YANKEE CANDLE CO INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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 28, 2002

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.)

16 YANKEE CANDLE WAY, SOUTH DEERFIELD, MASSACHUSETTS 01373
(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. |X|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2). Yes |X| No | |

Based on the closing sale price of $27.09 per share on June 28, 2002, the
last business day of the registrant's most recently completed second fiscal
quarter, the aggregate market value of the voting stock held by non-affiliates
of the registrant was $1,472,438,482.

On March 26, 2003 there were outstanding 54,359,460 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 11, 2003 are incorporated into
Part III.

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. and its subsidiaries ("Yankee
Candle", the "Company", "we", and "us") or its management "believes", "expects",
"anticipates", "plans" and similar expressions that relate to prospective events
or developments should be considered forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made. There are a number of
important factors that could cause our actual results to differ materially from
those indicated by such forward-looking statements. These factors include,
without limitation, those set forth below in "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Future Operating
Results." We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

TABLE OF CONTENTS

ITEM PAGE
- ---- ----

PART I

1. Business ................................................................................. 2
2. Properties ............................................................................... 11
3. Legal Proceedings ........................................................................ 13
4. Submission of Matters to a Vote of Security Holders ...................................... 13

PART II

5. Market for the Company's Common Equity and Related Stockholder Matters ................... 14
6. Selected Financial Data .................................................................. 15
7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 18
7A. Quantitative and Qualitative Disclosures About Market Risks .............................. 30
8. Financial Statements and Supplementary Data .............................................. 31
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 51

PART III

10. Directors and Executive Officers of the Registrant ....................................... 51
11. Executive Compensation ................................................................... 51
12. Security Ownership of Certain Beneficial Owners and Management ........................... 52
13. Certain Relationships and Related Transactions and Related Stockholder Matters ........... 52
14. Controls and Procedures .................................................................. 52

PART IV

15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 52

1

PART I

ITEM 1. BUSINESS

We are the leading designer, manufacturer and branded marketer of premium
scented candles in the growing giftware industry, based upon sales. We have a
33-year history of offering our distinctive products and marketing them as
affordable luxuries and consumable gifts. Our candle products are available in
approximately 190 fragrances and include a wide variety of jar candles, Samplers
(R) votive candles, Tarts (R) wax potpourri, pillars and other candle products,
all marketed under the Yankee Candle(R) brand. We also sell a wide range of
coordinated candle accessories and branded fragranced non-candle products
including Yankee Candle Car Jars(R) air fresheners, Yankee Candle(TM) Bath
personal care products and various Yankee Candle(R) branded home fragrancing
products including potpourri, sachets, aerosol room sprays and fabric freshener
sprays. We have a vertically integrated business model that enables us to
produce high quality products, provide excellent customer service and achieve
cost efficiencies.

Our multi-channel distribution strategy enables us to offer Yankee Candle(R)
products through a wide variety of locations and sources. We sell our products
through an extensive and growing wholesale customer network of over 14,000
stores in North America, primarily in non-mall locations, and through our
rapidly expanding retail store base located primarily in malls. As of December
28, 2002, we had 239 Company-owned and operated stores in 42 states. We have
grown our retail store base 38% annually over the past five years and opened 45
new retail stores in each of 2000 and 2001 and 47 in 2002. In addition, our
90,000 square foot flagship store in South Deerfield, Massachusetts attracts an
estimated 2.5 million visitors annually. We also sell our products directly to
consumers through our catalogs and Internet web site (www.yankeecandle.com).
Outside North America, we sell our products through 21 distributors in 24
countries and through our distribution center located in the United Kingdom.

Since 1997, we have experienced compound annual revenue growth of 25% and
compound annual pretax income growth of 33%. Each of our distribution channels
has contributed to this growth. Retail, which includes the catalog and Internet
business, has achieved 32% compound annual revenue growth since 1997 and
accounted for 54% of our $444.8 million total sales in 2002. Wholesale, which
includes International operations and earns higher segment margins than our
retail channel, has achieved 18% compound annual revenue growth since 1997 and
accounted for 46% of total sales in 2002. In 2002, our revenue increased 17% as
compared to 2001, and was comprised of a 13% increase in retail sales and a 22%
increase in wholesale sales. In 2002, net income increased 48% compared to 2001.
In 2001, we incurred an $8.0 million restructuring charge. Excluding this charge
from 2001 net income, 2002 net income increased 33% compared to 2001(1). We
believe our growth is primarily based on the strength of the Yankee Candle(R)
brand, our commitment to product quality, the efficiency of our vertically
integrated manufacturing and logistics operations and the success of our
multi-channel distribution strategy.

Our internet address is www.yankeecandle.com. We make available free of charge
through our web site our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to these reports filed or
furnished pursuant to Section 12(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we electronically file
such materials with the Securities and Exchange Commission. We are not including
the information contained on our web site as a part of, or incorporating it by
reference into, this Annual Report on Form 10-K.

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(1) Net income increased 48% to $64.0 million in 2002 from $43.3 million in
2001. Excluding the $8.0 million restructuring charge, net of the
associated tax benefit of $3.1 million, net income increased 33% to $64.0
million in 2002 from $48.2 million in 2001.

2

INDUSTRY OVERVIEW

Yankee Candle operates in the domestic giftware industry. The domestic giftware
industry has grown at an approximately 3% compound annual growth rate from
approximately $48.6 billion in 1997 to reach approximately $56.2 billion in
2002, according to preliminary figures released by Unity Marketing, an
independent market research firm, in its January/February 2003 gift industry
newsletter. According to Unity Marketing's most recent candle industry report
issued in 2002, the domestic market for candles has grown at an approximately 6%
compound annual growth rate from 1997 to 2001 to reach approximately $2.7
billion in 2001. According to Kline & Company, Inc., an international consulting
firm, the premium scented candle segment, in which we compete, grew at an
approximately 15% compound annual growth rate from 1997 to 2001, significantly
exceeding the growth rate of the overall giftware market during that period.
Kline has projected that the premium scented candle segment will continue to
grow at a compound annual growth rate of approximately 7% from 2001 to 2006.

We expect the premium scented candle market to continue to grow more quickly
than the total candle market based upon favorable industry factors, including
the continued interest of consumers in home decor and branded gifting, and the
year-round usage of branded scented candles as an affordable luxury.

PRODUCTS

We develop and introduce new products and fragrances throughout the year. We
currently offer approximately 2,000 stock-keeping units (SKUs) of Yankee Candle
manufactured products. Virtually all of our candle products are marketed as
Yankee Candle(R) branded products primarily under the trade names
Housewarmer(R), Country Kitchen(R), Country Classics(R), Home Classics(TM), A La
Mode(TM), and Aroma Formula(TM) and include the following product styles:

- Housewarmer(R)Jar Candles--scented candles in decorative glass jars;
available in 22 oz., 14.5 oz., and 3.7 oz. sizes.

- Samplers(R) --votive candles for sampling different fragrances.

- Tapers -- the oldest candle style.

- Pillars - both smooth-sided standard pillars and textured designer
pillars.

- 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 -- 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.

These candle products are available in a wide range of fragrances and colors. We
currently have available approximately 190 fragrances for our retail stores. In
addition, approximately 70 of our best-selling Housewarmer(R) fragrances are
available nationwide to our wholesale customers, together with numerous special
editions and seasonal fragrances. In addition to distinctive fragrances, we
promote our brand through consistent product packaging and labeling and the use
of a distinctive trade dress. The Yankee Candle name is

3

typically embossed on the top of our glass containers and is clearly displayed
on every product label. We also package our products in attractive gift baskets
and other containers for sale in our retail stores. We offer glassware
accessories and other coordinated candle-related and home decor accessories in
dozens of exclusive patterns, colors and styles, including jar toppers, taper
holders, pillar and jar bases, jar shades, tea light holders, potpourri burners
and Samplers(R) votive candleholders.

We have continued to extend our brand into other fragranced non-candle product
categories. In 2002 we launched our Yankee Candle(TM) Bath line of personal care
products following a test introduction in 2001. This line includes liquid hand
soap, hand lotion, body lotion, shower gel, milled soap and other bath products.
Each bath product is scented to match popular Yankee Candle and other high
demand fragrances, with packaging reminiscent of our Housewarmer(R) candles. Our
Yankee Candle(TM) Bath products are available in up to ten fragrances. We also
expanded our presence in the home fragrance market segment in 2002 by
introducing several new branded fragranced products in this category,
including-Yankee Candle(TM) potpourri in four fragrances, aerosol room sprays in
six fragrances and fabric freshener sprays in three fragrances, and by adding
several new fragrances to our Yankee Candle(TM) sachet line. In 2003 we plan to
continue our efforts to leverage the Yankee Candle(R) brand by introducing new
home fragrance products and offerings.

We seek to maintain a moderate price for almost all of our products in order to
reinforce our customers' perception of our products as affordable. As a result,
our retail prices for our core candle products generally range from $0.99 for a
Tarts(R) wax potpourri to $19.99 for a 22 oz. Housewarmer(R) jar candle.

RETAIL OPERATIONS

Retail Stores

Our retail operations include retail stores, none of which are franchised,
catalog and Internet operations and Chandler's restaurant. From 1997 to 2002,
sales from our retail division have grown at a compound annual growth rate of
32% from $59.2 million in 1997 to $239.9 million in 2002 and increased from 40%
of our total sales in 1997 to 54% in 2002. Moreover, in 2002 our retail stores
that were open for the full year, excluding the South Deerfield flagship store,
achieved average sales per selling square foot of $681.

We opened 47 new retail stores during 2002 and ended the year with 239 retail
stores in 42 states. In addition, we are also testing airport and outlet
locations on a temporary basis to determine long-term viability. In opening new
stores, we target high traffic retail locations in malls, tourist destinations
and selected non-mall locations, including lifestyle centers. Of our 239 retail
stores, 185 are located in malls. Since the end of 2002, we closed two
underperforming retail stores. Both of these stores were opened in 2000 and have
operated at approximately breakeven on a cash flow basis but have not performed
in line with our expectations. We plan to open approximately 45 additional
stores during 2003.

The non-mall store count includes our flagship South Deerfield, MA store, which
is a unique store. We believe that our flagship store is the world's largest
candle and Christmas store with approximately 90,000 square feet of retail and
entertainment space. This store promotes Yankee Candle's brand image and culture
and is an important testing ground for our new product introductions. The store
carries approximately 17,500 SKUs of gift items and generates approximately 50%
of its revenues from the sale of Yankee Candle manufactured products. The store
is a major tourist destination, attracting an estimated 2.5 million visitors
annually, and provides visitors with a total shopping and entertainment
experience including the Yankee Candlemaking Museum and a 240-seat restaurant.
In June 2002, we successfully opened our Yankee Candle(TM) Home store within our
South Deerfield flagship store. Yankee Candle(TM) Home showcases home goods,
accessories, furnishings and decorative accents in sophisticated country decor
settings. Yankee Candle products, including our candle products as well as our
Yankee Candle(TM) Bath line and new home fragrance

4

offerings, are also featured throughout the store. We believe the Yankee
Candle(TM) Home Store is an important contributor to our flagship store and will
enable us to test market new products and merchandising concepts.

Excluding the South Deerfield flagship store, the target size of our retail
stores is approximately 1,500 square feet. The average store size for our 238
retail stores, excluding the South Deerfield store, at the end of 2002 was 1,730
square feet. We design each of our retail stores with a warm and inviting
atmosphere to attract customers and provide a convenient shopping experience.
Each store has candle displays sorted by color, fragrance type and product
category. Our 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. Our retail stores other than the South Deerfield store typically
offer Yankee Candle products in approximately 160 fragrances and carry
approximately 1,000 SKUs of candles and approximately 375 SKUs of candle
accessories.

Superior customer service and a knowledgeable employee base are key elements of
our retail strategy. We emphasize formal employee training, particularly with
respect to product quality, candle manufacturing and the heritage of Yankee
Candle. We also have a well-developed, nine day training program for managers
and assistant managers and an eight hour training program for sales associates.
Our high customer service standards are an integral part of our ongoing success.
Each store is responsible for implementing and maintaining these customer
service standards.

Catalog and Internet

As part of our retail division we market our products through our catalogs and
Internet web site. We expect both businesses to continue to grow over the next
several years as a result of demographic and lifestyle changes in the consumer
population, including the aging of baby boomers, decreased shopping time and a
need for shopping convenience. In 2002 we mailed eight distinct catalogs. Our
catalogs feature a wide selection of our most popular candle products, specialty
retail candle and non-candle products, candle and home decor accessories and
various branded non-candle scented products, including Car Jars(R) air
fresheners, our Yankee Candle(TM) Bath personal care products and our new home
fragrance offerings such as Yankee Candle(TM) potpourri, aerosol room sprays,
fabric freshener sprays and sachets. We are continually seeking ways to upgrade
our catalog capabilities. During 2002 we upgraded the systems supporting our
catalog operations and the fulfillment software that manages both our catalog
and Internet operations. We believe there are continuing opportunities to grow
the catalog business by adding additional products and accessories, new catalog
concepts and expanding our mailing list.

We introduced our web site in 1996, upgraded it for retail transactions in 1997
and began generating revenues in late 1997. Our web site, www.yankeecandle.com,
provides our on-line customers with an easy and convenient way to purchase a
wide variety of our most popular candle products, specialty retail candle and
non-candle products, candle and home decor accessories and branded non-candle
scented products. This web site also offers features designed to promote sales
and provide enhanced customer service and convenience, including personalized
guest registration, gift cards and other gift giving programs, a store locator,
decorating ideas, and sites dedicated to corporate gifts, weddings and other
customized purchasing opportunities. In addition to our consumer-oriented web
site, we have a separate business-to-business web site dedicated to our
wholesale customers which offers such features as on-line ordering, order status
information, purchase history and an enhanced dealer locator program. We
continually upgrade our web sites in order to better serve our retail and
wholesale customers. In 2002 we introduced a personalized candle configuring
capability that enables users to design and purchase their own custom-labeled
Samplers(R) votive candles to commemorate special events such as weddings. We
also invested in a new back-end system designed to enhance functionality, speed
transactions and provide a cross-selling feature, and added other enhancements
such as a gift reminder feature.

5

Our catalog and Internet business generated $18.1 million of sales in 2002, an
increase of 20% over 2001.

