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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 001-15023

THE YANKEE CANDLE COMPANY, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (413) 665-8306

Securities registered pursuant to Section 12(b) of the Act:

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark 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.     þ

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

      Based on the closing sale price of $29.01 per share on July 2, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was $1,398,392,470.

      On March 7, 2005 there were outstanding 46,391,848 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 2, 2005 are incorporated into Part III.

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      This Annual Report on Form 10-K contains a number of forward-looking statements. Any statements contained herein, including without limitation statements to the effect that The Yankee Candle Company, Inc. 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

PART I

      We are the leading designer, manufacturer and branded marketer of premium scented candles, based on sales, in the giftware industry. We have a 35-year history of offering our distinctive products and marketing them as affordable luxuries and consumable gifts. Our candle products are available in approximately 185 fragrances and include a wide variety of jar candles, Samplers® votive candles, Tarts® wax potpourri, pillars and other candle products, the vast majority of which are marketed under the Yankee Candle® brand. We also sell a wide range of coordinated candle and home décor accessories and have extended our brand into the growing premium home fragrance market segment with products such as our Housewarmer® electric home fragrancers, Yankee Candle® branded potpourri, sachets, room sprays and linen sprays, Yankee Candle Car Jars® air fresheners and Yankee Candle^tm Bath personal care products. We have a vertically integrated business model that enables us to manufacture and distribute high quality products, provide excellent customer service and achieve cost efficiencies.

      Our multi-channel distribution strategy enables us to offer Yankee Candle® products through a wide variety of locations and venues. We sell our products through an extensive and growing wholesale customer network of approximately 15,600 stores in North America, primarily in non-mall locations, and through our growing retail store base located primarily in malls. As of January 1, 2005, we had 345 Company-owned and operated stores in 43 states. We have grown our retail store count 28% annually over the past five years and opened 60 new retail stores and closed one underperforming retail store in 2004. In addition, we own and operate a 90,000 square foot flagship store in South Deerfield, Massachusetts, a major tourist destination in Massachusetts. We also sell our products directly to consumers through our catalogs and our Internet web site at www.yankeecandle.com. Outside North America, we sell our products through international distributors and to an international wholesale customer network of approximately 2,200 store locations (through our distribution center located in Bristol, England).

      Since 1999, we have experienced compound annual sales growth of 16% and compound annual pretax income growth of 20%. Each of our distribution channels has contributed to this growth. Retail, which includes our catalog and Internet business, has achieved 18% compound annual sales growth since 1999 and accounted for 51% of our $554.2 million total sales in 2004. Wholesale, which includes international operations and has generated higher segment margins than our retail channel, has achieved a 14% compound annual sales growth since 1999 and accounted for 49% of total sales in 2004. In 2004, our sales increased 9% over 2003, comprised of a 6% increase in retail sales and a 12% increase in wholesale sales. In 2004, net income increased 11% over 2003. We believe our growth was primarily based on the strength of the Yankee Candle® brand, our commitment to product quality and innovation, the efficiency of our vertically integrated manufacturing and logistics operations and the success of our multi-channel distribution strategy.

Industry Overview

      Yankee Candle operates in the domestic giftware industry, a $54.3 billion market in 2002 (latest available data), according to Unity Marketing, an independent research firm. Sub-segments within this industry in which we compete include the total candle, premium scented candle and home fragrance segments. According to Kline & Company, Inc., an international consulting firm, the domestic market for candles has grown at an approximately 2% compound annual growth rate from 1999 to 2003 to reach approximately $3.1 billion in 2003. According to Kline’s most recent home fragrance study issued in 2004, the premium scented candle segment, in which we compete, grew at an approximately 5% compound annual growth rate from 1999 to 2003. Kline has projected that the premium scented candle segment will continue to grow at a compound annual growth rate of approximately 3% from 2004 to 2008. We also compete in the growing home fragrance market segment, which according to Kline has grown at an approximately 4% compound annual growth rate from 1999 to 2003 to reach approximately $5.5 billion ($2.4 billion excluding candles).

      We expect the premium scented candle market to continue to grow more quickly than the total candle market, and the home fragrance market to grow at least as quickly as the premium scented candle market, based upon favorable industry factors, including the continued interest of consumers in home décor 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 offer approximately 1,800 stock-keeping units (SKUs) of Yankee Candle manufactured products. Virtually all of our candle products are marketed as Yankee Candle® branded products primarily under the trade names Housewarmer®, Home Classics^tm, YC^tm, Stripes®, Swirls^tm, Chandler’s Reserve^tm, Plymouth Bay^tm, Country Kitchen® and Aroma Formula^tm and include the following product styles:

      Our candle products are generally available in a wide range of fragrances and colors. We have available approximately 185 fragrances for our retail stores. In addition, approximately 90 of our best-selling Housewarmer® 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. We also package our products in attractive gift baskets and other containers and offer glassware accessories and other coordinated candle-related and home décor 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® votive candleholders.

      In addition to our core candle business, we have successfully extended the Yankee Candle® brand into the growing home fragrance segment and other fragrance-based product categories. Examples of our non-candle product portfolio include our Housewarmer® electric home fragrancer; our Yankee Candle® branded line of potpourri, sachets, room sprays, linen sprays and passive diffusers; Yankee Candle® Car Jars® air fresheners; and our Yankee Candle^tm Bath line of personal care products. In 2004 we continued to expand our home fragrance offerings, adding a number of new fragrances and styles to our electric home fragrancer and other product lines and introducing new products to our portfolio. We plan to further leverage our brand and increase our offerings in this segment in 2005 by introducing new products and fragrances, including an enhanced version of our electric home fragrancer.

      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 $1.20 for a Tarts® wax potpourri to $20.99 for a 22 oz. Housewarmer® jar candle.

