December 30, 2000 there was $157.5 million of debt outstanding, which
consisted of $112.5 million in term loans and $45.0 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. Yankee Candle does not have employment agreements
with any of its senior executive officers, except its Chief Financial Officer.
If the Company's senior executive officers become unable or unwilling to
participate in the business of Yankee Candle, its future business and financial
performance could be materially affected.
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24
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.
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,
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25
- - 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's market risks relate primarily to changes in interest rates. It
bears this risk in two specific ways. First, it has debt outstanding. At
December 30, 2000, the Company had $157.5 million outstanding under its New
Credit Agreement, which bears interest at variable rates. This facility is
intended to fund operating needs if necessary. Because this facility carries a
variable interest rate pegged to market indices, the Company's results of
operations and cash flows will be exposed to changes in interest rates. Based on
December 30, 2000 borrowing levels, a 1.00% increase or decrease in current
market interest rates would have the effect of causing a $1.6 million additional
pre-tax charge or credit to the statement of operations.
The second component of interest rate risk involves the short-term investment of
excess cash. This risk impacts fair values, earnings and cash flows. Excess cash
is primarily invested in overnight repurchase agreements backed by U.S.
Government securities. These are considered to be cash equivalents and are shown
that way on the Company's balance sheet. The balance of such securities at
December 30, 2000 was approximately $4.3 million. Earnings from cash equivalents
were approximately $235,000 for the fifty-two weeks ended December 30, 2000.
Based on December 30, 2000 cash equivalents, a 1.00% increase or decrease in
current market interest rates would have the effect of causing an approximately
$43,000 additional pre-tax credit or charge to the statement of operations.
The Company buys a variety of raw materials for inclusion in its products. The
only raw material that is considered to be of a commodity nature is wax. Wax is
a petroleum-based product. However, its market price has not historically
fluctuated with the movement of oil prices. Rather, over the past five years wax
prices have generally moved with inflation.
At this point in time, operations outside of the United States are immaterial.
Accordingly, the Company is not exposed to substantial risks arising from
foreign currency exchange rates.
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26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Yankee Candle Company, Inc.
Whately, Massachusetts 01093
We have audited the accompanying consolidated balance sheets of The Yankee
Candle Company, Inc. and subsidiaries as of January 1, 2000 and December 30,
2000, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year ended December 31, 1998 and the
fifty-two week periods ended January 1, 2000 and December 30, 2000. Our audits
also included the financial statement schedule listed in the Index at Item
14(a)(2). The financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Yankee Candle Company, Inc. and
subsidiaries as of January 1, 2000 and December 30, 2000 and the results of
their operations and their cash flows for the year ended December 31, 1998 and
the fifty-two weeks ended January 1, 2000 and December 30, 2000 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The Company adopted the provisions of EITF 00-10, "Accounting for Shipping and
Handling Fees and Costs" in the fifty-two weeks ended December 30, 2000. All
prior financial statements have been reclassified pursuant to this
pronouncement.
/s/ Deloitte & Touche, LLP
Boston, Massachusetts
February 14, 2001
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27
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2000 AND DECEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS JANUARY 1, DECEMBER 30,
2000 2000
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 23,569 $ 13,297
Accounts receivable, less allowance of $325 at January 1,
2000 and $352 at December 30, 2000 13,311 17,945
Inventory 21,994 35,036
Prepaid expenses and other current assets 3,176 5,419
Deferred tax assets 1,852 3,027
-------- --------
Total current assets 63,902 74,724
PROPERTY, PLANT AND EQUIPMENT - NET 65,217 92,875
MARKETABLE SECURITIES 816 1,072
CLASSIC VEHICLES 874 874
DEFERRED FINANCING COSTS 5,093 3,929
DEFERRED TAX ASSETS 150,249 138,061
OTHER ASSETS 323 293
-------- --------
TOTAL ASSETS $286,474 $311,828
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY JANUARY 1, DECEMBER 30,
2000 2000
--------- ---------
CURRENT LIABILITIES:
Accounts payable $ 14,662 $ 16,133
Accrued interest 3,186 2,524
Accrued payroll 6,508 7,757
Accrued income taxes 5,635 12,006
Other accrued liabilities 5,611 7,352
Current portion of long-term debt 30,000 30,000
--------- ---------
Total current liabilities 65,602 75,772
DEFERRED COMPENSATION OBLIGATION 927 1,074
LONG-TERM DEBT - Less current portion 157,568 127,512
DEFERRED RENT 942 2,303
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY:
Common stock, $.01, par value, 300,000 shares authorized;
104,059 issued;
54,499 shares outstanding at
January 1, 2000 and December 30, 2000 1,041 1,041
Additional paid-in capital 224,483 224,381
Treasury stock (212,988) (212,988)
Retained earnings 50,181 93,740
Unearned stock compensation (1,235) (631)
Accumulated other comprehensive income (loss) (47) (376)
--------- ---------
Total stockholders' equity 61,435 105,167
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 286,474 $ 311,828
========= =========
See notes to consolidated financial statements.
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28
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 AND
DECEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED FIFTY-TWO WEEKS ENDED
DECEMBER 31, JANUARY 1, DECEMBER 30,
1998 2000 2000
--------- --------- ---------
NET SALES $ 188,722 $ 262,075 $ 338,805
COST OF SALES 83,350 115,119 153,667
--------- --------- ---------
GROSS PROFIT 105,372 146,956 185,138
--------- --------- ---------
OPERATING EXPENSES:
Selling expenses 30,546 44,547 64,464
General and administrative expenses 19,753 26,023 31,576
Bonus related to the recapitalization 61,263 -- --
--------- --------- ---------
Total operating expenses 111,562 70,570 96,040
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (6,190) 76,386 89,098
--------- --------- ---------
OTHER (INCOME) EXPENSE:
Interest income (219) (627) (235)
Interest expense 16,268 19,971 16,900
Other (income) expense 737 (116) (165)
--------- --------- ---------
Total other expense 16,786 19,228 16,500
--------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (22,976) 57,158 72,598
PROVISION FOR INCOME TAXES 9,656 22,863 29,039
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
ON EARLY EXTINGUISHMENT OF DEBT (32,632) 34,295 43,559
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, Less income tax benefit of $2,108 -- 3,162 --
--------- --------- ---------
NET INCOME (LOSS) $ (32,632) $ 31,133 $ 43,559
========= ========= =========
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 AND
DECEMBER 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED FIFTY-TWO WEEKS ENDED
DECEMBER 31, JANUARY 1, DECEMBER 30,
1998 2000 2000
---------- ---------- ----------
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item $ (0.51) $ 0.69 $ 0.82
========== ========== ==========
Net income (loss) $ (0.51) $ 0.62 $ 0.82
========== ========== ==========
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item $ (0.51) $ 0.66 $ 0.80
========== ========== ==========
Net income (loss) $ (0.51) $ 0.60 $ 0.80
========== ========== ==========
PRO FORMA INFORMATION (UNAUDITED) --
Historical loss before benefit
for income taxes $ (22,976)
==========
PRO FORMA BENEFIT FOR INCOME TAXES $ (8,731)
==========
PRO FORMA NET LOSS $ (14,245)
==========
PRO FORMA BASIC LOSS PER SHARE $ (0.22)
==========
PRO FORMA DILUTED LOSS PER SHARE $ (0.22)
==========
WEIGHTED-AVERAGE BASIC SHARES OUTSTANDING 64,458 49,857 52,900
========== ========== ==========
WEIGHTED-AVERAGE DILUTED SHARES OUTSTANDING 64,458 51,789 54,663
========== ========== ==========
See notes to consolidated financial statements.