WHOLESALE OPERATIONS

Our wholesale strategy focuses on gift, home decor and other image appropriate
retailers. The wholesale business is a critical part of our growth strategy and,
together with our other distribution channels, helps to further build our brand
awareness. From 1997 to 2002, sales from our wholesale accounts have grown at a
compound annual growth rate of 18% from $88.1 million in 1997 to $204.9 million
in 2002 and changed from 60% to 46% of our total sales. Our wholesale customers
currently have over 14,000 locations in North America, approximately 90% of
which are non-mall. We believe that as a result of our strong brand name, the
popularity and profitability of our products and our emphasis on customer
service, our wholesale customers are extremely loyal, with approximately 60% of
them having been customers for over five years. No customer accounted for more
than 4% of our total sales in 2002.

The strength of our brand, the profitability and quality of our products, and
our successful in-store merchandising and display system have made us the top
selling brand for many of our wholesale customers. Since 1993, we have been
continuously ranked first in gift store sales in the domestic candle category
and have consistently been ranked either first or second in product reorders
across all giftware categories by Giftbeat, a giftware industry publication. In
addition, we have consistently been ranked as the most profitable product line
across all giftware categories since Giftbeat introduced that survey category
two years ago.

We actively seek to increase wholesale sales through our innovative product
display systems, promotional programs, new products and telemarketing
initiatives. We promote a "Shop Within A Shop" display system to our wholesale
customers which presents our products vertically by fragrance and horizontally
by color in a distinctive wood hutch. We recommend that dealers invest in a
minimum of an 8- to 12-foot display system which holds $6,000 to $9,000 of
Yankee Candle products at suggested retail prices. This display system enhances
Yankee Candle's brand recognition in the marketplace and we believe positively
impacts our wholesale sales. We have also implemented a number of promotional
programs to increase the square footage dedicated to Yankee Candle products as
well as the breadth of Yankee Candle products offered by our wholesale
customers. For example, we promote a Fragrance of the Month program, with
featured fragrance suggestions for each month. This program encourages dealers
to increase their re-order schedules and implement a proven customer promotion.
The promotion encourages consumers to try different fragrances and return to the
stores more frequently in order to buy the Fragrance of the Month. In addition
to specific promotions, we advise our wholesale customers on an ongoing basis
regarding product knowledge, display suggestions, promotional ideas and
geographical consumer preferences. As one example, we have introduced Yankee
Candle University, a training program with in-depth courses on Yankee Candle
product information, sales tactics and marketing techniques. We have also
established a Wholesale Advisory Council made up of wholesale customers from
across the country, which provides us with a forum for receiving invaluable
feedback from our wholesale customers while also allowing us to work jointly
with them to develop "best practices" and innovative ideas.

We have a selective dealer approval process, designed to apply consistent
nationwide standards for all Yankee Candle dealers. As a result of these high
credit standards for dealers, we had bad debt expense of only 0.1% of wholesale
sales in 2002.

We use a dedicated in-house direct telemarketing sales force to service our
wholesale customers. In addition, we have several account managers located in
field offices across the United States to help us service our national accounts.
This provides us with greater control over the sales process, and allows us to
provide customers with better and more accurate information, faster order
turn-around and improved customer service, to create more consistent
merchandising nationwide and to reduce costs.

6

International Operations

We currently sell products through our distribution center in the United Kingdom
and international distributors. In addition, we opened a new 27,000 square foot
distribution center in Bristol, England and began product shipments in January
1999. As of December 28, 2002, we were selling our products to approximately
1,750 direct accounts in the United Kingdom, 300 direct accounts on the European
continent and in the Middle East and 21 distributors covering 24 countries. We
also have a successful Canadian wholesale business, using a leading distributor,
and are exploring additional distribution relationships in other parts of the
world. Revenues from our international operations outside of North America have
accounted for less than 2.0% of our total revenues in each of the last three
years.

NEW PRODUCT DEVELOPMENT

We have a long history as a product innovator in the premium candle segment of
the giftware industry. We have a strong and experienced 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. New products
are typically developed in less than a year.

In 2002 we introduced 11 new fragrances into our core candle line and developed
several fragrances exclusively for our wholesale customers. We also introduced
several new candle offerings, including the A La Mode(TM) collection of pillar
candles, which combines our popular French Vanilla scent with other
complementary fragrances such as Hazelnut Coffee and Maple Walnut, and our Home
Classics(TM) line of jar candles featuring a distinctive and
contemporary-looking vase shaped jar in nine new fragrances. We phased out our
line of grooved Ionic(R) pillars and replaced them with a new collection of
smooth-sided pillars in 35 fragrances, as well as textured designer pillars in
six fragrances and a bath pillar collection in five fragrances. In 2002 we also
began offering unscented tapers in an array of high demand colors. In addition,
we continued to expand our accessories line by introducing a wide variety of new
candle and home accessory products and seasonal merchandise.

While further expanding and developing our candle product offerings, we also
continued to extend the Yankee Candle(R) brand into other product categories,
building upon our prior successful brand extensions such as our Car Jars(R) air
freshener line. In 2002 we launched our Yankee Candle(TM) Bath line of personal
care products following a test introduction in 2001. This line includes liquid
hand soap, hand lotion, body lotion, shower gel, milled soap and other bath
products in up to ten fragrances. We also expanded our presence in the home
fragrance market segment in 2002 by introducing several new branded fragranced
products in this category, including Yankee Candle(TM) potpourri in four
fragrances, aerosol room sprays in six fragrances and fabric freshener sprays in
three fragrances, and by adding a host of new fragrances to our Yankee
Candle(TM) sachet line. In 2003 we plan to continue our efforts to leverage the
Yankee Candle(R) brand by introducing new home fragrance products and offerings.

Other new product ideas include new product sizes, new packaging, variations of
existing fragrances and potential new ideas for delivering fragrance. Our
expenditures on research and development during the last three fiscal years have
not been material, because we have historically drawn on a broad group of our
existing workforce to participate in research and development initiatives.

7

MANUFACTURING

Approximately 76% of our sales are generated by products manufactured at our
294,000 square foot facility in Whately, Massachusetts. As a vertically
integrated manufacturer, we are able to closely monitor the quality of our
products, more effectively manage inventory and control our production costs. We
believe this is an important competitive advantage that enables us to ensure
high quality products, maintain affordable pricing and provide reliable customer
service.

Our products are manufactured using filled, molded, extruded, compressed or
dipped manufacturing methods. The majority of our products are filled products
which are produced by pouring colored, scented liquid wax into a glass container
with a wick. Pillars are made by extrusion, in which wax is pressed around a
wick through a die. Tapers are produced through a dipping process and Tarts(R)
wax potpourri and Samplers(R) votive candles are made by compression.

Yankee Candle uses high quality fragrances, premium grade, highly refined
paraffin waxes, and superior wicks and dyes to create premium products. Our
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. We are continuously engaged in efforts to maximize our quality
and minimize our costs by using efficient production and distribution methods
and technological advancements.

SUPPLIERS

We maintain strong, established relationships with our principal fragrance and
petroleum based wax suppliers. We believe we use the highest-quality suppliers
in our industry and maintain back-up suppliers who are able to provide services
and materials of similar quality. We have been in the business of manufacturing
premium scented candles for many years and are therefore knowledgeable about the
different levels of quality of raw materials used in manufacturing candles. We
have developed, jointly with our suppliers, proprietary fragrances which are
exclusive to Yankee Candle. Other raw materials used in the manufacturing
process, including wax, glassware, wick and packaging materials, are readily
available from multiple sources at comparable prices. In 2002, no single
supplier represented 8% or more of our total cost of goods sold, except for our
primary glassware vendor who represented approximately 12% of our total cost of
goods sold.

ORDER PROCESSING AND DISTRIBUTION

We utilize computer systems to maintain efficient order processing from the time
an order enters the system through shipping and ultimate payment collection from
customers. We operate uniform computer and communication software systems
allowing for online information access between our headquarters and retail
stores. We use a software package that allows us to forecast demand for our
products and efficiently plan our production schedules. We also utilize a
pick-to-light system which allows Yankee Candle employees at our distribution
center to receive information directly from the order collection center and
quickly identify, by way of blinking lights, the products and quantity necessary
for a particular order. To accurately track shipments and provide better service
to customers, we also use handheld optical scanners and bar coded labels. We
have successfully implemented a complete new platform of manufacturing and
distribution software as part of a comprehensive transition of all of our major
software systems. The new manufacturing and distribution software has enabled us
to further enhance our inventory management and customer service capabilities
and also support a significantly larger infrastructure. We believe that our
systems for the processing and shipment of orders from the distribution center
have enabled us to improve our overall customer service through enhanced order
accuracy and reduced turnaround time.

8

In 2002 we continued to expand and enhance our electronic data interchange (EDI)
capabilities. We plan to further expand these capabilities in 2003 to additional
customers and suppliers.

The products we sell in the United States are generally shipped by various
national small-parcel carriers or other freight carriers. We have also
historically leased a small fleet of trucks primarily used to ship products to
select company-owned retail stores. Our products are shipped to our retail
stores on a fluctuating schedule, with the frequency of deliveries based upon a
store's sales figures and seasonal variances in demand. Many of our stores
receive shipments up to five times a week during the busy holiday season. We
believe that our timely and accurate distribution is an important
differentiating factor for our customers. This belief is based on numerous
conversations between our management and sales force, on the one hand, and our
wholesale customers, on the other hand.

INTELLECTUAL PROPERTY

Yankee Candle has obtained 38 U.S. trademark registrations, including Yankee(R)
(for candles), Yankee Candle(R), Housewarmer(R), Country Kitchen(R),
Samplers(R), Tarts(R), Country Classics(R), Kindle Candles(R) and Car Jars(R)
and has pending several additional trademark applications with respect to its
products. We also register certain of our trademarks in various foreign
countries. Trademark registrations allow us to use those trademarks on an
exclusive basis in connection with our products. If we continue to use our
trademarks and make all required filings and payments, these trademarks can
continue in perpetuity. These registrations are in addition to various copyright
registrations and patents held by us, and all trademark, copyright and other
intellectual property rights of Yankee Candle under statutory and common law,
including those rights relating to our distinctive "trade dress" and our
manufacturing and design "know how."

We believe that our trademarks and intellectual property rights are valuable
assets and we intend to maintain and renew our trademarks and their
registrations and to vigorously defend them and all of our intellectual property
rights against infringement.

ENVIRONMENTAL MATTERS

We are 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 our employees. In
addition, we are subject to environmental laws which may require investigation
and cleanup of any contamination at facilities we own or operate or at third
party waste disposal sites we use. These laws could impose liability even if we
did not know of, or were not responsible for, the contamination.

We have in the past and will in the future incur costs to comply with
environmental laws. We are 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 our
facilities or any third party waste disposal sites, that are expected to have a
material adverse effect on our operations, cash flow or financial condition. It
is possible, however, that material environmental costs or liabilities may arise
in the future.

COMPETITION

We compete generally for the disposable income of consumers with other producers
in the giftware industry. The giftware industry is highly competitive with a
large number of both large and small participants. Our products compete with
other scented and unscented candle and personal care products and with other
gifts within a comparable price range, like boxes of candy, flowers, wine, fine
soap and related merchandise. Our competitors distribute their products through
independent gift retailers, department stores, mass market stores

9

and mail order houses and some of our competitors are part of large, diversified
companies having greater financial resources and a wider range of product
offerings than us.

The candle market overall is highly fragmented. According to a recent Unity
Marketing study, in 2002 approximately 89% of all candle companies had less than
$5.0 million in total sales. In the premium scented candle segment of the
market, in which we primarily compete, our competitors include Blyth Industries,
Inc., as well as many smaller branded manufacturers and private label
manufacturers. The Company is not aware of any recent consolidation in the
candle market, nor does it anticipate that there will be any material
consolidation based on our current knowledge and understanding of the market.

Our retail stores compete primarily with specialty candle retailers and a
variety of other retailers including department stores, gift stores and national
specialty retailers that carry candles along with personal care items, giftware
and houseware. In addition, while we focus primarily on the premium scented
candle segment, candles are also sold outside of that segment by a variety of
retailers including mass merchandisers.

EMPLOYEES

At December 28, 2002, we employed approximately 2,000 full-time employees and
1,500 part-time employees. We are not subject to any collective bargaining
agreements and we believe that our relations with our employees are good. We
also use between 1,800 and 2,000 seasonal and temporary workers to supplement
our labor force during the peak selling season.

10

ITEM 2. PROPERTIES

Yankee Candle owns or leases several facilities located in Deerfield and
Whately, Massachusetts, including those described in the table below:

TYPE OF FACILITY LOCATION SIZE
- ---------------- -------- ----

Manufacturing Whately, Mass. 294,000 sq.ft.
Distribution center (1) (2) South Deerfield, Mass 256,000 sq.ft.
Flagship retail store and restaurant (3) South Deerfield, Mass. 90,000 sq.ft.
Corporate offices (1) (4) South Deerfield, Mass. 75,000 sq.ft.
Distribution center South Deerfield, Mass. 60,000 sq.ft.
Employee health and fitness center South Deerfield, Mass. 12,000 sq.ft.

NOTES:

(1) Leased facility.

(2) We have the right under the lease to expand this facility from time to
time. We believe that the facility has the capacity to be expanded by up
to an additional 105,000 sq. ft.

(3) This building includes an additional 11,000 sq. ft. of office space.

(4) We have the right under the lease to expand this facility from time to
time. We believe that the facility has the capacity to be expanded by up
to an additional 30,000 square feet.

We also lease a 27,000 sq. ft. distribution facility in Bristol, England.

We believe these facilities are suitable and adequate and have sufficient
capacity to meet our current needs.

In addition to the foregoing facilities, and the retail satellite stores
referenced below, we own various other properties in the Deerfield/Whately area,
none of which are material to our operations. In connection with the
consolidation of most of our administrative functions into our new corporate
office building in 2001, in 2002 we sold a 6,600 sq. ft. building and the land
thereon and leased to various tenants substantial portions of a 48,000 sq. ft.
building in Deerfield and a 16,000 sq. ft. building in Whately.

Other than the South Deerfield flagship store and three smaller retail
locations, we lease our 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.