Retail Operations

      Our retail operations include retail stores, none of which are franchised, catalog and Internet operations and Chandler’s restaurant. From 1999 to 2004, sales from our retail division have grown at a compound annual growth rate of 18% from $123.2 million in 1999 to $283.5 million in 2004 and increased from 47% of our total sales in 1999 to 51% in 2004. Moreover, in 2004 our retail stores that were open for the full year, excluding the South Deerfield flagship store, achieved average sales per selling square foot of $594.

      We opened 60 new retail stores during 2004, closed one underperforming retail store and ended the year with 345 retail stores in 43 states, including two Old Farmer’s Almanac test concept stores. In addition, we are also testing certain 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 345 retail stores, 257 are located in malls. We plan to open approximately 46 additional stores during 2005, including a new 65,000 square foot flagship store in Williamsburg, VA.

      The non-mall store count includes our South Deerfield, MA flagship store, which is a unique store. We believe that our flagship store is the world’s largest candle and holiday-themed 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 22,000 SKUs of gift items and generates approximately 51% of its revenues from the sale of Yankee Candle manufactured products. The store is a major tourist destination and provides visitors with a total shopping and entertainment experience including the Yankee Candlemaking Museum and a 240-seat restaurant. The flagship store also includes two “store within a store” concepts: our Yankee Candle^tm Home store, which showcases home goods, accessories, furnishings and decorative accents in sophisticated country décor settings, and an Old Farmers Almanac General Store® which features an assortment of products with a nostalgic country general store theme, including an exclusive line of candles, decorative home items, specialty foods, clothing and holiday ideas. We believe that each of these concepts are important contributors to our flagship store and will enable us to continue to test market new products and merchandising concepts.

      Excluding the South Deerfield flagship store, the average store size for our 344 retail stores at the end of 2004 was 1,653 square feet. Our retail stores other than the South Deerfield store typically offer Yankee Candle products in approximately 175 fragrances and carry approximately 1,000 SKUs of candles and approximately 900 SKUs of candle accessories.

      Outstanding 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, eleven day training program for managers and assistant managers and an in-store 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.

      As part of our retail division we market our products through our catalogs and Internet web site. Our catalog and Internet business generated $17.3 million of sales in 2004, a decrease of approximately 6.0% from 2003. Our catalogs feature a wide selection of our most popular products, together with additional products and offerings exclusive to our catalog channel. We believe there are continuing opportunities to grow our catalog and Internet businesses by adding additional products and accessories, new concepts and expanding our mailing lists. We further believe that the catalog constitutes an important marketing tool, serving to increase the awareness and strength of the Yankee Candle® brand and driving sales to our retail stores and Internet web site.

      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 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, sites dedicated to corporate gifts, weddings and other customized purchasing opportunities and a personalized candle configuring capability that enables users to design and purchase their own custom-labeled Samplers® votive candles to commemorate special events such as weddings. In addition to our consumer-oriented web site, we have a separate business-to-business web site dedicated to our wholesale customers that offers such features as on-line ordering, order status information, purchase history and an enhanced dealer locator program. We continually upgrade our web site in order to better serve our retail and wholesale customers.

Wholesale Operations

      Our wholesale strategy focuses on gift, home décor and other image appropriate retailers. The wholesale business is an integral part of our growth strategy and, together with our other distribution channels, helps to further build our brand awareness. From 1999 to 2004, sales from our wholesale accounts have grown at a compound annual growth rate of 14% from $138.9 million in 1999 to $270.7 million in 2004 and changed from 53% to 49% of our total sales. Our wholesale customers have approximately 15,600 locations in North America, approximately 92% 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 7% of our total company sales in 2004.

      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 several 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 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 introduced new products and 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^tm 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^tm. 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 authorized retailers. As a result of our high standards for authorized retailers, we had bad debt expense of only 0.1% of wholesale sales in 2004.

      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 larger 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.

      We sell our products in Europe and the Middle East utilizing our distribution center in the United Kingdom. As of January 1, 2005, this distribution center was selling our products to approximately 2,200 direct accounts and 21 distributors covering 23 countries. Revenues from our international operations outside of North America have accounted for less than 3.0% 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.

      Our innovation team focuses on several different areas of new product development. Each year we introduce a number of in-line extensions of our core candle lines, such as new Housewarmer® fragrances and the development of exclusive fragrances and special products for one or both of our retail and wholesale channels. In addition to new fragrances in our core Housewarmer® line, our new product development efforts focus on the addition of new candle lines and offerings. In 2004 these efforts included the introduction of new candle forms such as our Swirls^tm (combining two popular and compatible Housewarmer® fragrances in one candle), Housewarmer® Accents^tm (a three-wick version of our Housewarmer® candles with a clean, contemporary look) and Housewarmer® Tins (a travel-sized candle packaged in small, take-away containers for optimum convenience). We passed another innovation milestone in 2004 by creating our first-ever value-priced candle, which was released under a new brand: Plymouth Bay^tm. The Plymouth Bay^tm candle will continue to be tested in 2005 and, if successful, could provide us with an opportunity to penetrate new value-oriented distribution channels without utilizing the Yankee Candle® brand.

      Beyond candles, our innovation team continually works to broaden our product portfolio and continue to extend our brand into the home fragrancing market segment and other fragrance-related categories. In 2004 these efforts led to continued expansion of our electric home fragrancer products and other branded home fragrance offerings such as potpourri, room sprays and linen sprays, together with the introduction of new products such as our passive diffusers.

      In 2005, we plan to continue to focus on broadening our product portfolio in both the candle and home fragrancing segments.

      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.

Manufacturing

      Approximately 74% of our sales in 2004 were 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 and 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® wax potpourri and Samplers® 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 (non mass market) 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 further improve our quality and lower our costs by using efficient production and distribution methods and technological advancements.

Suppliers

      We maintain strong relationships with our principal fragrance and 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 alternative sources at comparable prices. In 2004, no single supplier represented more than 9% of our total cost of goods sold.

Order Processing and Distribution

      Our systems allow us 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. Our platform of manufacturing and distribution software enables us to further enhance our inventory management and customer service capabilities and also support a 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.