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1998, FIFTY TWO-WEEKS ENDED JANUARY 1, 2000 AND
DECEMBER 30, 2000
(DOLLARS IN THOUSANDS)
Common Stock Additional
------------------------ Paid in Treasury Retained
Shares Amount Capital Stock Earnings
------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 98,005 $ 980 $ (918) $ -- $ 34,729
Distributions to stockholder -- -- -- -- (34,102)
Transfer of accumulated
deficit to additional
paid-in capital at
termination of
S-Corporation status -- -- (51,053) -- 51,053
Redemption of common stock -- -- -- (212,448) --
Recognition of deferred tax asset -- -- 175,683 -- --
Capital subscription
receivable -- -- 1,084 -- --
Unearned stock compensation -- -- 1,814 -- --
Amortization of unearned
stock compensation -- -- -- -- --
Comprehensive income (loss):
Net loss -- -- -- -- (32,632)
Foreign currency -- -- -- -- --
translation gain
Comprehensive income (loss) -- -- -- -- --
------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 98,005 980 126,610 (212,448) 19,048
Redemption of common stock -- -- -- (540) --
Payment of capital
subscription receivable -- -- -- -- --
Unearned stock compensation -- -- 566 -- --
Amortization of unearned
stock compensation -- -- -- -- --
Issuance of common stock less
underwriting fees and
other expenses 6,054 61 96,948 -- --
Tax benefits on option
exercises -- -- 359 -- --
Comprehensive income (loss):
Net income -- -- -- -- 31,133
Foreign currency
translation loss -- -- -- -- --
Comprehensive income -- -- -- -- --
------- --------- --------- --------- ---------
BALANCE, JANUARY 1, 2000 104,059 1,041 224,483 (212,988) 50,181
Amortization of unearned
stock compensation -- -- -- -- --
Additional expenses relative
to 1999 issuance of
common stock -- -- (102) -- --
Comprehensive income (loss):
Net income -- -- -- -- 43,559
Foreign currency
translation loss -- -- -- -- --
Comprehensive income -- -- -- -- --
------- --------- --------- --------- ---------
BALANCE, DECEMBER 30, 2000 104,059 $ 1,041 $ 224,381 $(212,988) $ 93,740
======= ========= ========= ========= =========
Capital Accumulated Other
Subscription Unearned Stock Comprehensive Comprehensive
Receivable Compensation Income Income Total
------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 $ -- $ -- $ -- $ -- $ 34,791
Distributions to stockholder -- -- -- -- (34,102)
Transfer of accumulated
deficit to additional
paid-in capital at
termination of
S-Corporation status -- -- -- -- --
Redemption of common stock -- -- -- -- (212,448)
Recognition of deferred tax asset -- -- -- -- 175,683
Capital subscription
receivable (1,084) -- -- -- --
Unearned stock compensation -- (1,814) -- -- --
Amortization of unearned
stock compensation -- 116 -- -- 116
Comprehensive income (loss):
Net loss -- -- -- (32,632) (32,632)
Foreign currency
translation gain -- -- 1 1 1
---------
Comprehensive income (loss) -- -- -- $ (32,631) --
------- --------- --------- ========= ---------
BALANCE, DECEMBER 31, 1998 (1,084) (1,698) 1 -- (68,591)
Redemption of common stock -- -- -- -- (540)
Payment of capital
subscription receivable 1,084 -- -- -- 1,084
Unearned stock compensation -- (566) -- -- --
Amortization of unearned
stock compensation -- 1,029 -- -- 1,029
Issuance of common stock less
underwriting fees and
other expenses -- -- -- -- 97,009
Tax benefits on option
exercises -- -- -- -- 359
Comprehensive income (loss):
Net income -- -- -- 31,133 31,133
Foreign currency
translation loss -- -- (48) (48) (48)
---------
Comprehensive income -- -- -- $ 31,085 --
------- --------- --------- --------- ---------
BALANCE, JANUARY 1, 2000 -- (1,235) (47) -- 61,435
Amortization of unearned
stock compensation -- 604 -- -- 604
Additional expenses relative
to 1999 issuance of
common stock -- -- -- -- (102)
Comprehensive income (loss):
Net income -- -- -- 43,559 43,559
Foreign currency
translation loss -- -- (329) (329) (329)
---------
Comprehensive income -- -- -- $ 43,230 --
------- --------- --------- ========= ---------
BALANCE, DECEMBER 30, 2000 $ -- $ (631) $ (376) $ 105,167
======= ========= ========= =========
See notes to consolidated financial statements.
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998, FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 AND
DECEMBER 30, 2000
(DOLLARS IN THOUSANDS)
FIFTY-TWO WEEKS ENDED
DECEMBER 31, JANUARY 1, DECEMBER 30,
1998 2000 2000
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (32,632) $ 31,133 $ 43,559
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary loss on early extinguishment of debt -- 3,162 --
Depreciation and amortization 4,662 6,709 10,762
Unrealized loss (gain) on marketable equity securities (92) (4) 79
Noncash stock compensation 116 1,029 604
Deferred taxes 9,656 13,915 11,013
(Gain) loss on disposal of fixed assets and classic vehicles (146) 132 (123)
Changes in assets and liabilities:
Accounts receivable - net (1,613) (4,817) (4,766)
Inventory (2,270) (9,586) (13,254)
Prepaid expenses and other assets (323) (2,225) (2,287)
Accounts payable 7,012 1,365 1,495
Accrued expenses and other liabilities 3,951 13,776 10,228
Deferred rent obligation 101 841 --
--------- --------- ---------
Net cash provided by (used in) operating activities (11,578) 55,430 57,310
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (9,433) (22,749) (37,122)
Investments in marketable equity securities -- -- (335)
Purchase of marketable equity securities for deferred
compensation plan (378) (366) --
Proceeds from sale of equipment 506 29 --
Proceeds from sale of marketable equity securities -- 410 --
--------- --------- ---------
Net cash used in investing activities (9,305) (22,676) (37,457)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subordinated notes -- (320,000) --
Net borrowings (repayments) under bank credit agreements (31,097) (33,000) 60
Proceeds from long-term borrowings 320,000 228,068 --
Proceeds from the sale of common stock in
1999 (net of fees and expenses) -- 97,009 (102)
Proceeds from repayment of capital stock subscription receivable -- 1,084 --
Principal payments on long-term debt (8,183) (7,500) (30,000)
Payments for deferred financing costs (7,115) (4,804) --
Payments for redemption of common stock (212,448) (540) --
Distributions to stockholder (17,240) -- --
--------- --------- ---------
Net cash (used in) provided by financing activities 43,917 (39,683) (30,042)
--------- --------- ---------
(Continued)
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998, FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 AND
DECEMBER 30, 2000
(DOLLARS IN THOUSANDS)
YEAR ENDED FIFTY-TWO WEEKS ENDED
DECEMBER 31, JANUARY 1, DECEMBER 30,
1998 2000 2000
-------- -------- --------
EFFECT OF EXCHANGE RATE ON CASH -- 87 (83)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 23,034 (6,842) (10,272)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,377 30,411 23,569
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 30,411 $ 23,569 $ 13,297
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash paid during the year for:
Interest $ 14,497 $ 18,672 $ 16,477
======== ======== ========
Income taxes $ 8,730 $ 864 $ 11,656
======== ======== ========
Noncash distributions to MK $ 16,862 $ -- $ --
======== ======== ========
Purchase of equipment by assumption of capital
lease and lease incentives $ -- $ 802 $ 802
======== ======== ========
See notes to consolidated financial statements.