11

Our retail stores were located in the following 42 states as of December 28,
2002:

STORE COUNT
-----------

STATE MALL NON-MALL TOTAL
- ----- ---- -------- -----

ALABAMA 1 -- 1
ARIZONA 4 -- 4
ARKANSAS 1 -- 1
CALIFORNIA 16 1 17
COLORADO 4 1 5
CONNECTICUT 7 2 9
DELAWARE 1 -- 1
FLORIDA 16 1 17
GEORGIA 8 1 9
ILLINOIS 8 4 12
INDIANA 6 1 7
IOWA 1 -- 1
KANSAS 1 1 2
KENTUCKY 2 2 4
LOUISIANA 1 -- 1
MAINE 1 2 3
MARYLAND 6 5 11
MASSACHUSETTS 10 11 21
MICHIGAN 6 3 9
MINNESOTA 3 -- 3
MISSISSIPPI 1 -- 1
MISSOURI 3 -- 3
NEBRASKA 1 1 2
NEVADA 2 -- 2
NEW HAMPSHIRE 2 1 3
NEW JERSEY 7 -- 7
NEW YORK 15 2 17
NORTH CAROLINA 7 -- 7
OHIO 10 1 11
OKLAHOMA 2 -- 2
PENNSYLVANIA 8 2 10
RHODE ISLAND 1 3 4
SOUTH CAROLINA 3 2 5
SOUTH DAKOTA 1 -- 1
TENNESSEE 3 -- 3
TEXAS 6 3 9
UTAH -- 1 1
VERMONT -- 2 2
VIRGINIA 5 1 6
WASHINGTON 2 -- 2
WEST VIRGINIA 2 -- 2
WISCONSIN 1 -- 1
--- --- ---
TOTALS 185 54 239
=== === ===
42 STATES

12

ITEM 3. LEGAL PROCEEDINGS

We are involved from time to time in ordinary routine legal proceedings relating
to our business. We believe that none of these legal proceedings will have a
material adverse impact on our results of operations, cash flow or financial
condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's annual meeting of stockholders will be held on June 11, 2003. No
matter was submitted to a vote of security holders in the fourth quarter of the
fiscal year ended December 28, 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the names, ages and positions of all current
executive officers for the Company as of March 21, 2003:

Name Age Position
- ---- --- --------

Craig W. Rydin 51 Chairman of the Board, President and Chief Executive Officer

Robert R. Spellman 55 Senior Vice President, Finance and Chief Financial Officer

Gail M. Flood 43 Senior Vice President, Retail

Paul J. Hill 48 Senior Vice President, Operations

Harlan M. Kent 40 Senior Vice President, Wholesale

Martha S. LaCroix 37 Senior Vice President, Human Resources

James A. Perley 40 Vice President, General Counsel

CRAIG W. RYDIN is the Chairman of the Board of Directors and the President and
Chief Executive Officer. Prior to joining Yankee Candle in April 2001, Mr. Rydin
was the President of the Away From Home food services division of Campbell Soup
Company since 1998, and President of the Godiva Chocolates division of Campbell
from 1996 to 1998. Prior to Godiva, Mr. Rydin held a number of senior management
positions at Pepperidge Farm, Inc., also a part of Campbell.

ROBERT R. SPELLMAN is a Director and the Senior Vice President, 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.

GAIL M. FLOOD is the Senior Vice President, Retail. 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.

PAUL J. HILL is the Senior Vice President, Operations. Prior to joining Yankee
Candle in October 2000, Mr. Hill was employed by Kraft Foods, Inc. from 1987 to
2000. At Kraft, Mr. Hill held various supply chain and

13

strategy positions. His last assignment with Kraft, from 1997 to 2000, was as
the Plant Manager at one of the largest plants in Kraft's system.

HARLAN M. KENT is the Senior Vice President, Wholesale. Prior to joining Yankee
Candle in June, 2001, Mr. Kent was Senior Vice President and General Manager of
the Wholesale Division of Totes Isotoner Corporation from 1997 to 2001, and Vice
President of Global Sales and Marketing for the Winchester Division of Olin
Corporation from 1995 to 1997. Mr. Kent has also held a number of senior
marketing and strategic planning positions at both the Campbell Soup Company and
its Pepperidge Farm Division.

MARTHA S. LACROIX is the Senior Vice President, Human Resources. Ms. LaCroix
joined Yankee Candle in February 1993 as Director of Employee Relations and has
since held various positions of increasing responsibility in the Company's Human
Resources Department. Ms. LaCroix was appointed Vice President, Human Resources
in December 2000 and promoted to her current position in 2003.

JAMES A. PERLEY is the Vice President, General Counsel of the Company. Prior to
joining Yankee Candle in September 1999, Mr. Perley was Vice President and
General Counsel of Star Markets Company, Inc., where he served from 1997 to
1999. From 1987 to 1997, Mr. Perley was a member of the Boston-based law firm of
Hale and Dorr LLP, where he served as an Associate from 1987-1992 and as a
Junior Partner from 1992-1997.

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
- ------------------

Our common stock has been traded on the New York Stock Exchange since July 1,
1999 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:

HIGH LOW
---- ---

FIFTY-TWO WEEKS ENDED DECEMBER 28, 2002
First Quarter .............................. $23.65 $18.29
Second Quarter ............................. 27.68 20.00
Third Quarter .............................. 26.71 16.50
Fourth Quarter ............................. 20.00 13.80

FIFTY-TWO WEEKS ENDED DECEMBER 29, 2001
First Quarter .............................. $18.95 $10.56
Second Quarter ............................. 19.98 12.88
Third Quarter .............................. 19.09 15.70
Fourth Quarter ............................. 22.93 16.86

On March 21, 2003, the closing sale price as reported on the New York Stock
Exchange-Composite Transaction Reporting System for our common stock was $17.86
per share. As of March 21, 2003, there were 608 holders of record of our common
stock. This does not include the number of persons whose stock is in nominee or
"street name" accounts through brokers.

14

Dividends

We have never paid a cash dividend on our common stock as a public company and
we do not currently intend to pay any cash dividends in the foreseeable future,
but instead intend to retain earnings for the future operation of our business.
Any determination to pay dividends in the future will be at the discretion of
the board of directors and will be dependent upon results of operations,
financial condition, contractual and legal restrictions and other factors deemed
relevant by our board of directors. Under the terms of our existing credit
agreement, we may not declare or pay dividends on our common stock unless our
ratio of consolidated total debt to consolidated EBITDA is less than or equal to
2:1 or our aggregate principal amount of loans and letters of credit outstanding
is less than $100 million. Although we meet this requirement, we do not
currently intend to pay dividends.

ITEM 6. SELECTED FINANCIAL DATA

The selected historical consolidated 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 29, 2001 and December
28, 2002 and for the fifty-two weeks ended December 30, 2000, December 29, 2001
and December 28, 2002 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, 1998, January 1, 2000 and
December 30, 2000 and for the year ended December 31, 1998 and the fifty-two
weeks ended January 1, 2000 has been derived from audited financial statements
for the corresponding period, which are not contained in this document.

The selected historical financial data may not be indicative of our future
performance.

Before the recapitalization on April 27, 1998, Yankee Candle 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, Yankee Candle has been a C corporation subject to federal
and state income taxes.

The data set forth for the following items assumes that Yankee Candle 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).

15

YEAR ENDED FIFTY-TWO WEEKS ENDED
---------- ----------------------------------
DECEMBER 31, JANUARY 1, DECEMBER 30, DECEMBER 29, DECEMBER 28,
1998 2000 2000 2001 2002
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)

Sales $ 188,722 $ 262,075 $ 338,805 $ 379,831 $ 444,842
Cost of goods sold 83,350 115,119 153,667 174,107 194,748
---------- ---------- ---------- ---------- ----------

Gross profit 105,372 146,956 185,138 205,724 250,094
Selling expenses 30,546 44,547 64,464 77,348 96,714
General and administrative expenses 19,753 26,023 31,576 38,515 43,549
Bonus related to the 1998 recapitalization 61,263 -- -- -- --
Restructuring charge -- -- -- 8,000 --
---------- ---------- ---------- ---------- ----------

Income (loss) from operations (6,190) 76,386 89,098 81,861 109,831
Interest income (219) (627) (235) (72) (23)
Interest expense 16,268 19,971 16,900 10,596 4,858
Other expense (income) 737 (116) (165) 378 (420)
---------- ---------- ---------- ---------- ----------

Income (loss) before provision for income taxes (22,976) 57,158 72,598 70,959 105,416
Provision for income taxes 9,656 22,863 29,039 27,674 41,437
---------- ---------- ---------- ---------- ----------

Income (loss) before extraordinary loss on early
extinguishment of debt (32,632) 34,295 43,559 43,285 63,979

Extraordinary loss on early extinguishment of
debt, net of tax -- 3,162 -- -- --
---------- ---------- ---------- ---------- ----------

Net income (loss) $ (32,632) $ 31,133 $ 43,559 $ 43,285 $ 63,979
========== ========== ========== ========== ==========

Basic earnings (loss) per share:
Income (loss) before extraordinary item $ (0.51) $ 0.69 $ 0.82 $ 0.81 $ 1.19
========== ========== ========== ========== ==========
Net income (loss) $ (0.51) $ 0.62 $ 0.82 $ 0.81 $ 1.19
========== ========== ========== ========== ==========

Diluted earnings (loss) per share:
Income (loss) before extraordinary item $ (0.51) $ 0.66 $ 0.80 $ 0.79 $ 1.17
========== ========== ========== ========== ==========
Net income (loss) $ (0.51) $ 0.60 $ 0.80 $ 0.79 $ 1.17
========== ========== ========== ========== ==========

Pro forma provision (benefit) for income taxes (8,731)
----------
Pro forma net income (loss) $ (14,245)
==========

Pro forma basic earnings (loss) per share $ (0.22)
Pro forma diluted earnings (loss) per share $ (0.22)

Weighted average basic shares outstanding 64,458 49,857 52,900 53,537 53,896
Weighted average diluted shares outstanding 64,458 51,789 54,663 54,643 54,686

SUPPLEMENTAL EARNINGS PER SHARE DATA:
Diluted earnings (loss) per share before restructuring
charge $ (0.51) $ 0.60 $ 0.80 $ 0.88 $ 1.17
========== ========== ========== ========== ==========

BALANCE SHEET DATA (AS OF END OF PERIOD):
Cash and cash equivalents $ 30,411 $ 23,569 $ 13,297 $ 30,531 $ 43,689
Working capital 31,005 (1,700) (1,048) (1,307) 17,182
Total assets 275,345 286,474 311,828 321,284 340,643
Total debt 320,000 187,568 157,512 115,000 60,600
Total stockholders' equity (deficit) (68,591) 61,435 105,167 148,104 212,912
OTHER DATA:
Number of retail stores (at end of period) 62 102 147 192 239
Comparable store sales 16.5% 14.8% 8.9% (1.7)% (6.3)%
Comparable store sales with catalog and Internet 17.6% 16.8% 12.8% 2.0% (4.4)%
Gross profit margin 55.8% 56.1% 54.6% 54.2% 56.2%
Depreciation and amortization $ 4,662 $ 6,709 $ 10,762 $ 14,347 $ 17,347
Capital expenditures 9,433 22,749 37,122 26,844 25,867
CASH FLOW DATA:
Net cash flows from operating activities $ (11,578) $ 55,430 $ 57,310 $ 86,962 $ 91,815
Net cash flows from investing activities (9,305) (22,676) (37,457) (26,428) (24,153)
Net cash flows from financing activities 43,917 (39,683) (30,042) (43,256) (54,599)
EBITDA (1) (2,749) 83,266 99,465 95,286 126,918
Adjusted EBITDA (2) $ 58,514 $ 83,266 $ 99,465 $ 103,286 $ 126,918
Adjusted EBITDA margin (3) 31.0% 31.8% 29.3% 27.1% 28.5%

16

(1) EBITDA represents earnings before extraordinary items, income taxes,
interest, depreciation and amortization (which includes amortization of
deferred financing costs) and amortization of non-cash compensation,
pursuant to Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees." Amortization of deferred financing costs is
included in interest expense in the Consolidated Statements of Operations
and in depreciation and amortization in the Consolidated Statements of
Cash Flows. EBITDA is presented because management believes 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. For
each of the years shown above, EBITDA is calculated based upon our net
income (as shown above) and adjusted as follows:

FIFTY-TWO FIFTY-TWO FIFTY-TWO FIFTY-TWO
YEAR ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 31, JANUARY 1, DECEMBER 30, DECEMBER 29, DECEMBER 28,
1998 2000 2000 2001 2002
---- ---- ---- ---- ----

EBITDA:

Net income $ (32,632) $ 31,133 $ 43,559 $ 43,285 $ 63,979
Extraordinary loss on early
extinguishment of debt, net of tax -- 3,162 -- -- --
Provision for income taxes 9,656 22,863 29,039 27,674 41,437
Interest expense, net 16,049 19,344 16,665 10,524 4,835
Depreciation & amortization 4,662 6,709 10,762 14,347 17,347
Non-cash compensation 116 1,029 604 570 434
Amortization of deferred financing costs (600) (974) (1,164) (1,114) (1,114)
---------- ---------- ---------- ---------- ----------
EBITDA $ (2,749) $ 83,266 $ 99,465 $ 95,286 $ 126,918
========== ========== ========== ========== ==========

(2) Adjusted EBITDA reflects EBITDA adjusted to eliminate (a) the bonus of
$61,263 in 1998 related to the 1998 recapitalization and (b) the $8,000
restructuring charge in 2001. For each of the years shown above, Adjusted
EBITDA is calculated based upon EBITDA (as shown above) and adjusted as
follows:

FIFTY-TWO FIFTY-TWO FIFTY-TWO FIFTY-TWO
YEAR ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 31, JANUARY 1, DECEMBER 30, DECEMBER 29, DECEMBER 28,
1998 2000 2000 2001 2002
---- ---- ---- ---- ----

ADJUSTED EBITDA:

EBITDA $ (2,749) $ 83,266 $ 99,465 $ 95,286 $ 126,918
Bonus related to the 1998
recapitalization 61,263 -- -- -- --
Restructuring charge -- -- -- 8,000 --
---------- ---------- ---------- ---------- ----------

Adjusted EBITDA $ 58,514 $ 83,266 $ 99,465 $ 103,286 $ 126,918
========== ========== ========== ========== ==========

(3) Adjusted EBITDA margin is adjusted EBITDA as a percentage of sales.

17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgments, including those related to inventories,
restructuring costs, bad debts, intangible assets, income taxes, debt service
and contingencies and litigation. Management bases its estimates and judgments
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about operating results and the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among others,
involve its more significant estimates and judgments and are therefore
particularly important to an understanding of our results of operations and
financial position.