      The products we sell in the United States are generally shipped by various national small-parcel carriers or other freight carriers. Our products are shipped to our retail stores on a fluctuating schedule, with the frequency of deliveries based upon a store’s sales volume and seasonal variances in demand. We ship to wholesale customers as orders are received. We believe that our timely and accurate distribution is an important differentiating factor for our wholesale 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 43 U.S. trademark registrations, including Yankee® (for candles), Yankee Candle®, Housewarmer®, Stripes®, Country Kitchen®, Samplers®, Tarts®, Country Classics®, Kindle Candles® and Car Jars®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 such costs or liabilities may arise in the future.

Competition

      We compete generally for the disposable income of consumers with other manufacturers and retailers 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, home fragrance, and personal care products and with other gifts within a comparable price range, like boxes of candy, flowers, wine, fine soap and related merchandise. Our competitors distribute their products through independent gift retailers, department stores, mass market stores 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.

      In the premium scented candle segment of the market, in which we primarily compete, our manufacturing competitors include Blyth Industries, Inc., as well as many smaller branded manufacturers and private label manufacturers. We are not aware of any significant recent consolidation in the manufacturing segment of the candle market, nor do we 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 January 1, 2005, we employed approximately 2,100 full-time employees and 2,100 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 seasonal and temporary workers, as necessary, to supplement our labor force during peak selling or manufacturing seasons.

Web Site

      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 13(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. We also include on our web site the Corporate Governance Guidelines adopted by our Board of Directors, our Code of Business Conduct and Ethics and the charters for each of the major committees of our Board of Directors. In addition, we intend to disclose on our web site any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be publicly disclosed pursuant to rules of the Securities and Exchange Commission and the New York Stock Exchange.

CEO Report

      In June 2004 our Chief Executive Officer filed with the New York Stock Exchange (“NYSE”) the required CEO Certification with respect to our prior fiscal year, which certified, without qualification, as to our compliance with the Corporate Governance Listing Standards established by the NYSE. This year’s filing will be made within thirty days following our 2005 Annual Meeting of Stockholders, as required by the NYSE.

      We own or lease several facilities located in Deerfield and Whately, Massachusetts, including those described in the table below:

Notes:

      We also lease a 62,000 sq. ft. distribution facility in Bristol, England which the Company began leasing in 2004. At January 1, 2005, we had 48 months remaining on the lease of our prior 27,000 sq. ft. distribution facility in Bristol, England and are actively seeking to sublet that facility.

      We believe these facilities are suitable and adequate to meet our current needs. In addition to the foregoing facilities, and the retail stores referenced below, we own various other properties in the Deerfield/ Whately area, none of which are material to our operations.

      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.

      Our retail stores were located in the following 43 states as of January 1, 2005:

Store Count

      We are involved from time to time in 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.

      Our annual meeting of stockholders will be held on June 2, 2005. No matter was submitted to a vote of security holders in the fourth quarter of the fiscal year ended January 1, 2005.

Executive Officers of the Registrant

      The following table sets forth the names, ages and positions of our executive officers as of March 7, 2005:

      CRAIG W. RYDIN is the Chairman of the Board of Directors 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 Chocolatier 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.

      HARLAN M. KENT is the President. Mr. Kent joined Yankee Candle in June 2001 as Senior Vice President, Wholesale, and was promoted to his current position in July 2004. Prior to joining Yankee Candle, 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.

      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. In October 2004, Mr. Spellman announced his intention to retire from Yankee Candle, which retirement is anticipated to become effective in early 2005.

      STEPHEN FARLEY is the Senior Vice President, Retail. Prior to joining Yankee Candle in January 2005, Mr. Farley served as Executive Vice President, Marketing and Merchandising for The Bombay Company, a leading specialty retailer of home accessories and home décor. Prior to joining The Bombay Company in 2002, he served as Chief Marketing Officer for J.C. Penney, one of America’s largest department store, catalog and e-commerce retailers. Mr. Farley also previously held various senior leadership positions with Payless Shoe Source, Inc., Pizza Hut and the leading marketing and advertising agencies of Earle Palmer Brown and Saatchi & Saatchi.

      PAUL J. HILL is the Senior Vice President, Supply Chain. 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 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.

      LORI A. KLIMACH is the Senior Vice President, Wholesale. Prior to joining Yankee Candle in October 2004, Ms. Klimach served as Vice President of Sales for Worldwide Consumer Medicines for Bristol-Myers Squibb, a leading branded pharmaceutical company, where she was also the General Manager of Consumer Medicine’s Canadian Division. Prior to joining Bristol-Myers Squibb in 2002, Ms. Klimach served as Vice President of Worldwide Business Development for Johnson & Johnson Consumer Companies. Ms. Klimach also held numerous senior sales and marketing positions with Neutrogena Corporation, Tambrands Corporation and American Cyanamid.

      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 Senior 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

      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:

      On March 7, 2005, the closing sale price as reported on the New York Stock Exchange-Composite Transaction Reporting System for our common stock was $31.75 per share. As of March 7, 2005, there were 586 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.

      We have never paid a cash dividend on our common stock as a public company. Instead, we have retained earnings to repurchase our common stock and for the future operation of our business. However, while we will continue to retain earnings for use in the operation and expansion of our business, we have also decided to further increase shareholder returns by initiating an annual cash dividend in 2005. Accordingly, on February 14, 2005 our Board of Directors authorized us to initiate an annual cash dividend at the annual rate of $0.25 per share of outstanding common stock. The first semi-annual payment of $0.125 per share will be paid on June 1, 2005, to shareholders of record on May 11, 2005. Under the terms of our existing Credit Facility, we may not declare or pay dividends on our common stock unless our Consolidated Net Worth (as defined in our Credit Facility) is more than the sum of $100 million plus 25% of 2004 net income, plus 25% of net income for each fiscal quarter thereafter. Our net income for fiscal 2004 was $82.7 million, and 25% of 2004 net income was therefore approximately $20.7 million. As of January 1, 2005, our Consolidated Net Worth was approximately $179.7 million, in excess of the $120.7 million required under our Credit Facility for the declaration or payment of dividends. We anticipate that our Consolidated Net Worth as of June 1, 2005, the date on which the first semi-annual payment is scheduled to be made, will likewise exceed the required amount under our Credit Facility. While it is our current intention to pay annual cash dividends in years following 2005, any decision to pay future cash dividends will be made by our Board of Directors and will depend upon our earnings, financial condition and other factors.