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THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1998 AND
FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 AND DECEMBER 30, 2000 (IN THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. HISTORY, RECAPITALIZATION AND FINANCING
The Yankee Candle Company, Inc. and subsidiaries ("Yankee Candle" or "the
Company") is the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. The Company has a
31-year history of offering its distinctive products and marketing them as
affordable luxuries and consumable gifts. Yankee Candle products are available
in more than 150 fragrances and include a wide variety of jar candles,
Samplers(R) votive candles, pillars, tapers, Tarts(R) wax potpourri and other
candle products, marketed as Yankee Candle(R) branded products primarily under
the trade names Housewarmer(R), Country Kitchen(R), Country Classics(TM), Aroma
Formula(TM), Flickers(TM) and Frosted Favorites(TM). The Company also sells a
wide range of candle accessories. The Company sells its products through several
channels including wholesale customers who operate approximately 12,900 gift
store locations nationwide, 147 Company-operated retail stores in 35 states as
of December 30, 2000, direct mail catalogs, its Internet website
(www.yankeecandle.com), international distributors and its distribution center
located in the United Kingdom.
On March 25, 1998, the Company entered into a Recapitalization and Stock
Purchase Agreement with Yankee Candle Holdings Corp. ("Holdings"), Michael
Kittredge ("MK") and affiliates of Forstmann Little & Co. ("FL&Co."). On April
27, 1998 in connection with such recapitalization (the "Recapitalization"), the
Company (i) redeemed (the "Redemption") a portion of its common stock held by MK
for approximately $200,000; (ii) paid transaction fees and expenses, including
financing fees, of approximately $19,550; (iii) repaid existing indebtedness of
approximately $49,300; and (iv) paid bonuses related to the Recapitalization of
approximately $61,300. In addition, Holdings acquired shares of common stock
from MK for approximately $180,000. This purchase was financed by the issuance
of Holdings' common stock to FL&Co. and senior management (together with the
Redemption, the "Recapitalization"). Upon completion of the Recapitalization,
Holdings owned 90% of the common stock and MK retained 10% of the common stock
of the Company.
The Redemption and related transactions described above were financed through
the issuance of $320,000 of subordinated debentures (the "Subordinated
Debentures"). In addition, the Company entered into a credit agreement with a
consortium of banks that provided for a $60,000 revolving credit facility. The
Company incurred financing costs of approximately $7,100, which were recorded as
deferred financing costs. In addition, the Company incurred approximately
$12,450 of transaction costs related to the Recapitalization which were charged
to treasury stock.
On July 1, 1999, the Company sold 6,000,000 shares of common stock at $18 per
share in an initial public offering and listed its stock on the New York Stock
Exchange. Prior to the closing of the public offering, the Company executed a
reorganization that (i) split its currently issued shares on a 98,005 to 1
basis; and (ii) exchanged 43,545,479 shares of common stock and options to
purchase 554,521 shares of Company common stock on the same economic terms and
conditions as the Holdings options for all of Holdings assets, consisting
principally of shares of Company common stock. All share and per share amounts
have been restated to give effect to these transactions.
Page 32
34
1. HISTORY, RECAPITALIZATION AND FINANCING (CONTINUED)
The proceeds to the Company from its initial public offering, after deducting
underwriting fees and other expenses, were approximately $97,000. On July 7,
1999, the Company used these proceeds, together with $220,000 of bank borrowings
under a new credit facility (described in Note 6), and available cash to redeem
$320,000 aggregate principal amount of outstanding Subordinated Debentures. The
redemption of these subordinated debentures resulted in an extraordinary charge
to the statement of operations of $3,162, net of tax $(0.07) and $(0.06) per
basic and diluted share, respectively). These charges related to the write-off
of financing fees that had previously been deferred.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Effective January 1, 1999, the Company adopted a 52/53
week fiscal year. The fiscal year is the 52 or 53 weeks ending the Saturday
closest to December 31. There was no material impact on the operating results
reported for 1999 as a result of this change in the Company's fiscal year.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Actual results could differ
from those estimates.
REVENUE RECOGNITION - The Company sells its products directly to retail
customers and through wholesale channels. Revenue from the sale of merchandise
to retail customers is recognized at the time of sale. Revenue from sales to
wholesale customers is recognized upon shipment of product. The Company believes
that these are the times when persuasive evidence of an arrangement exists,
delivery has occurred, the Company's price is fixed and collectibility is
reasonably assured. Revenue from merchandise credits and gift certificates
issued is deferred until redemption. The adoption of SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition" had no impact on the Company's
consolidated financial statements.
CASH AND CASH EQUIVALENTS - The Company considers all short-term
interest-bearing investments with original maturities of three months or less to
be cash equivalents. Such investments are classified by the Company as "held to
maturity" securities under the provisions of Statement of Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." These securities are stated at cost, adjusted for amortization of
discounts and premiums to maturity.
Page 33
35
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES - The Company classifies the marketable securities held in
its deferred compensation plan as "trading" securities under SFAS No. 115. In
accordance with the provisions of this statement, the investment balance is
stated at fair market value, based on quoted market prices. Unrealized gains and
losses are reflected in earnings; realized gains and losses are computed using
the specific-identification method. As the assets held in the deferred
compensation plan reflect amounts due to employees, but available for general
creditors of the Company in the event the Company becomes insolvent, the Company
has recorded the investment balance as a noncurrent asset and has established a
corresponding other long-term liability entitled "deferred compensation
obligation" on the balance sheet.
The marketable securities held in this plan consist of investments in mutual
funds at January 1, 2000 and December 30, 2000. Unrealized gains (losses)
included in earnings during the year ended December 31, 1998 and the fifty-two
weeks ended January 1, 2000 and December 30, 2000 were $92, $4 and $(79),
respectively. Gains of $30, $44 and $0 were realized during 1998 and the
fifty-two weeks ended January 1, 2000 and December 30, 2000, respectively.
ACCOUNTS RECEIVABLE - Accounts receivable primarily represents amounts due from
wholesale customers.