REVENUE / RECEIVABLES

As described in the Notes to the Condensed Consolidated Financial Statements, we
sell our products both directly to retail customers and through wholesale
channels. Revenue from the sale of merchandise to retail customers is recognized
at the time of sale, while revenue from wholesale customers is recognized when
shipped. We believe that this is the time that persuasive evidence of an
agreement exists, delivery has occurred, the price is fixed and determinable and
collectability is reasonably assured. Revenue is recognized net of any
applicable discounts and allowances. Customers, be they retail or wholesale, do
have the right to return product to us in certain limited situations. Such
rights of return have not precluded revenue recognition because we have a long
history with such returns, which we use in constructing a reserve. This reserve,
however, is subject to change. In addition to returns, we bear credit risk
relative to our wholesale customers. We have provided a reserve for bad debts in
our financial statements based on our estimates of the creditworthiness of our
customers. However, this reserve is also subject to change. Changes in these
reserves could affect our operating results and cash flows.

INVENTORY

We write down our inventory for estimated obsolescence or unmarketable inventory
in an amount equal to the difference between the cost of inventory and the
estimated market value, based upon assumptions about future demand and market
conditions. If actual future demand or market conditions are less favorable than
those projected by management, additional inventory write-downs may be required.
In addition, our inventory is stated at the lower of cost or market on a last-in
first-out ("LIFO") basis. Fluctuations in inventory levels along with the cost
of raw materials could impact the carrying value of our inventory. Changes in
the carrying value of inventory could affect our operating results and cash
flow.

18

TAXES

We have a significant deferred tax asset recorded on our financial statements.
This asset arose at the time of our recapitalization in 1998 and is a future tax
deduction for us. The recoverability of this future tax deduction is dependent
upon our future profitability. We have made an assessment that this asset is
likely to be recovered and is appropriately reflected on the balance sheet.
Should we find that we are not able to utilize this deduction in the future, we
would have to record a reserve for all or a part of this asset, which would
adversely affect our operating results and cash flows.

RESTRUCTURING RESERVE

In fiscal 2001, we closed our distribution facility in Utah, recorded a
restructuring charge and established a reserve for future expenses related to
the restructuring. Part of the restructuring charge related to the lease
commitment that we have through 2005. In connection with the restructuring, we
did not record the entire lease commitment as a liability because we believed we
would be able to sublet the facility. During the second quarter of fiscal 2002,
we were successful in subletting the facility for the remaining lease term. If
the facility were to be vacated by the current tenant in breach of its sublease,
this would negatively affect our results of operations and cash flows.

VALUE OF LONG-LIVED ASSETS, INCLUDING INTANGIBLES

Long-lived assets on our balance sheet consist primarily of property, plant and
equipment, classic vehicles and trademarks. We periodically review the carrying
value of all of these assets based, in part, upon current estimated market
values, and our projections of anticipated future cash flows. We undertake this
review when facts and circumstances suggest that cash flows emanating from those
assets may be diminished. Any impairment charge that we record reduces our
earnings. While we believe that our future estimates are reasonable, different
assumptions regarding items such as future cash flows and the volatility
inherent in markets which we serve could affect our evaluations and result in
impairment charges against the carrying value of those assets.

PERFORMANCE MEASURES

We measure the performance of our retail and wholesale segments through a
segment margin calculation, which specifically identifies not only gross profit
on the sales of products through the two channels but also costs and expenses
specifically related to each segment.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

We have experienced, and may experience in the future, fluctuations in our
quarterly operating results. There are numerous factors that can contribute to
these fluctuations; however, the principal factors are seasonality and new store
openings.

Seasonality. We have historically realized higher revenues and operating income
in our fourth quarter, particularly in our retail business. We believe that this
has been due primarily to the increase in the number of our retail stores and to
increased sales in the giftware industry during the holiday season of the fourth
quarter.

New Store Openings. The timing of our new store openings may also have an impact
on our quarterly results. First, we incur certain one-time expenses related to
opening each new store. These expenses, which consist primarily of salaries,
supplies and marketing costs, are expensed as incurred. Second, most store
expenses vary proportionately with sales, but there is a fixed cost component.
This typically results in lower store

19

profitability when a new store opens because new stores generally have lower
sales than mature stores. Due to both of these factors, during periods when new
store openings as a percentage of the base are higher, operating profit may
decline in dollars and/or as a percentage of sales. As the overall store base
matures, the fixed cost component of selling expenses is spread over an
increased level of sales, resulting in a decrease in selling and other expenses
as a percentage of sales.

FIFTY-TWO WEEKS ENDED DECEMBER 28, 2002 ("2002") COMPARED TO FIFTY-TWO WEEKS
ENDED DECEMBER 29, 2001 ("2001")

SALES

Sales increased 17.1% to $444.8 million in 2002 from $379.8 million in 2001.
Wholesale sales, including European operations, increased 21.9% to $204.9
million in 2002 from $168.1 million for 2001. This growth was achieved primarily
by increasing the number of wholesale locations and also by increasing sales to
existing customers.

Retail sales increased 13.3% to $239.9 million in 2002 from $211.7 million for
2001. There were 239 retail stores open as of December 28, 2002 compared to 192
stores open at December 29, 2001. The increase in retail sales was achieved
primarily through two factors, the addition of 47 new stores in 2002 and
increased sales in the 45 stores opened in 2001 (which in 2001 were open for
less than a full year), and, to a lesser extent, through increased sales in
catalog and Internet operations, partially offset by a decrease in comparable
store sales. Comparable store and catalog and Internet sales in 2002 decreased
4.4% compared to 2001. Retail comparable store sales in 2002 decreased 6.3%
compared to 2001. The primary factors which drove the decrease in comparable
store sales were a decline in store traffic, and mall traffic generally, and our
decision not to repeat certain promotional activities undertaken in 2001. There
were 192 stores included in the comparable store base at the end of 2002, and 45
of these stores were included for less than a full year.

GROSS PROFIT

Gross profit increased 21.6% to $250.1 million in 2002 from $205.7 million in
2001. As a percentage of sales, gross profit increased to 56.2% in 2002 from
54.2% in 2001. The increase in gross profit dollars in 2002 compared to 2001 was
primarily attributable to the increase in sales and more efficient supply chain
operations. The improvement in gross profit rate in 2002 compared to 2001 was
primarily the result of improved productivity in supply chain operations, supply
chain inefficiencies in early 2001 that were not experienced in 2002 and our
decision not to engage in deep discounting activities.

SELLING EXPENSES

Selling expenses increased 25.1% to $96.7 million in 2002 from $77.3 million in
2001. These expenses are related to both wholesale and retail operations and
consist of payroll, occupancy, advertising and other operating costs, as well as
preopening costs, which are expensed as incurred. As a percentage of sales,
selling expenses were 21.7% in 2002 and 20.4% in 2001. The increase in selling
expenses in dollars and as a percentage of sales was primarily related to the
continued growth in the number of retail stores, from 192 as of December 29,
2001 to 239 as of December 28, 2002, the effect of which is an increase in the
weighting of immature stores. Immature stores are generally stores that are less
than four years old. Immature stores typically generate higher selling expenses
as a percentage of sales than stores that have been open for more than four
years since fixed costs, as a percent of sales, are higher during the early
sales maturation period. Excluding the sales and selling expenses of our most
immature stores, the 2001 and 2002 store classes, selling expenses as a
percentage of sales were 18.6% for the year ended December 28, 2002 compared to
19.5% for the year ended December 29, 2001. The increase in selling expense as a
percentage of sales for 2002 is also

20

explained by the decrease in retail comparable store sales since the fixed
components of labor and occupancy do not decrease with negative comparable store
sales.

SEGMENT PROFITABILITY

Segment profitability is sales less cost of goods sold and selling expenses.
Segment profitability for our wholesale operations, including Europe, was $87.2
million or 42.6% of wholesale sales in 2002 compared to $65.5 million or 38.9%
of wholesale sales in 2001. Segment profitability for our retail operations was
$66.2 million or 27.6% of retail sales in 2002 compared to $62.9 million or
29.7% of retail sales in 2001. The increase in wholesale segment profitability
was primarily attributable to increased wholesale sales and improved
productivity in supply chain operations. The increase in retail segment
profitability in dollars was primarily attributable to increased retail sales
and improved supply chain operations. The decrease in retail segment
profitability as a percentage of retail sales was primarily attributable to a
decline in retail comparable store sales and a decline in operating profit in
catalog and Internet operations, partially offset by improved productivity in
supply chain operations.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist primarily of
personnel-related costs, increased 13.1% to $43.5 million in 2002 from $38.5
million in 2001. As a percentage of sales, general and administrative expenses
decreased to 9.8% from 10.1%. The increase in general and administrative
expenses in dollars was primarily attributable to headcount additions in the
latter part of 2001 and in 2002, higher bonus program accruals for fiscal 2002
as compared to 2001 and occupancy expenses associated with our new headquarters
opened in May 2001 (i.e. we incurred 12 months of such expenses in 2002 compared
to approximately eight months in 2001). The decrease in general and
administrative expenses as a percentage of sales for fiscal 2002 was primarily
attributable to our ability to leverage these expenses over a larger sales base
and our continued focus on expense control.

RESTRUCTURING CHARGE

Restructuring activities had no impact on our results of operations for 2002. In
2001, however, we recorded an $8.0 million restructuring charge associated with
our decision to consolidate and restructure our distribution and manufacturing
operations. We closed our Utah distribution facility and restructured our
distribution and manufacturing work-force during 2001. Included in the
restructuring charge are severance and other employee related costs, the
non-cash write-down of non-recoverable leasehold improvements, fixture and
equipment investments and estimated continuing occupancy expenses for abandoned
facilities, net of anticipated sub-lease income. An analysis of the activity
within the restructuring reserve since December 29, 2001 is as follows:

Costs Paid During Costs Paid During
the Fifty-Two the Fifty-Two
Weeks Ended Accrued as of Weeks Ended Accrued as of
Expense December 29, 2001 December 29, 2001 December 28, 2002 December 28, 2002
------- ----------------- ----------------- ----------------- -----------------

Occupancy $2,635 $ 781 $1,854 $ 747 $1,107
Employee related 2,635 2,304 331 284 47
Other 606 606 -- -- --
------ ------ ------ ------ ------
Total $5,876 $3,691 $2,185 $1,031 $1,154
====== ====== ====== ====== ======

21

During the second quarter of fiscal 2002, we were successful in subletting the
facility covered under the "Occupancy" heading for the remaining lease term. We
believe that the remaining reserve at December 28, 2002 appropriately reflects
our lease commitment exposure.

NET OTHER EXPENSE

Net other expense was $4.4 million in 2002 compared to $10.9 million in 2001.
The primary component of this expense was interest expense, which was $4.9
million in 2002 compared to $10.6 million in 2001. The decrease in interest
expense was the result of the reduction in total debt outstanding from $115.0
million at December 29, 2001 to $60.5 million at December 28, 2002, and a
reduction in borrowing rates resulting from decreases in the federal funds and
eurodollar rates.

INCOME TAXES

The income tax provision for 2002 was $41.4 million compared to $27.7 million
for 2001. The 2002 tax provision reflects an effective tax rate of 39.3%. The
2001 tax provision reflects an effective tax rate of 39%. We are currently
providing a valuation allowance against the deferred tax asset for our
international operations. As a result, it is anticipated that our effective tax
rate for 2003 will be approximately 39.5%. We re-evaluate our effective tax rate
on a quarterly basis.

NET INCOME

Net income increased 48% to $64.0 million in 2002 from $43.3 million in 2001. In
2001, we incurred an $8.0 million pre-tax restructuring charge which reduced net
income by $4.9 million. Prior to such charge, net income increased 33% from
$48.2 million to $64.0 million in 2002.(2)

FIFTY-TWO WEEKS ENDED DECEMBER 29, 2001 ("2001") COMPARED TO FIFTY-TWO WEEKS
ENDED DECEMBER 30, 2000 ("2000")

SALES

Sales increased 12.1% to $379.8 million in 2001 from $338.8 million in 2000.
This growth was primarily achieved by increasing the number of retail stores
from 147 to 192, increasing sales through catalog and Internet operations and
increasing sales to wholesale customers.

Wholesale sales, including European operations, increased 2.8% to $168.1 million
in 2001 from $163.5 million for 2000. This growth was achieved both by
increasing sales to existing customers and by increasing the number of wholesale
locations.

Retail sales increased 20.8% to $211.7 million in 2001 from $175.3 million for
2000. There were 192 retail stores open as of December 29, 2001 compared to 147
stores open at December 30, 2000. The increase in retail sales was achieved
primarily through the addition of 45 new stores and increased sales in catalog
and Internet operations. Comparable store and catalog and Internet sales in 2001
increased 2.0% compared to 2000. Retail comparable store sales in 2001 decreased
1.7 % compared to 2000. There were 147 stores

- ----------

(2) Net income increased 48% to $64.0 million in 2002 from $43.3 million in
2001. Excluding the $8.0 million restructuring charge, net of the
associated tax benefit of $3.1 million, net income increased 33% to $64.0
million in 2002 from $48.2 million in 2001.

22

included in the comparable store base at the end of 2001, and 45 of these stores
were included for less than a full year.

The events of September 11th had significant negative effects on both our
wholesale and retail divisions in 2001. In wholesale we had achieved low
double-digit year-to-date growth in incoming order volume as of the week
preceding September 11th . Incoming order volume for the 15 weeks subsequent to
September 11th grew 2.3% over the comparable prior year period. In retail, with
mall traffic down significantly after September 11th, comparable store and
catalog and Internet sales declined, on a year to date basis, from 10% through
August of 2001 to 2.0% as of the end of the year.

GROSS PROFIT

Gross profit increased 11.1% to $205.7 million in 2001 from $185.1 million in
2000. As a percentage of sales, gross profit decreased to 54.2% in 2001 from
54.6% in 2000. The decrease in gross profit as a percentage of sales for 2001
was primarily attributable to discounts associated with the sell-through of
holiday merchandise in the retail business during the first quarter of 2001, a
higher mix of sales associated with our fragrance of the month sales program and
a higher mix of non-manufactured sales. The gross profit rate in each of the
third and fourth quarters of 2001 was higher than the comparable prior year
quarter, and for the last half of 2001 increased to 56.3% from 55.0% in the last
half of 2000. The improvement in the gross profit rate in the last half of 2001
compared to the last half of 2000 was primarily the result of supply chain
inefficiencies in the fourth quarter of 2000 that were not experienced in the
latter half of 2001. The supply chain inefficiencies in the fourth quarter of
2000 were related to significant over-staffing in our manufacturing and
logistics operations. These supply chain inefficiencies were corrected in the
first quarter of 2001 through the closure of our Salt Lake City distribution
center and the reduction of our workforce by approximately 450 people.