      On February 12, 2004 we announced that our Board of Directors had approved a stock repurchase program authorizing us to repurchase up to $100 million of Yankee Candle common stock. During fiscal 2004, we repurchased a total of 3,480,149 shares of common stock for an aggregate purchase price of approximately $100 million at an average price per share of approximately $28.73. This share repurchase program followed a $100 million share repurchase program authorized and completed in 2003. Our 2004 program was completed as follows:

      On December 7, 2004, we announced that our Board of Directors had authorized a new stock repurchase program for the repurchase of up to an additional $100 million of our common stock. Purchase activity under this program commenced on February 22, 2005.

      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 January 1, 2005 and January  3, 2004 and for the fifty-two weeks ended January 1, 2005, the fifty-three weeks ended January 3, 2004 and the fifty-two weeks ended December 28, 2002 has 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 28, 2002, December 29, 2001, and December 20, 2000 and for the fifty-two weeks ended January December 29, 2001 and December 30, 2000 has been derived from audited financial statements for the corresponding periods, which are not contained in this document.

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

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.

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

      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.

      We have a significant net 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.

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

      Effective in 2003, we adopted the fair value recognition provisions of SFAS No. 123 “Accounting for Stock Based Compensation.” Under the prospective transition method selected by us, as described in SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123,” all stock option grants beginning with grants made in fiscal 2003 are being expensed over the vesting period, based on the fair value at the date of the grant. Fair value is determined based on a variety of factors, all of which are estimates subject to judgment. Changes in estimated lives of options, risk free interest rates or exercise patterns could impact our results of operations. We recorded a charge of

approximately $1.6 million and $0.6 million for the fifty-two weeks ended January 1, 2005 and fifty-three weeks ended January 3, 2004, respectively. In the third quarter of fiscal 2005 in accordance with SFAS No. 123(R), “Share-Based Payment,” we will be required to record the fair value of stock options for all unvested options granted prior to 2003. This will result in additional stock compensation expense of approximately $0.3 million during the second half of fiscal 2005.

Performance Measures

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

Fluctuations in Quarterly Operating Results

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

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

      New Store Openings. The timing of our new store openings may also have an impact on our quarterly results. First, we incur certain one-time expenses related to opening each new store. These expenses, which consist primarily of salaries, occupancy costs, supplies and marketing costs, are expensed as incurred. Second, most store expenses vary proportionately with sales, but there is a fixed cost component. This typically results in lower store profitability when a new store opens because new stores generally have lower sales than mature stores. Due to both of these factors, during periods when new store openings as a percentage of the base are higher, operating profit may decline in dollars and/or as a percentage of sales. As the overall store base matures, the fixed cost component of selling expenses is spread over an increased level of sales, assuming sales increase as stores age, resulting in a decrease in selling and other expenses as a percentage of sales.

Fifty-Two Weeks Ended January 1, 2005 (“2004”) Compared to Fifty-Three Weeks Ended January 3, 2004 (“2003”)

      The fiscal year ended January 1, 2005 consisted of 52 weeks, the fiscal year ended January 3, 2004 consisted of 53 weeks and the fiscal year ended December  28, 2002 consisted of 52 weeks.

      Sales increased 9.0% to $554.2 million in 2004 from $508.6 million in 2003. Wholesale sales, including international operations, increased 11.9% to $270.7 million in 2004 from $242.0 million for 2003. This growth was achieved primarily by increasing the number of wholesale locations and to a lesser extent by increasing sales to existing locations.

      Retail sales increased 6.3% to $283.5 million in 2004 from $266.6 million for 2003. There were 345 retail stores open as of January 1, 2005 compared to 286 stores open at January 3, 2004. The increase in retail sales was achieved primarily through the addition of 60 new stores in 2004 and to a lesser extent increased sales in the 49 stores opened in 2003 (which in 2003 were open for less than a full year), partially offset by a decrease in comparable store sales. Comparable store and catalog and Internet sales in 2004 decreased 2% compared to 2003. Retail comparable store sales in 2004 decreased 2% compared to 2003. The primary factor contributing to the decrease in comparable store sales was a decline in our retail store traffic. Comparable store sales represent a comparison of the sales, during the corresponding fiscal

periods of the two fiscal years compared, of the stores included in our comparable store sales base. A store first enters our comparable store sales base in the fourteenth fiscal month of operation. There were 285 stores included in the comparable store base at the end of 2004, and 49 of these stores were included for less than a full year.

      Gross profit increased 10.4% to $323.7 million in 2004 from $293.3 million in 2003. As a percentage of sales, gross profit increased to 58.4% in 2004 from 57.7% in 2003. The increase in gross profit dollars in 2004 compared to 2003 was primarily attributable to the increase in sales. The improvement in gross profit rate in 2004 compared to 2003 was primarily the result of improved productivity improvements in supply chain operations and the benefit of cost reduction initiatives.

      Selling expenses increased 13.4% to $131.3 million in 2004 from $115.8 million in 2003. 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 23.7% in 2004 and 22.8% in 2003. The increase in selling expenses in dollars and as a percentage of sales was primarily related to the 60 new retail stores opened in 2004 and the 49 new retails stores opened in 2003. These stores are considered immature stores, which are generally stores that are less than three years old. Immature stores typically generate higher selling expenses as a percentage of sales than stores that have been open for more than three years since fixed costs, as a percent of sales, are higher in the early sales maturation period. The increase in selling expenses as a percentage of sales is also explained by the decrease in retail comparable sales in stores opened prior to 2002 and to a decrease in catalog and Internet sales.