INVENTORIES - Inventories are stated at the lower of cost or market on a
last-in, first-out ("LIFO") basis. In 1998, the liquidation of certain LIFO
layers decreased cost of sales by $383. There were no such liquidations in the
fifty-two weeks ended January 1, 2000 or December 30, 2000.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost
and are depreciated on the straight-line method based on the estimated useful
lives of the various assets. The estimated useful lives are as follows:
Buildings and improvements 5 to 40 years
Computer equipment 3 to 5 years
Furniture and fixtures 5 to 10 years
Equipment 10 years
Vehicles 5 years
Leasehold improvements are amortized using the straight-line method over the
lesser of the estimated life of the improvement or the remaining life of the
lease. Expenditures for normal maintenance and repairs are charged to expense as
incurred.
DEFERRED FINANCING COSTS - The Company amortizes deferred financing costs using
the effective-interest method over the life of the related debt. Accumulated
amortization was $974 and $2,139 at January 1, 2000 and December 30, 2000,
respectively.
TRADEMARKS - Trademarks are recorded at cost and amortized over 15 years. Cost
of trademarks, included in other assets at January 1, 2000 and December 30,
2000, was $233 and $231, respectively. Accumulated amortization was $85 and
$101, at January 1, 2000 and December 30, 2000, respectively.
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36
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CLASSIC VEHICLES - The Company has invested in certain vehicles, which it
displays in its car museum. These vehicles are stated at cost, with no provision
for depreciation, since their useful lives are indeterminable and their values
fluctuate with the classic vehicle market. When management believes that a
permanent decline in value has occurred, the assets are written down to their
fair value. During the year ended December 31, 1998 and the fifty-two weeks
ended January 1, 2000 and December 30, 2000, there were no adjustments to the
value of these vehicles.
ADVERTISING - The Company expenses the costs of advertising as they are
incurred. Advertising expense was $1,986, $2,876 and $4,448 for the year ended
1998 and the fifty-two weeks ended January 1, 2000 and December 30, 2000,
respectively.
IMPAIRMENT ACCOUNTING - The Company reviews the recoverability of its long-lived
assets when events or changes in circumstances occur that indicate that the
carrying value of the assets may not be recoverable. This review is based on the
Company's ability to recover the carrying value of the assets from expected
undiscounted future cash flows. If an impairment is indicated, the Company
measures the loss based on the fair value of the asset using various valuation
techniques. If an impairment loss exists, the amount of the loss will be
recorded in the consolidated statements of operations. It is possible that
future events or circumstances could cause these estimates to change.
STOCK BASED COMPENSATION - The Company applies the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for stock options and awards granted to employees. Compensation cost
is recognized on an accelerated basis as set forth in Interpretation 28. The
Company accounts for stock options and awards to non-employees in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation" and EITF 96-18
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
PRO FORMA ADJUSTMENTS - The Company had, until the Recapitalization, elected to
be treated as an S corporation for federal and state income tax purposes. Under
this previous election, income for federal income tax purposes was not taxed at
the corporate level but was taxed to MK.
On April 27, 1998, the Company's tax status changed from an S corporation to a C
corporation. The income statement reflects a provision for income taxes for
federal and state purposes for the period the Company was a C corporation and a
provision for state taxes for the periods the Company was an S corporation. The
pro forma financial information shows the effect on the historical financial
statements as if the Company had been taxed as a C corporation during 1998
instead of an S corporation until April 27, 1998.
INCOME TAXES - The Company accounts for income taxes under the provisions of
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. The provision for income taxes
in the consolidated statements of operations is the actual computed tax
obligation or receivable for the period, plus or minus the change during the
period in deferred income tax assets and liabilities.
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37
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS - At December 30, 2000, the estimated fair
values of all financial instruments approximate their carrying amounts in the
consolidated balance sheets due to (i) the short-term maturity of certain
instruments or (ii) the floating interest rate associated with certain
instruments which have the effect of repricing such instruments regularly.
EARNINGS PER SHARE - SFAS No. 128, "Earnings Per Share," requires two
presentations of earnings per share "basic" and "diluted." Basic earnings per
share is computed by dividing income available to common stockholders (the
numerator) by the weighted-average number of common shares (the denominator) for
the period. The computation of diluted earnings per share is similar to basic
earnings per share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potentially dilutive common shares had been issued. The denominator in the
calculation is based on the following weighted-average number of common shares:
DECEMBER 31, JANUARY 1, DECEMBER 30,
1998 2000 2000
---------- ---------- ----------
Basic 64,458,000 49,857,000 52,900,000
Add:
Contingently returnable shares -- 1,666,000 1,581,000
Shares issuable pursuant to option grants -- 266,000 182,000
---------- ---------- ----------
Diluted 64,458,000 51,789,000 54,663,000
========== ========== ==========
NEWLY ISSUED ACCOUNTING STANDARDS - In May 2000, EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs" was issued by the Emerging Issues Task
Force. This pronouncement addressed the classification of (i) amounts billed to
customers for shipping and handling activities and (ii) costs incurred by
sellers for shipping and handling activities in the statement of operations. The
Company implemented this pronouncement during the fifty-two week period ended
December 30, 2000. All financial statements presented have been reclassified to
reflect the provisions of this pronouncement.
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The SAB specifically sets forth
criteria which must be satisfied in order for revenue to be recognized. The
adoption of SAB No. 101 did not have an effect on the Company's consolidated
financial position or results of operations, as the Company's revenue
recognition policies already complied with the provisions of SAB No. 101.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
will be effective for fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The impact
of adopting SFAS 133 on the Company's financial statements at December 31, 2000
was not material.
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.
Accumulated other comprehensive income reported on the Company's consolidated
balance sheets consists of foreign currency translation adjustments.
Comprehensive income, net of related tax effects (where applicable), is detailed
in the consolidated statements of stockholders' equity (deficit).
PRIOR-YEAR RECLASSIFICATIONS - Certain prior year amounts have been reclassified
to conform to the current year presentation.
3. INVENTORIES
The components of inventory were as follows:
JANUARY 1, DECEMBER 30,
2000 2000
-------- --------
Inventory at FIFO, which approximates
replacement value:
Finished goods $ 18,127 $ 27,461
Work-in-process 196 15
Raw materials and packaging 4,219 8,334
-------- --------
22,542 35,810
Less LIFO reserve (548) (774)
-------- --------
$ 21,994 $ 35,036
======== ========
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39
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
JANUARY 1, DECEMBER 30,
2000 2000
--------- ---------
Land and improvements $ 4,492 $ 4,780
Buildings and improvements 43,974 53,144
Computer equipment 7,576 18,071
Furniture and fixtures 10,954 16,621
Equipment 15,122 20,982
Vehicles 880 1,110
Construction-in-process 1,462 6,375
--------- ---------
Total 84,460 121,083
Less accumulated depreciation and amortization (19,243) (28,208)
--------- ---------
$ 65,217 $ 92,875
========= =========
$38, $229 and $566 of interest was capitalized in the year ended December 31,
1998 and the fifty-two weeks ended January 1, 2000 and December 30, 2000,
respectively.
5. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several financial institutions. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation up
to $100. Uninsured balances aggregated $18,189 and $6,774 at January 1, 2000 and
December 30, 2000, respectively.