SELLING EXPENSES

Selling expenses increased 20.0% to $77.3 million in 2001 from $64.5 million in
2000. These expenses are related to both wholesale and retail operations and
consist of payroll, occupancy, advertising and other operating costs, as well as
preopening costs, which are expensed as incurred. As a percentage of sales,
selling expenses were 20.4% in 2001 and 19.0% in 2000. The primary factor behind
the increase in selling expenses in dollars and as a percentage of sales was the
increase in the number of retail stores we operated 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
55.7% of total sales in 2001 compared to 51.7% in 2000. The number of retail
stores increased from 147 in 2000 to 192 in 2001. The increase in selling
expenses as a percentage of sales is also explained by the heavy weighting of
new stores. We opened 45 new stores in 2001 and 2000. New stores typically
generate lower operating margin contributions 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. Excluding the sales and selling expenses of the
2000 and 2001 store classes from the fifty-two weeks ended December 29, 2001,
and the sales and selling expenses of the 2000 store class from the fifty-two
weeks ended December 30, 2000, store selling expense declined as a percentage of
sales.

SEGMENT PROFITABILITY

Segment profitability is sales less cost of goods sold and selling expenses.
Segment profitability for our wholesale operations, including Europe, was $65.5
million, or 38.9% of wholesale sales in 2001 compared to $64.7 million or 39.6%
of wholesale sales in 2000. Segment profitability for our retail operations was
$62.9 million or 29.7% of retail sales in 2001 compared to $55.9 million or
31.9% of retail sales in 2000. The

23

decrease in segment profitability as a percentage of sales for 2001 was
primarily attributable to discounts associated with the sell-through of holiday
merchandise in the retail business during the first quarter of 2001, a higher
mix of sales associated with our fragrance of the month sales program and a
higher mix of non-manufactured sales. Segment profitability for the last half of
2001 increased to 38.5% from 38.0% in the last half of 2000. The improvement in
segment profitability in the last half of 2001 compared to the last half of 2000
was primarily the result of supply chain inefficiencies in the fourth quarter of
2000 that were not experienced in the fourth quarter of 2001.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses, which consist primarily of
personnel-related costs incurred in support functions, increased 22.0% to $38.5
million in 2001 from $31.6 million in 2000. As a percentage of sales, general
and administrative expenses increased to 10.1% from 9.3%. The increase in
general and administrative expenses was primarily due to the new systems
infrastructure installed in the last half of fiscal 2000, occupancy expenses
associated with our new headquarters building opened in May 2001 and expenses
associated with the bonus program.

RESTRUCTURING CHARGE

A restructuring charge for $8.0 million was recorded in fiscal 2001 to record
costs associated with our decision to consolidate and restructure our
distribution and manufacturing operations. We closed our Utah distribution
facility and restructured our distribution and manufacturing work-force during
2001. Included in the restructuring charge are severance and other employee
related costs, the non-cash write-down of non-recoverable leasehold
improvements, fixture and equipment investments and estimated continuing
occupancy expenses for abandoned facilities, net of anticipated sub-lease
income. As a result of the consolidation and restructuring, we terminated
approximately 450 manufacturing and logistics employees in February 2001. An
analysis of the restructuring reserve at December 29, 2001 is as follows:

Costs Paid During
the Fifty-Two
Weeks Ended Accrued as of
Expense December 29, 2001 December 29, 2001
------- ----------------- -----------------

Occupancy $2,635 $ 781 $1,854
Employee related 2,635 2,304 331
Other 606 606 --
------ ------ ------
Total $5,876 $3,691 $2,185
====== ====== ======

In addition, as described above, we recorded a $2.1 million pre-tax write-down
of non-recoverable leasehold improvements, fixture and equipment investments at
our Utah facility.

The closure of our Utah distribution facility and the restructuring of our
distribution and manufacturing workforce in the first quarter of 2001 did not
negatively impact our ability to execute our growth strategy in 2001. In April
2001, we opened a new 256,000 square foot distribution center in South
Deerfield, Massachusetts and consolidated substantially all distribution
operations in this facility.

24

NET OTHER EXPENSE

Net other expense was $10.9 million in 2001 compared to $16.5 million in 2000.
The primary component of this expense was interest expense, which was $10.6
million in 2001 compared to $16.9 million in 2000. The decrease in interest
expense was the result of the reduction in total debt outstanding from $157.5
million at December 30, 2000 to $115.0 million at December 29, 2001, and a
reduction in borrowing rates resulting from decreases in the federal funds and
eurodollar rates.

INCOME TAXES

The income tax provision for 2001 was $27.7 million compared to $29.0 million
for 2000. The 2001 tax provision reflects an effective tax rate of 39% compared
to 40% in 2000.

NET INCOME

Net income decreased 0.6% to $43.3 million in 2001 from $43.6 million in 2000.
The restructuring charge recorded in 2001 reduced 2001 net income by $4.9
million.

LIQUIDITY AND CAPITAL RESOURCES

We have consistently generated positive cash flow from operations. Specifically,
over the last three fiscal years we have generated a total of approximately $230
million, including almost $92 million in 2002. These amounts have exceeded net
income in all the fiscal years presented due to two factors. First, we have
incurred non-cash charges for depreciation and amortization. Second, income tax
expense has significantly exceeded taxes actually paid owing to the tax
deduction that we continue to utilize that arose from the 1998 recapitalization.
These significant tax deductions are to continue for the next ten years. 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.

These internally generated cash flows have been sufficient to fund necessary
capital expenditures for our expansion plans. Capital expenditures in 2002 were
$25.9 million and were primarily related to (i) the capital requirements to open
47 new stores and our new Yankee Candle(TM) Home store, consisting of
approximately $15.5 million in the aggregate; (ii) investments in manufacturing
and logistics of approximately $6.7 million and (iii) investments in information
systems of approximately $2.8 million. Capital expenditures were approximately
$26.8 million in 2001 and primarily related to similar expenditures. More
specifically, 45 new stores were opened in 2001 and we opened a new distribution
center in April 2001. We anticipate that capital expenditures in 2003 will total
approximately $27.0 million and will be spent in a similar manner as in 2002. We
plan to open approximately 45 new stores in 2003.

Despite significant capital expenditures, operating cash flows have still
provided sufficient cash to fund both repayments of our term loan and borrowings
under our credit facility. We currently have a credit agreement with a
consortium of banks that was established at the time of our initial public
offering. This credit agreement provides for an initial maximum borrowing of
$300 million and consists of a revolving credit facility for $150 million and a
term loan for $150 million. We can elect to set the interest rates on all or a
portion of the borrowings outstanding under the credit agreement at a rate per
annum equal to (a) the greatest of (1) the prime rate, (2) the base CD rate plus
1.00% or (3) the federal funds effective rate plus 1/2%, plus a margin ranging
from 0.00% to 0.75%, or (b) the eurodollar rate plus a margin ranging from 1.00%
to 1.75%. The weighted-average interest rate on outstanding borrowings at
December 28, 2002 was 2.44%.

25

Our credit agreement requires that we comply with several financial and other
covenants, including requirements that we maintain at the end of each fiscal
quarter the following financial ratios as set forth in our credit agreement:

- - a consolidated total debt to consolidated EBITDA ratio of no more than
2.50 to 1.00 at December 28, 2002 and for subsequent fiscal quarters (at
December 28, 2002 this ratio was 0.47 to 1.00).

- - a fixed charge coverage ratio (the ratio of the sum of consolidated EBITDA
plus lease expense to the sum of consolidated cash interest expense plus
lease expense) of no less than 4.00 to 1.00 at December 28, 2002 and for
subsequent fiscal quarters (at December 28, 2002 this ratio was 6.73 to
1.00).

Our credit agreement defines EBITDA as our consolidated net income (excluding
extraordinary gains, and gains and losses from material dispositions), plus the
amount of net interest expense, depreciation and amortization, income taxes,
certain non-cash compensation expenses, and certain rental expenses. EBITDA as
defined in our credit agreement differs from the definition of EBITDA used
elsewhere herein, in that it excludes gains and losses from dispositions of
material assets and non-cash compensation expense. We have included the amount
of these expenses in our more conservative calculation of EBITDA used elsewhere,
which calculation is therefore lower than EBITDA as used in our credit
agreement.

This credit arrangement does not mature until 2004. 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 28, 2002, $9.5 million was outstanding under the revolving
credit facility, leaving $140.5 million in availability.

In addition to obligations to repay our long-term debt, we lease the majority of
our retail stores under long-term operating leases. The following table
summarizes our commitments under both our debt and lease obligations:

Payments due by period (in thousands)
Contractual obligations
- -----------------------
Total 2003 2004 2005 2006 2007 Thereafter
----- ---- ---- ---- ---- ---- ----------

Long term obligations $ 60,600 $ 32,000 $ 28,600 $ -- $ -- $ -- $ --
Operating leases 163,369 20,429 19,837 19,412 17,841 16,523 69,327
-------- -------- -------- -------- -------- -------- --------
Total contractual cash obligations $223,969 $ 52,429 $ 48,437 $ 19,412 $ 17,841 $ 16,523 $ 69,327
======== ======== ======== ======== ======== ======== ========

We believe that cash flow from operations and funds available under our credit
agreement have been and will be sufficient for our working capital needs,
planned capital expenditures and debt service obligations for at least the next
twelve months.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2002, SFAS No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. It is to be
implemented for restructuring or disposal activities occurring after December
31, 2001. The Company's fiscal 2001 restructuring activities, as described in
Note 7, occurred prior to the effective date of SFAS No. 146 and were therefore
accounted for under previously promulgated accounting guidance then in effect -
specifically, EITF

26

Consensus No. 94-3 "Liability Recognition for certain Employee Termination
Benefits and Other Costs to Exit an Activity."

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." This Statement amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This standard is effective for financial statements
for fiscal years ending after December 15, 2002. The disclosure requirements of
SFAS No. 148 have been implemented in Note 2 and the interim disclosure
reporting requirements will be adopted by the Company in the first interim
period in 2003.

IMPACT OF INFLATION

We do not believe inflation has a significant impact on our operations. The
prices of our products have not varied based on the movement of the consumer
price index. The majority of our material and labor costs have not been
materially affected by inflation.

FUTURE OPERATING RESULTS

As referenced above, there are a number of factors that might cause our actual
results to differ significantly from the results reflected by the
forward-looking statements contained herein. In addition to factors generally
affecting the political, economic and competitive conditions in the United
States and abroad, such factors include those set forth below.

IF WE FAIL TO GROW OUR BUSINESS AS PLANNED, OUR BUSINESS COULD SUFFER AND
FINANCIAL RESULTS COULD DECLINE. AS WE GROW IT WILL BE DIFFICULT TO MAINTAIN OUR
HISTORICAL GROWTH RATES.

We intend to continue to pursue a business strategy of increasing sales and
earnings by expanding our retail and wholesale operations both in the United
States and internationally. Our current plans are to grow internally and not by
acquisition. In particular, our retail growth strategy depends in large part on
our ability to open new stores in both existing and new geographic markets.
Since our ability to implement our growth strategy successfully will be
dependent in part on factors beyond our control, including consumer preferences
and our competitive environment, we may not be able to achieve our planned
growth or sustain our financial performance. Our ability to anticipate changes
in the candle and giftware industries, and identify industry trends, will be
critical factors in our ability to remain competitive.

We expect that, as we grow, it will become more difficult to maintain our
historical growth rate, which could negatively impact our operating margins and
results of operations. New stores typically generate lower operating margin
contributions than mature stores because fixed costs, as a percentage of sales,
are higher and because pre-opening costs are fully expensed in the year of
opening. In addition, our retail sales generate lower margins than our wholesale
sales. Our wholesale business has grown by increasing sales to existing
customers and by adding new customers. If we are not able to continue this, our
sales growth and profitability could be adversely affected. In addition, if we
do not effectively manage our growth, we may experience problems such as the
supply chain inefficiencies that occurred in 2000 due to overstaffing in our
manufacturing and logistics operations. These inefficiencies were corrected in
2001 through a workforce reduction and the closing of our Salt Lake City
distribution center, but resulted in a decline in our gross profit in the last
quarter of 2000 and a restructuring charge of $8.0 million in 2001. We cannot
assure that we will

27

continue to grow at a rate comparable to our historic growth rate or that our
historic financial performance will continue as we grow.

WE FACE SIGNIFICANT COMPETITION IN THE GIFTWARE INDUSTRY. THIS COMPETITION COULD
CAUSE OUR REVENUES OR MARGINS TO FALL SHORT OF EXPECTATIONS WHICH COULD
ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY
AND OUR ABILITY TO CONTINUE TO GROW OUR BUSINESS.

We compete generally for the disposable income of consumers with other producers
in the giftware industry. The giftware industry is highly competitive with a
large number of both large and small participants. Our products compete with
other scented and unscented candle and personal care products and with other
gifts within a comparable price range, like boxes of candy, flowers, wine, fine
soap and related merchandise. Our retail stores compete with franchised candle
store chains, specialty candle stores and gift and houseware retailers. Some of
our competitors are part of large, diversified companies which have greater
financial resources and a wider range of product offerings than we do. This
competitive environment could adversely affect our future revenues and profits,
financial condition and liquidity and our ability to continue to grow our
business.

A MATERIAL DECLINE IN CONSUMERS' DISCRETIONARY INCOME COULD CAUSE OUR SALES AND
INCOME TO DECLINE.

Our results depend on consumer spending, which is influenced by general economic
conditions and the availability of discretionary income. Accordingly, we may
experience declines in sales during economic downturns or during periods of
uncertainty like that which followed the September 11, 2001 terrorist attacks on
the United States or which result from the threat of war or the possibility of
further terrorist attacks. Any material decline in the amount of discretionary
spending could have a material adverse effect on our sales and income.

BECAUSE WE ARE NOT A DIVERSIFIED COMPANY AND ARE DEPENDENT UPON ONE INDUSTRY, WE
HAVE LESS FLEXIBILITY IN REACTING TO UNFAVORABLE CONSUMER TRENDS, ADVERSE
ECONOMIC CONDITIONS OR BUSINESS CYCLES.

We rely primarily on the sale of premium scented candles and related products in
the giftware industry. In the event that sales of these products decline or do
not meet our expectations, we cannot rely on the sales of other products to
offset such a shortfall. As a significant portion of our expenses is comprised
of fixed costs, such as lease payments, our ability to decrease expenses in
response to adverse business conditions is limited in the short term. As a
result, unfavorable consumer trends, adverse economic conditions or changes in
the business cycle could have a material and adverse impact on our earnings.

IF WE LOSE OUR SENIOR EXECUTIVE OFFICERS, OUR BUSINESS COULD BE DISRUPTED AND
OUR FINANCIAL PERFORMANCE COULD SUFFER.