      Segment profitability is sales less cost of sales and selling expenses. Segment profitability for our wholesale operations, including international operations, was $115.6 million or 42.7% of wholesale sales in 2004 compared to $101.6 million or 42.0% of wholesale sales in 2003. Segment profitability for our retail operations was $76.7 million or 27.1% of retail sales in 2004 compared to $76.0 million or 28.5% of retail sales in 2003. The increase in wholesale segment profitability was primarily attributable to increased wholesale sales and increased wholesale gross profit dollars and rate. The increase in retail segment profitability in dollars was primarily attributable to increased retail sales and increased gross profit dollars and rate. The decrease in retail segment profitability as a percentage of retail sales was primarily attributable to decreased profitability in our catalog and Internet operations and to a lesser extent decreased profitability in our 90,000 square foot South Deerfield, Massachusetts flagship store.

      General and administrative expenses, which consist primarily of personnel-related costs, increased 4.9% to $53.0 million in 2004 from $50.6 million in 2003. As a percentage of sales, general and administrative expenses decreased to 9.6% from 9.9%. The increase in general and administrative expense in dollars in 2004 compared to 2003 was primarily attributable to labor costs associated with new hires made during 2004 and to an increase in stock-based compensation expense in 2004 compared to 2003. The decrease in general and administrative expense as a percentage of sales for 2004 compared to 2003 was primarily due to the Company’s leveraging of these expenses over a larger sales base.

      Net other expense was $2.7 million in 2004 compared to $3.4 million in 2003. The primary component of this expense was interest expense, which was $4.2 million in 2004 compared to $3.8 million in 2003. The average daily debt outstanding increased in 2004 compared to 2003 primarily due to

borrowings associated with repurchases of our common stock. The impact of the higher average debt outstanding was offset in part by a reduction in borrowing rates under our credit facility. In 2004, the Company also reduced certain non-income tax related reserves that had been recorded in 2003 within other (income) expense.

      The income tax provision for 2004 was $54.0 million compared to $48.8 million for 2003. The 2004 and 2003 tax provisions resulted in an effective tax rate of 39.5%. We have provided and expect to provide in 2005 a valuation allowance against the deferred tax asset for our international operations. As a result, it is anticipated that our effective tax rate for 2005 will be approximately 39.5%. We re-evaluate our effective tax rate on a quarterly basis.

Fifty-Three Weeks Ended January 3, 2004 (“2003”) Compared to Fifty-Two Weeks Ended December 28, 2002 (“2002”)

      The fiscal year ended January 3, 2004 consisted of 53 weeks, while the fiscal years ended December 28, 2002 and December 29, 2001 consisted of 52 weeks.

      Sales increased 14.3% to $508.6 million in 2003 from $444.8 million in 2002. The additional 53rd week in 2003 contributed $5.2 million and $1.1 million in retail and wholesale sales, respectively. Wholesale sales, including international operations, increased 18.1% to $242.0 million in 2003 from $204.9 million for 2002. This growth was achieved primarily by increasing sales to existing customers and to a lesser extent by increasing the number of wholesale locations.

      Retail sales increased 11.1% to $266.6 million in 2003 from $239.9 million for 2002. There were 286 retail stores open as of January 3, 2004 compared to 239 stores open at December 28, 2002. The increase in retail sales was achieved primarily through the addition of 49 new stores in 2003 and to a lesser extent increased sales in the 47 stores opened in 2002 (which in 2002 were open for less than a full year), partially offset by a decrease in comparable store sales. Comparable store and catalog and Internet sales in 2003 decreased 4% compared to 2002. Retail comparable store sales in 2003 decreased 4% compared to 2002. We believe the primary factor contributing to the decrease in comparable store sales was a decline in store traffic, and mall traffic generally. Comparable store sales were also negatively impacted in 2003 due to the President’s Day (February 16-17) snowstorm which affected most of our store base in the Eastern half of the United States and successive weekend snowstorms in early December. Comparable store sales represent a comparison of the sales, during the corresponding fiscal periods of the two fiscal years compared, of the stores included in our comparable store sales base. A store first enters our comparable store sales base in the fourteenth fiscal month of operation. There were 237 stores included in the comparable store base at the end of 2003, and 47 of these stores were included for less than a full year.

      Gross profit increased 17.3% to $293.3 million in 2003 from $250.1 million in 2002. As a percentage of sales, gross profit increased to 57.7% in 2003 from 56.2% in 2002. The increase in gross profit dollars in 2003 compared to 2002 was primarily attributable to the increase in sales and more efficient supply chain operations. The improvement in gross profit rate in 2003 compared to 2002 was primarily due to continued productivity improvements in supply chain operations and more efficient sourcing of non-manufactured product.

      Selling expenses increased 19.7% to $115.8 million in 2003 from $96.7 million in 2002. 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 22.8% in 2003 and 21.7% in 2002. 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 239 as of December 28, 2002 to 286 as of January 3, 2004, 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. The increase in selling expense as a percentage of sales for 2003 is also 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. Selling expenses were also unfavorably impacted by the $1.0 million bad debt provision the Company recognized in the fourth quarter of 2003 related to the failure of our former Canadian distributor to pay to us amounts due and payable for product shipped.

      Segment profitability is sales less cost of sales and selling expenses. Segment profitability for our wholesale operations, including international operations, was $101.6 million or 42.0% of wholesale sales in 2003 compared to $87.2 million or 42.6% of wholesale sales in 2002. Segment profitability for our retail operations was $76.0 million or 28.5% of retail sales in 2003 compared to $66.2 million or 27.6% of retail sales in 2002. The increase in wholesale segment profitability in dollars was primarily attributable to increased wholesale sales. The decrease in wholesale segment profitability as a percentage of wholesale sales was primarily due to a $1.0 million bad debt provision the Company recognized in the fourth quarter of 2003 related to the failure of our former Canadian distributor to pay to us amounts due and payable for product shipped. The increase in retail segment profitability in dollars and as a percentage of retail sales was primarily attributable to increased retail sales and improved supply chain operations, offset in part by a decrease in retail comparable store sales and the impact of our most immature stores, the 2003 and 2002 store classes.