The Company extends credit to its wholesale customers. No single customer
accounted for more than 3% of total sales during any period presented nor did
any such customer account for more than 6% of the outstanding receivable balance
at either January 1, 2000 or December 30, 2000.
6. LONG-TERM DEBT
Long term debt is summarized as follows:
JANUARY 1, DECEMBER 30,
2000 2000
-------- --------
Term loan $142,500 $112,500
Revolving line of credit 45,068 45,012
-------- --------
187,568 157,512
Less current portion 30,000 30,000
-------- --------
Noncurrent portion $157,568 $127,512
======== ========
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6. LONG-TERM DEBT (CONTINUED)
In connection with the Recapitalization, the Company issued $320,000 of
Subordinated Debentures that were distributed to limited partners of FL&Co. The
Subordinated Debentures bore interest at 6 3/4%, which was payable semiannually
in May and November commencing on November 30, 1998. These debentures were
repaid with proceeds from the Company's initial public offering and its new
credit agreement in July 1999 (see Note 1).
In April 1998, the Company entered into a credit agreement with a consortium of
banks (the "Old Credit Agreement"). The Old Credit Agreement provided for a
revolving credit facility of $60,000. A portion of this revolving credit
facility, in an amount not to exceed $15,000, could have been used, to the
extent available, for standby and commercial letters of credit. This facility
was terminated at the time that the New Credit Agreement described below was
executed.
In July 1999, the Company entered into a new credit agreement with a consortium
of banks (the "New Credit Agreement"). The New Credit Agreement provided for a
maximum borrowing of $300,000 and consists of a revolving credit facility for
$150,000 and a term loan for $150,000. Borrowings of $220,000 under the New
Credit Agreement were used together with net proceeds from the initial public
offering (see Note 1) to redeem the aggregate principal amount of Subordinated
Debentures. The New Credit Agreement matures on July 7, 2004, with any
outstanding amounts due on that date; no payments of principal are due on the
revolving credit facility until this maturity date. The term loan is payable in
quarterly installments ranging from $7,500 to $9,500 in March, June, September
and December of each year commencing on December 31, 1999. The New Credit
Agreement is collateralized by substantially all of the assets of the Company.
As of January 1, 2000 and December 30, 2000, the unused portion of the revolving
credit facility was $104,932 and $104,988, respectively.
The Company is required to pay a commitment fee on the average daily unutilized
portion of the revolving credit facility at a rate ranging from 1/4% to 3/8% per
annum. The Company may elect to set the interest rate on all or a portion of the
borrowings outstanding under the New Credit Agreement at a rate per annum equal
to (a) the greater of (i) prime rate, (ii) the base CD rate plus 1% or (iii) the
federal funds effective rate plus 1/2%, or (b) the eurodollar rate. The
weighted-average interest rate on outstanding borrowings at December 30, 2000
was 8.04%.
The New Credit Agreement includes restrictions as to, among other things, the
amount of additional indebtedness, contingent obligations, liens, investments,
asset sales, capital expenditures and dividends and requires the maintenance of
minimum levels of interest coverage. It also includes a restriction for the
payment of dividends. None of the restrictions contained in the New Credit
Agreement are expected to have a significant effect on the ability of the
Company to operate. As of December 30, 2000, the Company was in compliance with
all financial and operating covenants under the New Credit Agreement.
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6. LONG-TERM DEBT (CONTINUED)
Aggregate annual maturities of long-term debt and capital lease obligations are
as follows:
LONG-TERM
DEBT
--------
2001 $ 30,000
2002 31,500
2003 32,000
2004 64,012
--------
Total $157,512
========
7. PROVISION FOR INCOME TAXES
Prior to the Recapitalization, the Company was taxed as an S corporation for
federal and state income tax purposes. Generally, there is no federal income tax
on earnings of an S corporation; however, some states impose a tax on taxable
earnings.
Income tax expense, exclusive of that relating to extraordinary items, consists
of the following:
YEAR ENDED FIFTY-TWO WEEKS ENDED
DECEMBER 31, JANUARY 1, DECEMBER 30,
1998 2000 2000
------- ------- -------
Federal:
Current $ -- $ 7,881 $15,977
Deferred 8,894 12,263 9,655
------- ------- -------
Total federal 8,894 20,144 25,632
------- ------- -------
State:
Current -- 1,067 2,049
Deferred 762 1,652 1,358
------- ------- -------
Total state 762 2,719 3,407
------- ------- -------
Total income tax provision $ 9,656 $22,863 $29,039
======= ======= =======
In connection with the Recapitalization, an election was made for federal and
state income tax purposes to value the assets and liabilities of the Company at
fair value. As a result of such election, there is a difference between the
financial reporting and tax bases of the Company's assets and liabilities. This
difference was accounted for by recording a deferred tax asset of approximately
$175,700 with a corresponding credit to additional paid-in capital. The deferred
tax asset will be realized as these differences, including tax goodwill,
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7. PROVISION FOR INCOME TAXES (CONTINUED)
are deducted, principally over a period of 15 years. In the opinion of
management, the Company will have sufficient profits in the future to realize
the deferred tax asset.
The tax effect of significant items comprising the Company's net deferred tax
assets (liabilities) are as follows:
JANUARY 1, DECEMBER 30,
2000 2000
CURRENT NONCURRENT CURRENT NONCURRENT
--------- ---------- --------- ----------
Deferred tax assets:
Basis differential as a result
of basis stepup for tax $ -- $ 151,664 $ -- $ 140,630
Deferred compensation
arrangements 350 -- 426 --
Employee benefits 1,123 -- 1,765 --
Other 379 397 836 590
Deferred tax liabilities - fixed assets -- (1,812) -- (3,159)
--------- --------- --------- ---------
$ 1,852 $ 150,249 $ 3,027 $ 138,061
========= ========= ========= =========
A reconciliation of the statutory federal income tax rate and the effective rate
of the provision for income taxes consists of the following:
DECEMBER 31, JANUARY 1, DECEMBER 30,
1998 2000 2000
--- --- ---
Statutory federal income tax rate 35% 35% 35%
State income taxes - net of federal
income tax benefit 3 4 4
S-Corporation income (80) -- --
Other -- 1 1
--- --- ---
(42)% 40 % 40 %
=== === ===
8. PROFIT SHARING PLAN
The Company maintains a profit sharing/salary reduction plan under section
401(k) of the Internal Revenue Code. Employer matching contributions amounted to
$347, $425 and $570 for 1998 and the fifty-two weeks ended January 1, 2000 and
December 30, 2000, respectively. The Company, at its discretion, may also make
annual profit sharing contributions to the plan. There were no profit sharing
contributions in 1998 or the fifty-two weeks ended January 1, 2000 and December
30, 2000, respectively.
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9. DEFERRED COMPENSATION
The Company has a deferred compensation agreement with certain key employees.
Under this agreement, the Company at its election may match certain elective
salary deferrals of eligible employees' compensation up to a maximum of $20 per
employee per year. Employer contributions amounted to $133, $100 and $0 for 1998
and for the fifty-two weeks ended January 1, 2000 and December 30, 2000,
respectively. Benefits under the plan will be paid in a lump sum upon
termination of the plan or termination of employment. Benefits paid to retired
employees during the fifty-two weeks ended January 1, 2000 and December 30, 2000
were $410 and $0, respectively.