Our success is substantially dependent upon the retention of our senior
executive officers. If our senior executive officers become unable or unwilling
to participate in our business, our future business and financial performance
could be materially affected.

MANY ASPECTS OF OUR MANUFACTURING AND DISTRIBUTION FACILITIES ARE CUSTOMIZED FOR
OUR BUSINESS; AS A RESULT, THE LOSS OF ONE OF THESE FACILITIES WOULD DISRUPT OUR
OPERATIONS.

Approximately 76% of our sales are generated by products we manufacture at our
manufacturing facility in Whately, Massachusetts and we rely primarily on our
distribution facilities in South Deerfield, Massachusetts to distribute our
products. Because most of our machinery is designed or customized by us to
manufacture our products, and because we have strict quality control standards
for our products, the loss of our manufacturing

28

facility, due to natural disaster or otherwise, would materially affect our
operations. Similarly, our distribution facilities rely upon customized
machinery, systems and operations, the loss of which would materially affect our
operations. Although our manufacturing and distribution facilities are
adequately insured, we believe it would take up to twelve months to resume
operations at a level equivalent to current operations.

SEASONAL, QUARTERLY AND OTHER FLUCTUATIONS IN OUR BUSINESS, AND GENERAL INDUSTRY
AND MARKET CONDITIONS, COULD AFFECT THE MARKET FOR OUR COMMON STOCK.

Our sales and operating results vary from quarter to quarter. We have
historically realized higher sales and operating income in our fourth quarter,
particularly in our retail business, which accounts for a larger portion of our
sales. We believe that this has been due primarily to an increase in giftware
industry sales during the holiday season of the fourth quarter. As a result of
this seasonality, we believe that quarter to quarter comparisons of our
operating results are not necessarily meaningful and that these comparisons
cannot be relied upon as indicators of future performance. In addition, we may
also experience quarterly fluctuations in our sales and income depending on
various factors, including, among other things, the number of new retail stores
we open in a particular quarter, changes in the ordering patterns of our
wholesale customers during a particular quarter, and the mix of products sold.
Most of our operating expenses, such as rent expense, advertising and
promotional expense and employee wages and salaries, do not vary directly with
sales and are difficult to adjust in the short term. As a result, if sales for a
particular quarter are below our expectations, we might not be able to
proportionately reduce operating expenses for that quarter, and therefore a
sales shortfall could have a disproportionate effect on our operating results
for that quarter. Further, our comparable store sales from our retail business
in a particular quarter could be adversely affected by competition, economic or
other general conditions or our inability to execute a particular business
strategy. As a result of these factors, we may report in the future sales,
operating results or comparable store sales that do not match the expectations
of market analysts and investors. This could cause the trading price of our
common stock to decline. In addition, broad market and industry fluctuations may
adversely affect the price of our common stock, regardless of our operating
performance.

OUR TWO LARGEST STOCKHOLDERS, WHO ARE AFFILIATES OF FORSTMANN LITTLE & CO.,
EFFECTIVELY CONTROL US AND THEIR INTERESTS MAY CONFLICT WITH THOSE OF OTHER
STOCKHOLDERS.

Partnerships affiliated with Forstmann Little & Co. own approximately 40% of our
outstanding common stock and effectively control us. Accordingly, they are able
to:

- - influence the election of our entire board of directors and, until they no
longer own any shares of our common stock, they have the contractual right
to nominate two directors to our board of directors,

- - influence our management and policies, and

- - affect the outcome of any corporate transaction or other matter submitted
to our stockholders for approval, including mergers, consolidations and
the sale of all or substantially all of our assets, even where the
transaction is not in the best interests of all stockholders.

They may also be able to prevent or cause a change in control of Yankee Candle
and may be able to amend our Articles of Organization and By-Laws. The interests
of the Forstmann Little partnerships also may conflict with the interests of the
other holders of common stock.

29

PROVISIONS IN OUR CORPORATE DOCUMENTS AND MASSACHUSETTS LAW COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF YANKEE CANDLE.

Our Articles of Organization and By-Laws may discourage, delay or prevent a
merger or acquisition involving Yankee Candle that our stockholders may consider
favorable, by:

- - authorizing the issuance of preferred stock, the terms of which may be
determined at the sole discretion of the board of directors,

- - providing for a classified board of directors, with staggered three-year
terms, and

- - establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at meetings.

Massachusetts law may also discourage, delay or prevent someone from acquiring
or merging with us.

THE PLEDGE OF SUBSTANTIALLY ALL OF OUR ASSETS TO SECURE OUR OBLIGATIONS UNDER
OUR CREDIT AGREEMENT MAY HINDER OUR ABILITY TO OBTAIN ADDITIONAL DEBT FINANCING
ON FAVORABLE TERMS.

We have pledged substantially all of our assets to secure our obligations under
our credit agreement. Subject to restrictions contained in our credit agreement,
we may incur additional indebtedness in the future. However, due to the pledge
of our assets, a creditor lending to us on a senior unsecured basis will be
effectively subordinated to our bank lenders. This could limit our ability to
obtain, or obtain on favorable terms, and may make more costly additional debt
financing outside of our credit agreement. While we do not expect to require
additional financing prior to the expiration of our credit agreement, if we
needed to do so the inability to obtain additional financing on favorable terms
could adversely impact our results of operations or inhibit our ability to
realize our growth strategy.

WE DO NOT CURRENTLY INTEND TO PAY DIVIDENDS ON OUR CAPITAL STOCK.

We have never paid a cash dividend on our common stock as a public company and
we do not currently intend to pay any cash dividends in the foreseeable future.
Instead we intend to retain earnings for the future operation of the business.
Any determination to pay dividends in the future will be at the discretion of
our board of directors and will be dependent upon our results of operations, our
financial condition, contractual and legal restrictions and other factors deemed
relevant by our board of directors. Under the terms of our existing credit
agreement, we may not declare or pay dividends on our common stock unless our
ratio of consolidated total debt to consolidated EBITDA is less than or equal to
2:1 or our aggregate principal amount of loans and letters of credit outstanding
is less than $100 million. Although we meet this requirement, we do not
currently intend to pay dividends.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Our market risks relate primarily to changes in interest rates. We bear this
risk in two specific ways. First, we have debt outstanding. At December 28,
2002, we had $60.5 million outstanding under our credit agreement, which
bears interest at variable rates. At December 28, 2002, the weighted-average
interest rate on outstanding borrowings was 2.44%. This facility is intended to
fund operating needs if necessary. Because this facility carries a variable
interest rate pegged to market indices, our results of operations and cash flows
will be exposed to changes in interest rates. Based on December 28, 2002
borrowing levels, a 1.00% increase or decrease in current market interest rates
would have the effect of causing an approximately $0.6 million additional annual
pre-tax charge or credit to the statement of operations.

30

The second component of interest rate risk involves the short-term investment of
excess cash. This risk impacts fair values, earnings and cash flows. Excess cash
is primarily invested in interest bearing accounts that fluctuate with market
interest rates. Based on December 28, 2002 cash equivalents, a 1.00% increase or
decrease in current market interest rates would have the effect of causing an
approximately $0.4 million additional pre-tax credit or charge to the annual
statements of operations.

We buy a variety of raw materials for inclusion in our products. The only raw
material that is considered to be of a commodity nature is wax. Wax is a
petroleum-based product. However, its market price has not historically
fluctuated with the movement of oil prices. 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, we are not exposed to substantial risks arising from foreign
currency exchange rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

Board of Directors
The Yankee Candle Company, Inc.
South Deerfield, Massachusetts 01373

We have audited the accompanying consolidated balance sheets of The Yankee
Candle Company, Inc. and subsidiaries (the "Company") as of December 29, 2001
and December 28, 2002, and the related consolidated statements of operations,
stockholders' equity and cash flows for the fifty-two weeks ended December 30,
2000, December 29, 2001 and December 28, 2002. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements 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 audit 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 consolidated financial statements present fairly, in all
material respects, the financial position of The Yankee Candle Company, Inc. and
subsidiaries as of December 29, 2001 and December 28, 2002 and the results of
their operations and their cash flows for the fifty-two weeks ended December 30,
2000, December 29, 2001 and December 28, 2002 in conformity with accounting
principles generally accepted in the United States of America.

/s/ Deloitte & Touche, LLP

Boston, Massachusetts
February 11, 2003

31

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

DECEMBER 29, DECEMBER 28,
2001 2002
---- ----

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 30,531 $ 43,689
Accounts receivable less allowance of $325 at December 29, 2001 and
December 28, 2002 23,141 25,356
Inventory 23,680 34,529
Prepaid expenses and other current assets 4,340 6,584
Deferred tax assets 3,544 2,434
--------- ---------

Total current assets 85,236 112,592

PROPERTY, PLANT AND EQUIPMENT - NET 103,975 111,761

MARKETABLE SECURITIES 961 955

CLASSIC VEHICLES 351 20

DEFERRED FINANCING COSTS 2,815 1,701

DEFERRED TAX ASSETS 127,029 113,144

OTHER ASSETS 917 470
--------- ---------

TOTAL ASSETS $ 321,284 $ 340,643
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable $ 19,044 $ 20,601
Accrued interest 125 131
Accrued payroll 9,170 12,335
Accrued income taxes 14,462 18,014
Other accrued liabilities 12,242 12,329
Current portion of long-term debt 31,500 32,000
--------- ---------

Total current liabilities 86,543 95,410

DEFERRED COMPENSATION OBLIGATION 1,055 901

LONG-TERM DEBT - Less current portion 83,500 28,600

DEFERRED RENT 2,082 2,820

COMMITMENTS AND CONTINGENCIES (Notes 11 and 13)

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 300,000 shares authorized; 104,061 and 104,188
issued at December 29, 2001 and December 28, 2002, respectively;
54,211 and 54,359 shares outstanding at December 29, 2001 and December
28, 2002, respectively 1,041 1,042
Additional paid-in capital 224,850 224,815
Treasury stock (213,752) (213,883)
Retained earnings 137,025 201,004
Unearned stock compensation (522) (88)
Accumulated other comprehensive loss (538) 22
--------- ---------

Total stockholders' equity 148,104 212,912
--------- ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 321,284 $ 340,643
========= =========

See notes to consolidated financial statements.

32

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

FIFTY-TWO WEEKS ENDED
---------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28,
2000 2001 2002
---- ---- ----

SALES $ 338,805 $ 379,831 $ 444,842

COST OF SALES 153,667 174,107 194,748
--------- --------- ---------

GROSS PROFIT 185,138 205,724 250,094
--------- --------- ---------

OPERATING EXPENSES:
Selling expenses 64,464 77,348 96,714
General and administrative expenses 31,576 38,515 43,549
Restructuring charge -- 8,000 --
--------- --------- ---------
Total operating expenses 96,040 123,863 140,263
--------- --------- ---------

INCOME FROM OPERATIONS 89,098 81,861 109,831
--------- --------- ---------

OTHER (INCOME) EXPENSE:
Interest income (235) (72) (23)
Interest expense 16,900 10,596 4,858
Other (income) expense (165) 378 (420)
--------- --------- ---------
Total other expense 16,500 10,902 4,415
--------- --------- ---------

INCOME BEFORE PROVISION FOR INCOME TAXES 72,598 70,959 105,416

PROVISION FOR INCOME TAXES 29,039 27,674 41,437
--------- --------- ---------

NET INCOME $ 43,559 $ 43,285 $ 63,979
========= ========= =========

BASIC EARNINGS PER SHARE $ 0.82 $ 0.81 $ 1.19
========= ========= =========

DILUTED EARNINGS PER SHARE $ 0.80 $ 0.79 $ 1.17
========= ========= =========

WEGHTED-AVERAGE BASIC SHARES OUTSTANDING 52,900 53,537 53,896
========= ========= =========

WEIGHTED-AVERAGE DILUTED SHARES OUTSTANDING 54,663 54,643 54,686
========= ========= =========

See notes to consolidated financial statements.

33

YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FIFTY TWO-WEEKS ENDED DECEMBER 30, 2000, DECEMBER 29, 2001 AND DECEMBER 28, 2002
(in thousands)

Common Stock Additional
------------ Paid in Treasury Retained
Shares Amount Capital Stock Earnings
------ ------ ------- ----- --------

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

Redemption of common stock -- -- -- (764) --
Issuance of common stock on option
exercises 2 -- 8 -- --
Unearned stock compensation -- -- 461 -- --
Amortization of unearned stock
compensation -- -- -- -- --
Comprehensive income (loss):
Net income -- -- -- -- 43,285
Foreign currency translation loss -- -- -- -- --
Comprehensive income -- -- -- -- --
------- --------- --------- --------- ---------

BALANCE, DECEMBER 29, 2001 104,061 1,041 224,850 (213,752) 137,025

Issuance of common stock and option
exercises 127 1 1,307 (131) --
Costs of 2002 issuance of common
stock -- -- (1,342) -- --
Amortization of unearned stock
compensation -- -- -- -- --
Comprehensive income:
Net income -- -- -- -- 63,979
Foreign currency translation -- -- -- -- --

Comprehensive income -- -- -- -- --
------- --------- --------- --------- ---------

BALANCE, DECEMBER 28, 2002 104,188 $ 1,042 $ 224,815 $(213,883) $ 201,004
======= ========= ========= ========= =========

Accumulated
Capital Other
Subscription Unearned Stock Comprehensive Comprehensive
Receivable Compensation Loss Income Total
---------- ------------ ---- ------ -----

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

Redemption of common
stock -- -- -- -- (764)
Issuance of common
stock on option
exercises -- -- -- -- 8
Unearned stock
compensation -- (461) -- -- --
Amortization of
unearned stock
compensation -- 570 -- -- 570
Comprehensive income (loss):
Net income -- -- -- 43,285 43,285
Foreign currency
translation loss -- -- (162) (162) (162)
---------
Comprehensive income -- -- -- $ 43,123 --
--------- --------- --------- ========= ---------

BALANCE, DECEMBER 29, 2001 -- (522) (538) 148,104

Issuance of common
stock and option
exercises -- -- -- -- 1,177
Costs of 2002
issuance of common
stock -- -- -- -- (1,342)
Amortization of
unearned stock
compensation -- 434 -- -- 434
Comprehensive income:
Net income -- -- -- 63,979 63,979
Foreign currency
translation -- -- 560 560 560
---------
Comprehensive income -- -- -- $ 64,539 --
--------- --------- --------- ========= ---------
BALANCE, DECEMBER 28, 2002 $ -- $ (88) $ 22 $ 212,912
========= ========= ========= =========

See notes to consolidated financial statements.