      General and administrative expenses, which consist primarily of personnel-related costs, increased 16.1% to $50.6 million in 2003 from $43.5 million in 2002. As a percentage of sales, general and administrative expenses increased to 9.9% from 9.8%. The increase in general and administrative expenses was primarily attributable to headcount additions in the latter part of 2002 and in 2003, consulting costs related to a strategic planning project that began in late February 2003, stock-based compensation expense, profit sharing expense and to a lesser extent increased insurance costs associated with the Company’s Directors and Officers insurance policy.

      In 2003, we adopted the fair value recognition provisions of SFAS No. 123. Under the prospective transition method selected by us as described in SFAS No. 148, all stock option grants beginning with grants made in fiscal 2003 are being expensed over the vesting period, based on the fair value at the date of the grant. This resulted in $0.6 million of incremental stock compensation expense in 2003.

      Net other expense was $3.4 million in 2003 compared to $4.4 million in 2002. The primary component of this expense was interest expense, which was $3.8 million in 2003 compared to $4.9 million in 2002. The decrease in interest expense in 2003 compared to 2002 was primarily the result of the reduction in the average daily debt outstanding.

      The income tax provision for 2003 was $48.8 million compared to $41.4 million for 2002. The 2003 and 2002 tax provisions resulted in an effective tax rate of 39.5% and 39.3%, respectively. We have provided a valuation allowance against the deferred tax asset for our international operations.

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 cash flow from operations of approximately $327 million, including approximately $121 million in 2004. These amounts have exceeded net income in all the fiscal years presented due primarily 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. This tax deduction is expected to continue to provide an annual cash benefit for the next nine 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. On June 7, 2004, we acquired substantially all of the assets of GBI Marketing, Inc., a privately owned and operated distributor of selected gift products, including Yankee Candle® products, to fundraising organizations. The total cash purchase price was approximately $11.6 million. Capital expenditures in 2004 were $28.9 million and were primarily related to the capital requirements to open 60 new stores and investments in manufacturing and logistics operations. Capital expenditures were approximately $22.0 million in 2003 and primarily related to similar expenditures. We anticipate that capital expenditures in 2005 will total approximately $38.1 million, including approximately $13.2 million to open a new 65,000 square foot flagship store in Williamsburg, Virginia. The remaining $24.9 million is expected to be spent in a similar manner as in 2004. We plan to open approximately 46 new stores in 2005, including the Williamsburg, Virginia flagship store.

      On May 19, 2004, we entered into a new $200 million senior unsecured revolving credit facility (the “Credit Facility”) with Citizens Bank of Massachusetts and a syndicate of lenders. This Credit Facility has two Tranches, a $150 million Tranche (“Tranche A”) that expires on May 19, 2007 and a $50 million Tranche (“Tranche B”) that expires on May 18, 2005. The Credit Facility replaced the $150 million revolving credit facility that was scheduled to expire on July 7, 2004. This Credit Facility is being used for, among other things, working capital, letters of credit, repurchase of the our common stock and other general corporate purposes.

      Amounts outstanding under the Credit Facility bear interest at a rate equal to, at the Company’s option, the Citizens Bank Base Rate, or Eurodollar Rate. Eurodollar borrowings under Tranche A of the Credit Facility include a margin rate ranging from 0.70% to 1.00% and borrowings under Tranche B include a margin rate ranging from 0.75% to 1.05%. These rates vary depending on the Company’s outstanding borrowings. In addition, the Company is required to pay the lenders a quarterly commitment fee on the unused revolving loan commitment amount. The commitment fee under Tranche A ranges from 0.15% to 0.25% and under Tranche B ranges from 0.10% to 0.20%. Fees for outstanding commercial and standby letters of credit range from 0.70% to 1.00%. The Company is also required to pay a utilization fee on the total Credit Facility of 0.125% once outstanding borrowings exceed $100 million. The Credit Facility requires that the Company comply with several financial and other covenants, including requirements that the Company maintain at the end of each fiscal quarter the following financial ratios as set forth in the Credit Facility:

      Our Credit Facility defines EBITDA as our consolidated net income, plus the amount of net interest expense, depreciation and amortization, income taxes, and certain non-cash compensation expenses.

      The Credit Facility permits the payment of cash dividends by the Company of up to 50% of the current fiscal year’s net income and the repurchase of the Company’s shares, so long as the Company’s Consolidated Net Worth (as defined in the Credit Facility) is not less than the required amount stated therein. In order to declare or pay dividends in fiscal 2005, our Consolidated Net Worth must not be less than the sum of $100 million, plus 25% of our fiscal 2004 net income, plus 25% of net income for each fiscal quarter thereafter. Our net income for fiscal 2004 was $82.7 million, and 25% of 2004 net income was therefore approximately $20.7 million. As of January 1, 2005, the Company’s net worth was approximately $179.7 million, in excess of the $120.7 million required under our Credit Facility for the declaration or payment of dividends. We anticipate that the Company’s net worth as of June 1, 2005, the date on which the first semi-annual payment is scheduled to be made, will likewise exceed the required amount under our Credit Facility. While it is our current intention to pay annual cash dividends in years following 2005, any decision to pay future cash dividends will be made by our Board of Directors and will depend upon our earnings, financial condition and other factors.

      As of January 1, 2005, $75 million was outstanding under the revolving credit facility and $1.0 million was outstanding for letters of credit, leaving $124 million in availability. As of January 1, 2005, we were in compliance with all covenants under the Credit Facility.