10. CONTINGENCIES
The Company is engaged in various lawsuits, either as plaintiff or defendant. In
the opinion of management, the ultimate outcome of these lawsuits will not have
a material adverse effect on the Company's financial condition, results of
operations or cash flows.
11. STOCKHOLDERS' EQUITY
CAPITAL STOCK - As of January 1, 2000 and December 30, 2000, the Company had
104,059,000 shares of common stock (par value $.01) issued. In connection with
the 1998 Recapitalization, the Company redeemed approximately 49,560,000 shares
of common stock from MK. These shares were held in treasury at January 1, 2000
and December 30, 2000.
In connection with the 1998 Recapitalization, common stock was purchased by
management. The Company made loans to certain members of management to aid them
in the purchase of this common stock. These loans were reflected in
stockholders' equity under the caption "capital subscription receivable,"
carried an interest rate of 7%, were secured by the shares and provide for full
recourse to the borrower.
In addition, rights to purchase common stock were granted to a member of
management in October 1998, and he committed to purchase such shares in November
1998. This common stock was purchased in 1999. A subscription receivable for
this common stock was reflected in stockholders' equity as "capital subscription
receivable." As of January 1, 2000 this subscription receivable had been paid.
In addition, options to purchase common stock were granted to key employees and
directors of the Company in 1998 (the "1998 Plan"). The options granted under
the 1998 Plan were "nonqualified" for tax purposes. For financial reporting
purposes, the award of the right to purchase stock and the grant of options, in
certain cases, were considered to be below the fair value of the stock at the
time of grant. The fair value was determined based on an appraisal conducted by
an independent appraisal firm as of the relevant dates. The differences between
fair value and the purchase price or the exercise price is being charged to
compensation expense over the relevant vesting period - generally between three
and five years. In 1998 and the fifty-two weeks ended January 1, 2000 and
December 30, 2000, such expense aggregated $116, $1,029 and $604, respectively.
In addition to the options granted above, the Company adopted the 1999 Employee
Stock Option and Award Plan in June, 1999 (the "1999 Plan"). The 1999 plan
provides for the grant of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code and nonqualified options. Both of these
options generally have an exercise price equal to the fair market value of the
stock on the date of grant, vest gradually over a five-year period and expire
after 10 years.
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11. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of option grants and changes during the period ending on
that date are presented below:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF EXERCISE GRANT
EXERCISE PRICE DATE FAIR
OPTIONS PRICES PER SHARE VALUE
--------- -------------- -------------- --------------
Outstanding at December 31, 1997 $ -- $ -- $ -- $--
Granted 427,493 4.25 4.25 3.10
Forfeited -- -- -- --
--------- -------------- -------------- --------------
Outstanding at December 31, 1998 427,493 4.25 4.25 --
Granted 153,546 4.25 - 18.00 12.55 9.09
Forfeited (24,428) 4.25 4.25 --
--------- -------------- -------------- --------------
Outstanding at January 1, 2000 556,611 4.25 - 18.00 6.44 --
Granted 161,500 11.875-21.125 16.40 11.56
Forfeited -- -- -- --
--------- -------------- -------------- --------------
Outstanding at December 30, 2000 718,111 $4.25-$21.125 $ 8.76 --
========= ============== ============== ==============
Under the existing stock option plans, there are 2,319,876 shares available for
future grants at December 30, 2000. At December 30, 2000, options were
exercisable for 19,000 shares of common stock at a weighted average exercise
price of $17.67 per share.
As described in Note 2, the Company accounts for employee options or share
awards under the intrinsic-value method prescribed by Accounting Principles
Board ("APB") Opinion No. 25 with pro forma disclosures of net earnings and
earnings per share, as if the fair value method of accounting defined in SFAS
No. 123 had been applied. SFAS No. 123 establishes a fair value based method of
accounting for stock-based employee compensation plans. Under the fair value
method, compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. Under SFAS No. 123, the fair value of each option grant is
estimated on the date of grant.
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11. STOCKHOLDERS' EQUITY (CONTINUED)
The following weighted-average assumptions were used to compute the pro forma
results of operations that reflect grants in 2000 under the 1999 Plan, in 1999
under both the 1998 and the 1999 plans and in 1998 under the 1998 Plan:
1998 1999 2000
Volatility 20% 52% 85%
Dividend yield 0% 0% 0%
Risk free interest rate 4.54% 5.30% 5.70%
Expected lives 5 years 5 years 5 years
If compensation cost for stock option grants had been determined based on the
fair value on the grant dates consistent with the method prescribed by SFAS No.
123, the Company's net income (loss) and earnings per share for the year ended
December 31, 1998 and the fifty-two weeks ended January 1, 2000 and December 30,
2000 would have been $(14,290) or $(0.22) per basic and diluted share and
$30,847 or $0.62 per basic share and $0.60 per diluted share and $42,766 and
$0.81 per basic share and $0.78 per diluted share, respectively.
The following table summarizes information about the Company's stock
options outstanding at December 30, 2000:
WEIGHTED
RANGE AVERAGE
OF REMAINING
EXERCISE OPTIONS OPTIONS LIFE
PRICES OUTSTANDING EXERCISABLE (YEARS)
- --------------- ------- -------- --------
$ 4.25 461,611 -- 7.54
11.875 82,500 -- 9.83
16.87 - 18.00 95,000 -- 8.64
21.125 79,000 -- 9.42
- --------------- ------- -------- --------
$4.25 - $21.125 718,111 -- 8.15
=============== ======= ======== ========
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12. COMMITMENTS
The Company leases most store locations, several distribution facilities and a
number of vehicles. The operating leases, which expire in various years through
2013, contain renewal options in favor of the Company ranging from six months to
five years and provide for base rentals plus contingent rentals thereafter,
which are a function of sales volume. In addition, the Company is required to
pay real estate taxes, maintenance and other operating expenses applicable to
the leased premises. Furthermore, several facility leases contain rent
escalation clauses.
The aggregate annual future minimum lease commitments under operating leases as
of December 30, 2000 are as follows:
OPERATING
LEASES
-------
2001 10,283
2002 9,689
2003 9,484
2004 9,439
2005 8,763
Thereafter 27,051
-------
Total minimum lease payments $74,709
=======
Rent expense, including contingent rentals, for the year ended December 31,
1998 and the fifty-two weeks ended January 1, 2000 and December 30, 2000 was
approximately $3,424, $5,734 and $9,348, respectively. Included in rent expense
were contingent rental payments of approximately $764, $1,119 and $1,403, for
1998 and the fifty-two weeks ended January 1, 2000 and December 30, 2000,
respectively.
13. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION
The Company has segmented its operations in a manner that reflects how its chief
operating decision-maker (the "CEO") currently reviews the results of the
Company and its subsidiaries' businesses. The Company has two reportable
segments - retail and wholesale. The identification of these segments results
from management's recognition that while the product 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.