34

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

FIFTY-TWO WEEKS ENDED
---------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28,
2000 2001 2002
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 43,559 $ 43,285 $ 63,979
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 10,762 14,347 17,347
Impairment -- 2,324 --
Unrealized loss on marketable securities 79 47 135
Non-cash stock compensation 604 570 434
Deferred taxes 11,013 10,515 14,995
Loss (gain) on disposal of fixed assets and classic vehicles (123) 519 567
Changes in assets and liabilities
Accounts receivable, net (4,766) (5,240) (2,029)
Inventory (13,254) 11,276 (10,564)
Prepaid expenses and other assets (2,287) 275 (1,956)
Accounts payable 1,495 2,917 1,540
Accrued expenses and other liabilities 10,228 6,127 7,367
-------- -------- --------
Net cash from operating activities 57,310 86,962 91,815
-------- -------- --------

CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Purchase of property and equipment (37,122) (26,844) (25,867)
Proceeds from sale of property and equipment -- 352 1,842
Investments in marketable securities (335) (191) (391)
Proceeds from sale of marketable securities -- 255 263
-------- -------- --------
Net cash used in investing activities (37,457) (26,428) (24,153)
-------- -------- --------

CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Payments for redemption of common stock -- (764) --
Net (costs) proceeds from issuance of common stock & other -- 8 (165)
Net (repayments) borrowings under bank credit agreements 60 -- --
Proceeds from the sale of common stock in 1999
(net of fees and expenses) (102) -- --
Principal payments on long-term debt (30,000) (42,500) (54,434)
-------- -------- --------
Net cash used in financing activities (30,042) (43,256) (54,599)
-------- -------- --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH (83) (44) 95
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,272) 17,234 13,158
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 23,569 13,297 30,531
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,297 $ 30,531 $ 43,689
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 16,786 $ 12,029 $ 3,444
======== ======== ========
Income taxes $ 11,656 $ 14,703 $ 22,181
======== ======== ========
Purchase of equipment by assumption of capital lease and
lease incentives $ 802 $ -- $ 172
======== ======== ========

See notes to consolidated financial statements.

35

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIFTY-TWO WEEKS ENDED
DECEMBER 30, 2000, DECEMBER 29, 2001 AND DECEMBER 28, 2002 (IN THOUSANDS, EXCEPT
SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS

The Yankee Candle Company, Inc. and subsidiaries ("Yankee Candle" or "the
Company") is the leading designer, manufacturer and branded marketer of premium
scented candles in the giftware industry. The Company has a 33-year history of
offering its distinctive products and marketing them as affordable luxuries and
consumable gifts. Yankee Candle products are available in approximately 190
fragrances and include a wide variety of jar candles, Samplers (R) votive
candles, Tarts (R) wax potpourri, pillars and other candle products, all
marketed under the Yankee Candle(R) brand. The Company also sells a wide range
of coordinated candle accessories and branded fragranced non-candle products
including Yankee Candle Car Jars(R) air fresheners, Yankee Candle(TM) Bath
personal care products and various Yankee Candle(R) branded home fragrancing
products including potpourri, sachets, aerosol room sprays and fabric freshener
sprays. The Company sells its products through several channels including
wholesale customers who operate over 14,000 stores in North America, 239
Company-owned and operated retail stores in 42 states as of December 28, 2002,
direct mail catalogs, its Internet website (www.yankeecandle.com), international
distributors and its distribution center located in the United Kingdom.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - The fiscal year is the 52 or 53 weeks ending the
Saturday closest to December 31. All years presented are 52 weeks in length. In
some instances, the fifty-two weeks ended December 30, 2000, December 29, 2001
and December 28, 2002 are referred to as fiscal 2000, fiscal 2001 and fiscal
2002, respectively.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
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 while revenue from
wholesale customers is recognized when shipped. 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 is recognized net of any applicable discounts and allowances. Customers,
be they retail or wholesale, do have the right to return product in certain
limited situations. Such right of returns have not precluded revenue recognition
because the Company has a long history with such returns on which it constructs
a reserve.

36

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company has sold gift certificates in prior years and currently sells gift
cards. At the point of sale of gift certificates and gift cards, the Company
records a deferred liability. Revenue is recorded upon the redemption of the
certificates and gift cards.

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.

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 December 29, 2001 and December 28, 2002. Unrealized gains (losses)
included in earnings during the fifty-two weeks ended December 30, 2000,
December 29, 2001 and December 28, 2002 were $(79), $(58) and $(171),
respectively. Gains of $0, $11 and $36 were realized during the fifty-two weeks
ended December 30, 2000, December 29, 2001 and December 28, 2002, respectively.

INVENTORIES - Inventories are stated at the lower of cost or market on a
last-in, first-out ("LIFO") basis. In fiscal 2001, the liquidation of certain
LIFO layers decreased cost of sales by $171. There were no such liquidations in
either fiscal 2002 or fiscal 2000. Inventory quantities on hand are regularly
reviewed, and where necessary provisions for excess and obsolete inventory are
recorded based primarily on the Company's forecast of product demand and
production requirements.

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 2 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.

37

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DEFERRED FINANCING COSTS - The Company amortizes deferred financing costs using
the effective-interest method over the life of the related debt. Accumulated
amortization was $3,253 and $4,367 at December 29, 2001 and December 28, 2002,
respectively.

TRADEMARKS - Trademarks are recorded at cost and amortized over 15 years. Cost
of trademarks, included in other assets at December 29, 2001 and December 28,
2002, was $231. Accumulated amortization was $116 and $132, at December 29, 2001
and December 28, 2002, respectively.

CLASSIC VEHICLES - Prior to 1998, the Company had invested in certain vehicles,
which were displayed in its car museum. These vehicles are stated at cost, with
no provision for depreciation, since their useful lives were indeterminable.
During the year ended December 29, 2001, the Company closed the car museum and
began the process of selling the classic vehicles. The vehicles that were sold
in fiscal 2001 resulted in a loss of $82. The Company recorded an impairment
charge of $200 to reduce the carrying value of the remaining vehicles to the
estimated net realizable value at December 29, 2001. The vehicles that were sold
in fiscal 2002 resulted in a loss of $43. During the year ended December 30,
2000, there were no adjustments to the carrying value of these vehicles.

ADVERTISING - The Company expenses the costs of advertising, including
cooperative funds provided to customers, as they are incurred. Advertising
expense was $4,448, $4,869 and $7,745 for the fifty-two weeks ended December 30,
2000, December 29, 2001 and December 28, 2002, respectively.

IMPAIRMENT ACCOUNTING - The Company reviews the recoverability of its long-lived
assets (property, plant and equipment, classic vehicles and trademarks) 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.

38

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK BASED COMPENSATION - 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 Company's net income and net income per
share would have decreased as reflected in the following proforma amounts. See
Note 12 for the weighted average assumptions used to compute the proforma
results.

Compensation cost is recognized on an accelerated basis as set forth in
Interpretation 28.

December 30, December 29, December 28,
2000 2001 2002
---- ---- ----

Net income, as reported $ 43,559 $ 43,285 $ 63,979
Deduct: Total stock based employee
compensation expense determined
under fair value based method(See
Note 12) for all awards, net of
related tax effects 514 1,423 1,466
---------- ---------- ----------

Pro forma net income $ 43,045 $ 41,862 $ 62,513
========== ========== ==========

Earnings per share:
Basic-as reported $ 0.82 $ 0.81 $ 1.19
Basic-pro forma $ 0.81 $ 0.78 $ 1.16

Diluted-as reported $ 0.80 $ 0.79 $ 1.17
Diluted-pro forma $ 0.79 $ 0.77 $ 1.14

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 expected tax rates in effect in the years
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount that is
more likely than not to be realized. 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS - At December 28, 2002, 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 variable interest rate associated with certain
instruments which have the effect of repricing such instruments regularly.

39

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 30, DECEMBER 29, DECEMBER 28,
2000 2001 2002
---- ---- ----

Basic 52,900,000 53,537,000 53,896,000
Add:
Contingently returnable shares 1,581,000 795,000 420,000
Shares issuable pursuant to option grants 182,000 311,000 370,000
---------- ---------- ----------
Diluted 54,663,000 54,643,000 54,686,000
========== ========== ==========

At December 29, 2001 and December 28, 2002, approximately 79,000 and 554,000
shares issuable pursuant to option grants were excluded from the computation of
diluted earnings per share due to the anti-dilutive effect, respectively.

FOREIGN OPERATIONS - Assets and liabilities of foreign operations are translated
into U.S. dollars at the exchange rate on the balance sheet date. The results of
foreign subsidiary operations are translated using average rates of exchange
during each reporting period. Gains and losses upon translation are deferred and
reported as a component of other comprehensive income. Foreign currency
transaction gains or losses are recorded directly in the statements of
operations.

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.

NEWLY ISSUED ACCOUNTING STANDARDS - In July 2002, SFAS No. 146 "Accounting for
Costs Associated with Exit or Disposal Activities" was issued. The standard
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. It is to be implemented for restructuring or disposal
activities occurring after December 31, 2001. The Company's fiscal 2001
restructuring activities, as described in Note 7, occurred prior to the
effective date of SFAS No. 146 and were therefore accounted for under previously
promulgated accounting guidance then in effect - specifically, EITF Consensus
No. 94-3 "Liability Recognition for certain Employee Termination Benefits and
Other Costs to Exit an Activity."

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." This Statement amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim

40

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
standard is effective for financial statements for fiscal years ending after
December 15, 2002. The disclosure requirements of SFAS No. 148 have been
implemented and the interim disclosure reporting requirements will be adopted by
the Company in the first interim period in 2003.

The Company has two stock based compensation plans described more fully in Note
12. The Company accounts for these plans under the recognition and measurement
principles of APB 25.

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:

DECEMBER 29, DECEMBER 28,
2001 2002
---- ----

Finished goods ................. $ 18,243 $ 30,273
Work-in-process ................ 275 641
Raw materials and packaging .... 5,765 4,287
-------- --------
24,283 35,201

Less LIFO adjustment (603) (672)
-------- --------
$ 23,680 $ 34,529
======== ========

4. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment were as follows:

DECEMBER 29, DECEMBER 28,
2001 2002
---- ----

Land and improvements .............................. $ 4,780 $ 5,039
Buildings and improvements ......................... 61,228 69,502
Computer equipment ................................. 22,646 28,182
Furniture and fixtures ............................. 23,951 29,430
Equipment .......................................... 26,051 28,993
Vehicles ........................................... 890 849
Construction in progress ........................... 4,051 4,689
--------- ---------
Total .............................................. 143,597 166,684

Less: accumulated depreciation and amortization .... (39,622) (54,923)
--------- ---------
$ 103,975 $ 111,761
========= =========

Depreciation and amortization expense was $9,552, $13,061 and $16,045 for the
fifty-two weeks ended December 30, 2000, December 29, 2001 and December 28,
2002, respectively. $566, $464 and $119 of

41

interest was capitalized in the fifty-two weeks ended December 30, 2000,
December 29, 2001 and December 28, 2002, 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 $27,478 and $38,117 at December 29, 2001
and December 28, 2002, respectively.

The Company extends credit to its wholesale customers. For the fifty-two weeks
ended December 30, 2000, December 29, 2001 and December 28, 2002, no single
customer accounted for more than 3.0%, 2.0% and 4.0% of total sales,
respectively.

6. LONG-TERM DEBT

Long term debt is summarized as follows:

December 29, December 28,
2001 2002
---- ----

Term loan $ 82,500 $ 51,000
Revolving line of credit 32,500 9,500
Capital lease obligations -- 100
--------- ---------

115,000 60,600

Less current portion 31,500 32,000
--------- ---------

Non-current portion $ 83,500 $ 28,600
========= =========

The Company has a credit agreement with a consortium of banks (the "Credit
Agreement"). The Credit Agreement provides for a maximum borrowing of $300,000
and consists of a revolving credit facility for $150,000 and a term loan for
$150,000. The 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. The Credit Agreement is collateralized by substantially all of the
assets of the Company. As of December 29, 2001 and December 28, 2002, the unused
portion of the revolving credit facility was $117,500 and $140,500,
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 Credit Agreement at a rate per annum equal to
(a) the greatest of (1) the prime rate, (2) the base CD rate plus 1.00% or (3)
the federal funds effective rate plus 1/2% plus a margin ranging from 0.00% to
0.75%, or (b) the eurodollar rate plus a margin ranging from 1.00% to 1.75%. The
weighted-average interest rate on outstanding borrowings at December 28, 2002
was 2.44%.

The Credit Agreement includes restrictions as to, among other things, the amount
of additional indebtedness, contingent obligations, liens, investments, asset
sales and capital expenditures 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 Credit Agreement are expected to have
a significant effect on the ability of the

42

6. LONG-TERM DEBT (CONTINUED)

Company to operate. As of December 28, 2002, the Company was in compliance with
all financial and operating covenants under the Credit Agreement.

Aggregate annual maturities of long-term debt are as follows:

YEAR Long-term Capital Lease
- ---- Debt Obligations
---- -----------

2003 $32,000 $ --
2004 28,500 100
------- -------
Total $60,500 $ 100
======= =======

7. RESTRUCTURING CHARGE

A restructuring charge for $8.0 million was recorded in fiscal 2001 to record
costs associated with our decision to consolidate and restructure our
distribution and manufacturing operations. We closed our Utah distribution
facility and restructured our distribution and manufacturing work-force during
2001. Included in the restructuring charge are severance and other employee
related costs, the non-cash write-down of non-recoverable leasehold
improvements, fixture and equipment investments and estimated continuing
occupancy expenses for abandoned facilities, net of anticipated sub-lease
income. An analysis of the activity within the restructuring reserve since
December 29, 2001 is as follows:

Costs Paid During Costs Paid During
the Fifty-Two the Fifty-Two
Weeks Ended Accrued as of Weeks Ended Accrued as of
Expense December 29, 2001 December 29, 2001 December 28, 2002 December 28, 2002
------- ----------------- ----------------- ----------------- -----------------

Occupancy $2,635 $ 781 $1,854 $ 747 $1,107
Employee related 2,635 2,304 331 284 47
Other 606 606 -- -- --
------ ------ ------ ------ ------
Total $5,876 $3,691 $2,185 $1,031 $1,154
====== ====== ====== ====== ======

During the second quarter of fiscal 2002, the Company was successful in
subletting the facility covered under the "Occupancy" heading for the remaining
lease term. Management believes that the remaining reserve at December 28, 2002
appropriately reflects the Company's lease commitment exposure.