      In addition to obligations to repay our debt obligations, 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:

      On February 12, 2004 we announced that our Board of Directors had approved a stock repurchase program authorizing us to repurchase up to $100 million of Yankee Candle common stock. During fiscal 2004, we repurchased a total of 3,480,419 shares of common stock for an aggregate purchase price of approximately $100 million. Our repurchase activities were funded from cash flow from operations and borrowings under our existing Credit Facility. On December 7, 2004, we announced that our Board of Directors had authorized a new stock repurchase program for the repurchase of up to an additional $100 million of our common stock. Purchase activity under this program commenced on February  22, 2005.

      We expect that the principal sources of funding for our planned store openings and other working capital needs, capital expenditures, debt service obligations and stock repurchase program will be a combination of our available cash and cash equivalents, cash generated from operations, and borrowings under our Credit Facility. We believe that our current cash and cash equivalents and sources of cash will

be sufficient to fund our liquidity needs for at least the next 12 months. However, there are a number of factors that may negatively impact our available sources of cash. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan and worldwide economic conditions. In addition, borrowings under our Credit Facility are dependent upon our continued compliance with the financial and other covenants contained therein.

Accounting Change in 2003

      We sponsor certain stock option plans. Prior to the third quarter of 2003, we accounted for employee options or share awards under the intrinsic-value method prescribed by APB Opinion No. 25 “Accounting for Stock Issued to Employees.” Compensation expense, if any, was recognized based on the difference between the fair value of the common stock and the exercise price of the option on the measurement date, as defined by APB Opinion No. 25. Pro forma disclosures of net earnings and earnings per share had been provided supplementally, as if the fair value method of accounting defined in SFAS No. 123 “Accounting for Stock Based Compensation” had been applied. Effective September 27, 2003, we adopted the fair value recognition provisions of SFAS No. 123 using the prospective transition method provided by SFAS No. 148 “Accounting for Stock Based Compensation — Transition and Disclosure, an amendment of SFAS No. 123.” Under the prospective transition method, we have valued all stock option grants beginning with grants made in fiscal 2003. These are being expensed over the vesting period based on the fair value at the date of the grant. The adoption of the fair value method of accounting for stock-based compensation resulted in a charge of $1.6 million and $0.6 million for the fiscal years ended January 1, 2005 and January 3, 2004, respectively.

Recent Accounting Pronouncements

      In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151 “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (SFAS 151). The standard clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June  15, 2005. We do not believe adoption of SFAS No. 151 will have a material effect on our financial statements.

      In December 2004, the FASB issued SFAS No. 123(R). This statement revises FASB Statement No. 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R)requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. The provisions of this Statement are effective for the first interim reporting period that begins after June 15, 2005. Under the prospective transition method, we have valued all stock option grants beginning with grants made in fiscal 2003. These are being expensed over the vesting period based on the fair value at the date of the grant. Accordingly, we will adopt SFAS No. 123(R) using the modified prospective method commencing with the quarter ending October 1, 2005 for all stock option grants awarded prior to 2003. We estimate that the adoption of SFAS No. 123(R) will result in future additional compensation charges of approximately $0.3 million during fiscal 2005 and there will be no impact to cash flow from operations. The pro forma table in Note 2 of the Notes to the Consolidated Financial Statements illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123 to stock option grants awarded prior to 2003.

      In December 2004, the FASB issued FASB Staff Position No. 109-1, “Application of FASB Statement No. 109 (SFAS 109), Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (FSP 109-1). FSP 109-1 clarifies that the manufacturer’s deduction provided for under the American Jobs Creation Act of 2004 (AJCA) should be accounted for as a special deduction in accordance with SFAS 109 and not as a tax rate reduction. We have not completed the process of evaluating the impact that will result from adopting this statement and are therefore unable to disclose the impact that adopting FSP 109-1 will have on our financial position and results of operations.

      The FASB also issued FASB Staff Position No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (FSP 109-2). The AJCA introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. FSP 109-2 provides accounting and disclosure guidance for the repatriation provision. We do not believe adoption of FSP 109-2 will have a material effect on our financial statements.

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.

      We intend to continue to pursue a business strategy of increasing sales and earnings by expanding our retail and wholesale operations both in the United States and internationally. Because our ability to implement our growth strategy successfully will be dependent in part on factors beyond our control, including consumer preferences, macro-economic conditions, the competitive environment in the markets in which we compete and other factors, we may not be able to achieve our planned growth or sustain our financial performance. Our ability to anticipate changes in the candle, home fragrance and giftware industries, and identify industry trends, will be critical factors in our ability to grow as planned and remain competitive.

      We expect that, as we continue to grow, it will become more difficult to maintain our historical growth rate, which could negatively impact our operating margins and results of operations. New stores typically generate lower operating margin contributions than mature stores because fixed costs, as a percentage of sales, are higher and because pre-opening costs are fully expensed in the year of opening. In addition, our retail sales generate lower margins than our wholesale sales. Our wholesale business has grown by increasing sales to existing customers and by adding new customers. If we are not able to continue this, our sales growth and profitability could be adversely affected. In addition, as we expand our wholesale business into new channels of trade that we believe to be appropriate, sales in some of these new channels may, for competitive reasons within the channels, generate lower margins than do our existing wholesale sales. Similarly, as we continue to broaden our product offerings in order to meet consumer demand, we may do so in part by adding products that, while still very profitable, have lower product margins than those of our extremely profitable core candle products. We cannot assure you that we will continue to grow at a rate comparable to our historic growth rate or that our historic financial performance will continue as we grow.

      Our retail growth strategy depends in large part on our ability to successfully open new stores in both existing and new geographic markets. For our growth strategy to be successful, we must identify and lease favorable store sites on favorable economic terms, hire and train managers and associates and adapt management and operational systems to meet the needs of our expanded operations. These tasks may be difficult to accomplish successfully. If we are unable to open new stores as quickly as planned, then our future sales and profits could be materially adversely affected. Even if we succeed in opening new stores,

these new stores may not achieve the same sales or profit levels as our existing stores. Also, our retail growth strategy includes opening new stores in markets where we already have a presence so we can take advantage of economies of scale in marketing, distribution and supervision costs, or the opening of new malls or centers n the market. However, these new stores may result in the loss of sales in existing stores in nearby areas, thereby negatively impacting our comparable store sales. Our retail growth strategy also depends upon our ability to successfully renew the expiring leases of our profitable existing stores. If we are unable to do so at planned levels and upon favorable economic terms, then our future sales and profits could be negatively affected.