Page 45
47
13. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION (CONTINUED)
The following are the relevant data for the year ended December 31, 1998, the
fifty-two weeks ended January 1, 2000 and December 30, 2000:
BALANCE PER
UNALLOCATED/ CONSOLIDATED
CORPORATE/ FINANCIAL
YEAR ENDED DECEMBER 31, 1998 RETAIL WHOLESALE OTHER STATEMENTS
--------- --------- --------- ---------
Net sales $ 81,210 $ 107,512 $ -- $ 188,722
Gross profit 54,425 50,947 -- 105,372
Operating margin 29,724 45,102 (81,016) (6,190)
Unallocated costs -- -- (16,786) (16,786)
Loss before provision for income taxes -- -- -- (22,976)
FIFTY-TWO WEEKS ENDED JANUARY 1, 2000
Net sales $ 123,185 $ 138,890 $ -- $ 262,075
Gross profit 81,507 65,449 -- 146,956
Operating margin 43,047 59,362 (26,023) 76,386
Unallocated costs -- -- (19,228) (19,228)
Income before provision for income taxes -- -- -- 57,158
FIFTY-TWO WEEKS ENDED DECEMBER 30, 2000
Net sales $ 175,261 $ 163,544 $ -- $ 338,805
Gross profit 112,281 72,857 -- 185,138
Operating margin 55,936 64,738 (31,576) 89,098
Unallocated costs -- -- (16,500) (16,500)
Income before provision for income taxes -- -- -- 72,598
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48
14. SUBSEQUENT EVENTS (Unaudited)
On February 14, 2001, the Company announced plans to consolidate and restructure
its distribution and supply chain operations. In connection with this decision
the Company shut-down its Utah distribution facility and restructured its
distribution work-force. As a result of this plan, the Company intends to record
a pre-tax restructuring charge of approximately $7.0 million in the first
quarter of fiscal 2001. The major components of this charge are severance costs,
the write-off 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. The Company plans to fund the costs
incurred as a result of the restructuring through funds to be generated from
operating activities.
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49
15. QUARTERLY RESULTS (UNAUDITED)
In management's opinion, this unaudited information includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any future
quarters.
YEAR ENDED JANUARY 1, 2000
April 3, July 3, October 2, January 1,
--------- --------- --------- ---------
(Dollars in Thousands, Except per Share Data)
Net sales $ 47,781 $ 42,538 $ 60,066 $ 111,690
Cost of sales 21,995 19,771 26,839 46,514
--------- --------- --------- ---------
Gross profit 25,786 22,767 33,227 65,176
Selling expenses 8,509 9,224 11,325 15,489
General and administrative expenses 6,213 6,049 6,252 7,509
Bonus related to the recapitalization -- -- -- --
--------- --------- --------- ---------
Income from operations 11,064 7,494 15,650 42,178
Interest income (290) (206) (63) (68)
Interest expense 5,768 5,611 4,106 4,486
Other (income) expense (44) (51) 58 (79)
--------- --------- --------- ---------
Income before provision for
income taxes 5,630 2,140 11,549 37,839
Provision for income taxes 2,252 856 4,620 15,135
--------- --------- --------- ---------
Income before extraordinary loss on
early extinguishment of debt 3,378 1,284 6,929 22,704
Extraordinary loss on early extinguishment
of debt -- -- 3,162 --
--------- --------- --------- ---------
Net income $ 3,378 $ 1,284 $ 3,767 $ 22,704
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.07 $ 0.03 $ 0.13 $ 0.43
========= ========= ========= =========
NET INCOME $ 0.07 $ 0.03 $ 0.07 $ 0.43
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.07 $ 0.03 $ 0.13 $ 0.42
========= ========= ========= =========
NET INCOME $ 0.07 $ 0.03 $ 0.07 $ 0.42
========= ========= ========= =========
Page 48
50
15. Quaterly Results (Unaudited) (Continued)
YEAR ENDED DECEMBER 30, 2000
April 1, July 1, September 30, December 30,
--------- --------- --------- ---------
(Dollars in Thousands, Except per Share Data)
Net sales $ 63,490 $ 58,179 $ 75,747 $ 141,389
Cost of goods sold 29,080 26,904 35,706 61,977
--------- --------- --------- ---------
Gross profit 34,410 31,275 40,041 79,412
Selling expenses 13,143 14,462 15,832 21,027
General and administrative expenses 7,786 7,690 8,145 7,955
Bonus related to the recapitalization -- -- -- --
--------- --------- --------- ---------
Income from operations 13,481 9,123 16,064 50,430
Interest income (67) (44) (39) (85)
Interest expense 3,845 4,137 4,379 4,539
Other (income) expense 54 (19) (21) (179)
--------- --------- --------- ---------
Income before provision for
income taxes 9,649 5,049 11,745 46,155
Provision for income taxes 3,859 2,020 4,698 18,462
--------- --------- --------- ---------
Income before extraordinary loss
on early extinguishment of debt 5,790 3,029 7,047 27,693
Extraordinary loss on early extinguishment
of debt -- -- -- --
--------- --------- --------- ---------
Net income $ 5,790 $ 3,029 $ 7,047 $ 27,693
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.11 $ 0.06 $ 0.13 $ 0.52
========= ========= ========= =========
NET INCOME $ 0.11 $ 0.06 $ 0.13 $ 0.52
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.11 $ 0.06 $ 0.13 $ 0.51
========= ========= ========= =========
NET INCOME $ 0.11 $ 0.06 $ 0.13 $ 0.51
========= ========= ========= =========
Page 49
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as set forth below, the information required by this item is incorporated
by reference from the information under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Proxy
Statement relating to the 2001 Annual Meeting of Stockholders to be held on June
13, 2001 (the "Proxy Statement") and the caption "Executive Officers of the
Company" in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the captions "Compensation of Directors," "Compensation of
Executive Officers" and "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item with is incorporated by reference from the
information under the caption "Stock Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item with is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
contained in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
The consolidated financial statements listed below are included in this document
under Item 8.
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page 50
52
2. Consolidated Financial Statement Schedule
The schedule listed below is filed as part of this Form 10-K and is set forth
below:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission have been omitted because the information
is disclosed in the Consolidated Financial Statements or because such schedules
are not required or not applicable. The independent auditors' report on the
schedule is included in their report on the consolidated financial statements.
Schedule II - Valuation and Qualifying Accounts
BALANCE AT CHARGED TO COSTS DEDUCTIONS FROM BALANCE AT
Allowance for Doubtful Accounts BEGINNING OF YEAR AND EXPENSES RESERVES END OF YEAR
-------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 360,000 $ 181,946 $ (91,946) $ 450,000
52 WEEKS ENDED JANUARY 1, 2000
Allowance for doubtful accounts 450,000 76,080 (201,080) 325,000
52 WEEKS ENDED DECEMBER 30, 2000:
Allowance for doubtful accounts 325,000 124,066 (97,367) 351,699
Amounts charged to deductions from reserves represent the write-off of
uncollectible balances.