43

8. PROVISION FOR INCOME TAXES

Income tax expense, exclusive of that relating to extraordinary items, consists
of the following:

Fifty-two weeks ended
---------------------
December 30, December 29, December 28,
2000 2001 2002
---- ---- ----

Federal:
Current $15,977 $15,552 $23,694
Deferred 9,655 9,530 13,437
------- ------- -------
Total federal 25,632 25,082 37,131
------- ------- -------

State:
Current 2,049 1,607 2,748
Deferred 1,358 985 1,558
------- ------- -------

Total state 3,407 2,592 4,306
------- ------- -------

Total income tax provision $29,039 $27,674 $41,437
======= ======= =======

In connection with the 1998 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, 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:

December 29, December 28,
2001 2002
---- ----
Current Non-current Current Non-current
------- ----------- ------- -----------

Deferred tax assets:
Basis differential as a result of a basis step-up for tax $ -- $ 132,502 $ -- $ 120,516
Foreign net operating loss carryforwards -- 2,006 -- 2,453
Deferred compensation arrangements 412 -- 351 --
Employee benefits 1,009 -- 1,047 --
Restructuring accrual 853 -- 450 --
Other 1,270 (917) 586 450
Valuation allowance -- (2,006) -- (2,453)
Deferred tax liabilities - fixed assets -- (4,556) -- (7,822)
--------- --------- --------- ---------

$ 3,544 $ 127,029 $ 2,434 $ 113,144
========= ========= ========= =========

44

8. PROVISION FOR INCOME TAXES (CONTINUED)

A reconciliation of the statutory federal income tax rate and the effective rate
of the provision for income taxes consists of the following:

Fifty-two weeks ended
---------------------
December 30, December 29, December 28,
2000 2001 2002
---- ---- ----

Statutory federal income tax rate .................. 35.0% 35.0% 35.0%
State income taxes net of federal benefit .......... 4.0 4.0 4.0
Other .............................................. 1.0 -- 0.3
---- ---- ----
40.0% 39.0% 39.3%
==== ==== ====

At December 28, 2002, the Company has foreign net operating loss carryforwards
totaling approximately $8,200. These net operating losses have been fully
reserved.

9. PROFIT SHARING PLAN

The Company maintains a profit sharing/salary reduction plan under section
401(k) of the Internal Revenue Code. Under the terms of the plan the Company may
make discretionary matching contributions in an amount, if any, to be determined
annually based on a percentage of the employee's pretax contributions. Matching
contributions, if made, are subject to a maximum of 4% of the employee's
eligible compensation contributed to the plan during the applicable plan year.
Employer matching contributions amounted to $537, $632 and $731 for the
fifty-two weeks ended December 30, 2000, December 29, 2001 and December 28,
2002, respectively. The Company, at its discretion, may also make annual profit
sharing contributions to the plan. There were no profit sharing contributions in
fiscal 2000, 2001 and 2002, respectively.

10. 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 $0, $89 and $94 for fiscal
2000, 2001 and 2002, 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 fiscal 2001 and 2002 were $255 and $263,
respectively.

11. 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.

45

12. STOCKHOLDERS' EQUITY

CAPITAL STOCK - As of December 29, 2001 and December 28, 2002, the Company had
104,061,000 and 104,188,000 shares of common stock (par value $.01) issued,
respectively. In connection with the 1998 recapitalization, the Company redeemed
approximately 49,560,000 shares of common stock. These shares were held in
treasury at December 29, 2001 and December 28, 2002.

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 the fifty-two weeks ended December 30, 2000, December 29, 2001 and
December 28, 2002, such expense aggregated $604, $570 and $434, 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 and expire after 10 years. Options granted under the
1998 Plan vest ratably over a five-year period and options granted under the
1999 Plan vest ratably over four years.

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 January 1, 2000 556,611 $4.25 -$18.00 $ 6.44 --

Granted 161,500 11.875-21.125 16.40 11.56
--------- ------------ ------ ----

Outstanding at December 30, 2000 718,111 4.25-21.125 8.76 --

Granted 691,500 13.17-17.92 14.41 6.34
Exercised (1,953) 4.25 4.25 --
Forfeited (11,130) 4.25-21.125 11.44 --
--------- ------------ ------ ----

Outstanding at December 29, 2001 1,396,528 4.25-21.125 11.51 --

Granted 236,500 16.80-21.30 21.16 8.95
Exercised (126,679) 4.25-21.125 5.43 --
Forfeited (5,000) 16.88 16.88 --
--------- ------------ ------ ----

Outstanding at December 28, 2002 1,501,349 $4.25-$21.30 $13.89 --
========= ============ ======

46

12. STOCKHOLDERS' EQUITY (CONTINUED)

Under the existing stock option plans, there are 1,392,876 shares available for
future grants at December 28, 2002. At December 28, 2002, options were
exercisable for 564,436 shares of common stock at a weighted average exercise
price of $11.55 per share.

The following table summarizes information about the Company's stock options
outstanding at December 28, 2002:

Average
Remaining
Range of Exercise Options Options Life
Prices Outstanding Exercisable (Years)
----------------- ----------- ----------- --------

$4.25 289,742 205,704 5.54
11.875-16.25 642,500 181,250 8.21
16.80 -18.00 265,357 141,732 7.62
21.125-21.30 303,750 35,750 9.04
-------------- --------- ------- ----

$4.25 - $21.30 1,501,349 564,436 7.76
============== ========= ======= ====

The following weighted-average assumptions were used to compute the pro forma
results of operations, as described in Note 2, that reflect grants in fiscal
2000, 2001 and 2002 under the 1999 Plan:

2000 2001 2002
---- ---- ----

Volatility 85% 50% 44%
Dividend yield 0% 0% 0%
Risk free interest rate 5.70% 1.69% 2.79%
Expected lives 5 years 5 years 5 years

13. COMMITMENTS

The Company leases most store locations, its corporate office building, a
distribution facility and a number of vehicles. The operating leases, which
expire in various years through 2016, contain renewal options 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.

47

13. COMMITMENTS (CONTINUED)

The aggregate annual future minimum lease commitments under operating leases as
of December 28, 2002 are as follows:

Operating
Leases
------

2003 $ 20,429
2004 19,837
2005 19,412
2006 17,841
2007 16,523
Thereafter 69,327
--------

Total minimum lease payments $163,369
========

Rent expense, including contingent rentals, for the fifty-two weeks ended
December 30, 2000, December 29, 2001 and December 28, 2002 was approximately
$9,348, $13,583 and $17,975, respectively. Included in rent expense were
contingent rental payments of approximately $1,403, $1,368 and $996, for the
fifty-two weeks ended December 30, 2000, December 29, 2001 and December 28,
2002, respectively.

14. 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.

48

The following are the relevant data for the fifty-two weeks ended December 30,
2000 December 29, 2001 and December 28, 2002:

BALANCE PER
UNALLOCATED/ CONSOLIDATED
CORPORATE/ STATEMENTS
FIFTY-TWO WEEKS ENDED DECEMBER 30, 2000 RETAIL WHOLESALE OTHER OF OPERATIONS
------ --------- ----- ----------

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

FIFTY-TWO WEEKS ENDED DECEMBER 29, 2001

Sales $ 211,707 $ 168,124 $ -- $ 379,831
Gross Profit 131,816 73,908 -- 205,724
Operating Margin 62,852 65,524 (46,515) 81,861
Unallocated costs -- -- (10,902) (10,902)
Income before provision for income taxes -- -- -- 70,959

FIFTY-TWO WEEKS ENDED DECEMBER 28, 2002

Sales $ 239,920 $ 204,922 $ -- $ 444,842
Gross Profit 153,520 96,574 -- 250,094
Operating Margin 66,168 87,212 (43,549) 109,831
Unallocated costs -- -- (4,415) (4,415)
Income before provision for income taxes -- -- -- 105,416

15. Valuation and Qualifying Accounts

BALANCE AT CHARGED TO COSTS AND DEDUCTIONS FROM BALANCE AT
ALLOWANCE FOR DOUBTFUL ACCOUNTS BEGINNING OF YEAR EXPENSES RESERVES END OF YEAR
----------------- -------------------- --------------- --------------

YEAR ENDED DECEMBER 30, 2000:
Allowance for doubtful accounts $325 $124 $ (97) $352

YEAR ENDED DECEMBER 29, 2001:
Allowance for doubtful accounts 352 332 (359) 325

YEAR ENDED DECEMBER 28, 2002:
Allowance for doubtful accounts 325 212 (212) 325

Amounts charged to deductions from reserves represent the write-off of
uncollectible balances.

49

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

FIFTY-TWO WEEKS ENDED DECEMBER 29, 2001
---------------------------------------
March 31 June 30 September 29 December 29
-------- ------- ------------ -----------
(Dollars in Thousands, Except per Share Data)

Sales $ 75,320 $ 62,230 $ 84,939 $ 157,342
Cost of goods sold 38,015 30,132 39,910 66,050
--------- --------- --------- ---------

Gross profit 37,305 32,098 45,029 91,292
Selling expenses 17,175 17,157 18,657 24,359
General and administrative expenses 9,191 9,654 10,093 9,577
Restructuring charge 8,000 -- -- --
--------- --------- --------- ---------

Income from operations 2,939 5,287 16,279 57,356
Interest income (42) (18) (4) (8)
Interest expense 3,376 2,996 2,401 1,823
Other (income) expense (102) (27) 28 478
--------- --------- --------- ---------

Income (loss) before provision for (benefit
from) income taxes (293) 2,336 13,854 55,063
Provision for (benefit from) income taxes (114) 911 5,403 21,475
--------- --------- --------- ---------

Net income (loss) $ (179) $ 1,425 $ 8,451 $ 33,588
========= ========= ========= =========

BASIC EARNINGS PER SHARE $ 0.00 $ 0.03 $ 0.16 $ 0.63
========= ========= ========= =========

DILUTED EARNINGS PER SHARE $ 0.00 $ 0.03 $ 0.16 $ 0.62
========= ========= ========= =========

50

16. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)

FIFTY-TWO WEEKS ENDED DECEMBER 28, 2002
---------------------------------------
March 30 June 29 September 28 December 28
-------- ------- ------------ -----------
(Dollars in Thousands, Except per Share Data)

Sales $ 88,184 $ 81,296 $ 99,037 $ 176,324
Cost of goods sold 42,109 37,739 44,840 70,060
--------- --------- --------- ---------

Gross profit 46,075 43,557 54,197 106,264
Selling expenses 21,220 22,452 23,634 29,409
General and administrative expenses 11,194 10,371 10,818 11,167
Restructuring charge - - - -
--------- --------- --------- ---------
Income from operations 13,661 10,734 19,745 65,688
Interest income (15) (3) (2) (4)
Interest expense 1,308 1,157 1,253 1,138
Other (income) expense 60 (54) (108) (317)
--------- --------- --------- ---------
Income before provision for income taxes 12,308 9,634 18,602 64,871
Provision for income taxes 4,800 3,757 7,254 25,624
--------- --------- --------- ---------
Net income $ 7,508 $ 5,877 $ 11,348 $ 39,247
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ 0.14 $ 0.11 $ 0.21 $ 0.72
========= ========= ========= =========

DILUTED EARNINGS PER SHARE $ 0.14 $ 0.11 $ 0.21 $ 0.72
========= ========= ========= =========

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 2003 Annual Meeting of Stockholders to be held on June
11, 2003 (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.

51

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by this item 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 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
contained in the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

(a.) Evaluation of disclosure controls and procedures. Based on their evaluation
of our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days
of the filing date of this Annual Report on Form 10-K, our chief executive
officer and chief financial officer have concluded that our disclosure controls
and procedures are (i) designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms and (ii) operating in an effective manner.

(b.) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation.

PART IV

ITEM 15. 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

2. Consolidated Financial Statement Schedule

All 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.

Amounts charged to deductions from reserves represent the write-off of
uncollectible balances.

52

3. Exhibits

The exhibits are listed below under Part IV, Item 15(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 28, 2002.

(c) Exhibits

See the exhibit index accompanying this filing.

53

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.*

10.14 Employment Letter Agreement dated March 31, 2001 between The Yankee Candle
Company, Inc. and Craig W. Rydin.**+

10.15 Letter Agreement dated March 31, 2001 between The Yankee Candle Company,
Inc. and Michael D. Parry.***+

10.16 Employment Letter Agreement dated August 31, 2000 between The Yankee
Candle Company, Inc. and Paul J. Hill.***+

10.17 Employment Letter Agreement dated May 2, 2001 between The Yankee Candle
Company, Inc. and Harlan Kent.***+

23.1 Consent of Deloitte and Touche LLP****

99.1 Certification of Craig W. Rydin Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.****

99.2 Certification of Robert R. Spellman Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.****

- ----------
* Incorporated by reference from the Company's Registration Statements on
Form S-1 (File No. 333-76397)
** Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the first quarter of fiscal 2001.
*** Incorporated by reference from the Company's Annual Report on Form 10-K
for fiscal 2001.
**** Filed herewith.
+ Management compensation contract/plan
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 27, 2003.

The Yankee Candle Company, Inc.

By
-----------------------------
Craig W. Rydin
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below as of March 27, 2003 by the following persons on behalf of
the registrant and in the capacities indicated.

Signature Capacity

Chairman of the Board of Directors, President
- ------------------------------- and Chief Executive Officer
Craig W. Rydin (Principal Executive Officer)

Director, Senior Vice President, Finance and
- ------------------------------- Chief Financial Officer
Robert R. Spellman (Principal Financial Officer)

Vice President, Controller
- ------------------------------- (Principal Accounting Officer)
Gerald F. Lynch

Director
- -------------------------------
Theodore J. Forstmann

Director
- -------------------------------
Dale F. Frey

55

Director
- -------------------------------
Michael F. Hines

Director
- -------------------------------
Sandra J. Horbach

Director
- -------------------------------
Jamie C. Nicholls

Director
- -------------------------------
Michael S. Ovitz

Director
- -------------------------------
Ronald L. Sargent

Director
- -------------------------------
Emily Woods

56

CERTIFICATIONS

I, Craig W. Rydin, certify that:

1. I have reviewed this Annual Report on Form 10-K of The Yankee Candle Company,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

/s/ CRAIG W. RYDIN
-------------------------------------
Dated: March 27, 2003 Craig W. Rydin
Chief Executive Officer

57

CERTIFICATIONS

I, Robert R. Spellman, certify that:

1. I have reviewed this Annual Report on Form 10-K of The Yankee Candle Company,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

/s/ ROBERT R. SPELLMAN
-------------------------------------
Dated: March 27, 2003 Robert R. Spellman
Chief Financial Officer

58