      We compete generally for the disposable income of consumers with other producers and retailers in the giftware industry. The giftware industry is highly competitive with a large number of both large and small participants and relatively low barriers to entry. Our products compete with other scented and unscented candle, home fragrance and personal care products and with other gifts within a comparable price range, like boxes of candy, flowers, wine, fine soap and related merchandise. Our retail stores compete primarily with specialty candle retailers and a variety of other retailers including department stores, gift stores and national specialty retailers that carry candles along with personal care items, giftware and houseware. In addition, while we focus primarily on the premium scented candle segment, scented and unscented candles are also sold outside of that segment by a variety of retailers including mass merchandisers. In our wholesale business, we compete with numerous manufacturers and importers of candles, home fragrance products and other home décor and gift items for the limited space available in our wholesale customer locations for the display and sale of such products to consumers. Some of our competitors are part of large, diversified companies which have greater financial resources and a wider range of product offerings than we do. Many of our competitors source their products from low cost manufacturers outside of the United States. This competitive environment could adversely affect our future revenues and profits, financial condition and liquidity and our ability to continue to grow our business.

      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.

      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.

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

and complexity we must be able to continue to attract, develop and retain qualified personnel sufficient to allow us to adequately manage and grow our business. If we are unable to do so, our operating results could be negatively impacted. We cannot guarantee that we will be able to attract and retain personnel as and when necessary in the future.

      Approximately 74% of our sales in 2004 were generated by products we manufacture at our manufacturing facility in Whately, Massachusetts and we rely primarily on our distribution facilities in South Deerfield, Massachusetts to distribute our products. Because most of our machinery is designed or customized by us to manufacture our products, and because we have strict quality control standards for our products, the loss of our manufacturing facility, due to natural disaster or otherwise, would materially affect our operations. Similarly, our distribution facilities rely upon customized machinery, systems and operations, the loss of which would materially affect our operations. Although our manufacturing and distribution facilities are adequately insured, we believe it would take up to twelve months to resume operations at a level equivalent to current operations.

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

      Approximately 11% of our sales in 2004 were generated by products, primarily accessories, that we purchased overseas. Substantially all of these products were purchased from East Asia. A sustained interruption of the operations of our suppliers, as a result of the impact of Severe Acute Respiratory Syndrome or other similar health epidemics, natural disasters such as the 2004 tsunami, or other factors could have an adverse effect on our ability to receive timely shipments of certain of our products.

      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:

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

      A class action lawsuit has been filed against us for alleged violations of certain California state wage and hour and employment laws with respect to certain employees in our California retail stores. This complaint was filed in February 2005 and we have therefore only begun to investigate the allegations and have yet to file our answer. While we intend to vigorously defend ourselves against the allegations, it is too early in the litigation process for us to fully evaluate or predict the outcome of the litigation.

      Our market risks relate primarily to changes in interest rates. We bear this risk in two specific ways. First, we have debt outstanding. At January 1, 2005, we had $75 million outstanding under our Credit Facility, which bears interest at variable rates. At January 1, 2005, the weighted-average interest rate on outstanding borrowings was 2.8%. This facility is intended to fund operating needs and stock repurchases if necessary. Because this facility carries a variable interest rate pegged to market indices, our results of operations and cash flows will be exposed to changes in interest rates. Based on January 1, 2005 borrowing levels, a 1.00% increase or decrease in current market interest rates would have the effect of causing an approximately $0.8 million additional annual pre-tax charge or credit to the statements of income.

      The second component of interest rate risk involves the short-term investment of excess cash. This risk impacts fair values, earnings and cash flows. Excess cash is primarily invested in interest bearing accounts that fluctuate with market interest rates. Based on January 1, 2005 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 income.

      We buy a variety of raw materials for inclusion in our products. The only raw material that is considered to be of a commodity nature is wax. Wax is a petroleum-based product. However, its market price has not historically fluctuated with the movement of oil prices and has instead generally moved with inflation. In 2004, however, significant increases in the price of crude oil resulted in corresponding increases in the price of petroleum-based wax. These crude oil price increases also negatively impacted our transportation costs. Future significant increases in wax prices could have an adverse affect on our cost of goods sold and could lower our margins.

      At this point in time, operations outside of the United States are immaterial. Accordingly, we are not exposed to substantial risks arising from foreign currency exchange rates.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE

CONSOLIDATED FINANCIAL STATEMENTS

Board of Directors and Stockholders

The Yankee Candle Company, Inc.

South Deerfield, Massachusetts

      We have audited the accompanying consolidated balance sheets of The Yankee Candle Company, Inc. and subsidiaries (the “Company”) as of January 1, 2005 and January 3, 2004, and the related consolidated statements of income, stockholders’ equity and cash flows for the fifty-two weeks ended January 1, 2005, the fifty-three weeks ended January 3, 2004 and the fifty-two weeks ended December 28, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 January 1, 2005 and January 3, 2004, and the related consolidated statements of income, stockholders’ equity and cash flows for the fifty-two weeks ended January 1, 2005, the fifty-three weeks ended January 3, 2004 and the fifty-two weeks ended December 28, 2002 in conformity with accounting principles generally accepted in the United States of America.

      As described in Note 2 to the financial statements, the Company changed its method of accounting for stock-based compensation to conform to the provisions of Statement of Financial Accounting Standard No. 123 “Accounting for Stock-Based Compensation” and No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure” during the year ended January 3, 2004.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of January 1, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

March 4, 2005

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

See notes to consolidated financial statements.

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

See notes to consolidated financial statements.

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

See notes to consolidated financial statements.

THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)