3. Exhibits
The exhibits are listed below under Part IV, Item 14(c) of this Report.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 30, 2000
Page 51
53
(c) Exhibits
No. Description
- --- -----------
2.1 Recapitalization Agreement, dated as of March 25, 1998, as amended by
and among Yankee Candle Holdings Corp., The Yankee Candle Company,
Inc., Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P. and Michael J. Kittredge.*
2.2 Asset Purchase Agreement, dated as of April 1, 1998, by and among The
Yankee Candle Company, Inc., Chandler's Tavern, Inc. and Michael J.
Kittredge.*
2.3 Form of Agreement and Plan or Reorganization between The Yankee Candle
Company, Inc. and Yankee Candle Holdings Corp.*
2.4 Form of Share Exchange between The Yankee Candle Company, Inc. and
Michael J. Kittredge.*
3.1 Form of Restated Articles of Organization of The Yankee Candle Company,
Inc.*
3.2 Form of Amended and Restated By-Laws of The Yankee Candle Company,
Inc.*
4.1 Form of Common Stock Certificate.*
10.1 Form of outside director Stock Option Agreement.*+
10.2 Form of outside director Stockholder's Agreement.*+
10.3 Form of Employee Stockholder's Agreement.*+
10.4 The Yankee Candle Company Inc. Employee Stock Option Plan and form of
Stock Option Agreement.*+
10.5 The Yankee Candle Company, Inc. 1999 Stock Option and Award Plan.*+
10.6 Stockholder's Agreement, dated April 27, 1998, by and between The
Yankee Candle Company, Inc. and Michael J. Kittredge.*
10.7 Form of Stockholder's Agreement between The Yankee Candle Company, Inc.
and employees.*+
10.8 Registration Rights Agreement, dated as of May 6, 1999, among The
Yankee Candle Company, Inc., Forstmann Little & Co. Equity
Partnership-V, L.P. and Forstmann Little & Co. Subordinated Debt and
Equity Management Buyout Partnership-VI, L.P.*
10.9 Form of Indemnification Agreement between The Yankee Candle Company,
Inc. and its directors and executive officers.*
10.10 Form of Credit Agreement among The Yankee Candle Company, Inc., The
Chase Manhattan Bank, as sole administrative agent, and the banks and
other financial institutions party thereto.*
10.11 Recourse Secured Promissory Note, dated February 3, 1999, by Robert R.
Spellman, and Stock Pledge Agreement, dated as of February 3, 1999, by
and between The Yankee Candle Company, Inc. and Robert R. Spellman.*
10.12 Employment Agreement, dated as of October 22, 1998, as amended on
February 9, 1999, between The Yankee Candle Company, Inc. and Robert R.
Spellman.*
10.13 Form of Management Rights Letter between The Yankee Candle Company,
Inc. and the partnerships affiliated with Forstmann Little & Co.*
- --------------------------
* Incorporated by reference from the Company's Registration Statements on
Form S-1 (File No. 333-76397)
+ Management compensation contract/plan
Page 52
54
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 29, 2001.
The Yankee Candle Company, Inc.
By /s/ MICHAEL D. PARRY
--------------------------------
Michael D. Parry
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below as of March 29, 2001 by the following persons on behalf of
the registrant and in the capacities indicated.
Signature Capacity
--------- --------
/s/ MICHAEL J. KITTREDGE Chairman of the Board of Directors
- ------------------------------
Michael J. Kittredge
/s/ MICHAEL D. PARRY President, Chief Executive Officer and
- ------------------------------ Director
Michael D. Parry (Principal Executive Officer)
/s/ ROBERT R. SPELLMAN Senior Vice President, Finance and
- ------------------------------ Chief Financial Officer
Robert R. Spellman (Principal Financial Officer)
/s/ GERALD F. LYNCH Vice President, Controller
- ------------------------------ (Principal Accounting Officer)
Gerald F. Lynch
/s/ THEODORE J. FORSTMANN Director
- ------------------------------
Theodore J. Forstmann
Page 53
55
/s/ SANDRA J. HORBACH Director
- ------------------------------
Sandra J. Horbach
/s/ JAMIE C. NICHOLLS Director
- ------------------------------
Jamie C. Nicholls
/s/ MICHAEL J. OVITZ Director
- ------------------------------
Michael S. Ovitz
/s/ RONALD L. SARGENT Director
- ------------------------------
Ronald L. Sargent
/s/ EMILY WOODS Director
- ------------------------------
Emily Woods
Page 54
56
EXHIBIT INDEX
2.1 Recapitalization Agreement, dated as of March 25, 1998, as amended by
and among Yankee Candle Holdings Corp., The Yankee Candle Company,
Inc., Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P. and Michael J. Kittredge.*
2.2 Asset Purchase Agreement, dated as of April 1, 1998, by and among The
Yankee Candle Company, Inc., Chandler's Tavern, Inc. and Michael J.
Kittredge.*
2.3 Form of Agreement and Plan or Reorganization between The Yankee Candle
Company, Inc. and Yankee Candle Holdings Corp.*
2.4 Form of Share Exchange between The Yankee Candle Company, Inc. and
Michael J. Kittredge.*
3.1 Form of Restated Articles of Organization of The Yankee Candle Company,
Inc.*
3.2 Form of Amended and Restated By-Laws of The Yankee Candle Company,
Inc.*
4.1 Form of Common Stock Certificate.*
10.1 Form of outside director Stock Option Agreement.*+
10.2 Form of outside director Stockholder's Agreement.*+
10.3 Form of Employee Stockholder's Agreement.*+
10.4 The Yankee Candle Company Inc. Employee Stock Option Plan and form of
Stock Option Agreement.*+
10.5 The Yankee Candle Company, Inc. 1999 Stock Option and Award Plan.*+
10.6 Stockholder's Agreement, dated April 27, 1998, by and between The
Yankee Candle Company, Inc. and Michael J. Kittredge.*
10.7 Form of Stockholder's Agreement between The Yankee Candle Company, Inc.
and employees.*+
10.8 Registration Rights Agreement, dated as of May 6, 1999, among The
Yankee Candle Company, Inc., Forstmann Little & Co. Equity
Partnership-V, L.P. and Forstmann Little & Co. Subordinated Debt and
Equity Management Buyout Partnership-VI, L.P.*
10.9 Form of Indemnification Agreement between The Yankee Candle Company,
Inc. and its directors and executive officers.*
10.10 Form of Credit Agreement among The Yankee Candle Company, Inc., The
Chase Manhattan Bank, as sole administrative agent, and the banks and
other financial institutions party thereto.*
10.11 Recourse Secured Promissory Note, dated February 3, 1999, by Robert R.
Spellman, and Stock Pledge Agreement, dated as of February 3, 1999, by
and between The Yankee Candle Company, Inc. and Robert R. Spellman.*
10.12 Employment Agreement, dated as of October 22, 1998, as amended on
February 9, 1999, between The Yankee Candle Company, Inc. and Robert R.
Spellman.*
10.13 Form of Management Rights Letter between The Yankee Candle Company,
Inc. and the partnerships affiliated with Forstmann Little & Co.*
- --------------------------
* Incorporated by reference from the Company's Registration Statements on
Form S-1 (File No. 333-76397)
+ Management compensation contract/plan
Page 55