<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-22018
CELESTIAL SEASONINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1097571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 SLEEPYTIME DRIVE, BOULDER CO 80301-3292
(Address of principal executive offices, including zip code)
(303) 530-5300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of January 31, 1997 the Registrant had 4,050,916 shares of
Common Stock, $0.01 Par Value, outstanding. This report on Form
10-Q contains 14 pages.
<PAGE>
CELESTIAL SEASONINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION
- ------------------------------
PAGE(S)
-------
ITEM 1. FINANCIAL STATEMENTS
Unaudited consolidated income 3
statements
Unaudited consolidated balance 4
sheets
Unaudited consolidated statements of 5
cash flows
Notes to unaudited consolidated 6-7
financial statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8-10
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
PAGE 2
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Case volume 1,439 1,422
Net sales $25,673 $23,632
Cost of goods sold 9,074 8,750
------- -------
Gross profit 16,599 14,882
Operating expenses:
Selling and marketing 11,715 10,150
General and administrative 980 1,052
Amortization of intangibles 326 386
------- -------
Total operating expenses 13,021 11,588
Operating income 3,578 3,294
Interest expense 181 256
------- -------
Income before income taxes 3,397 3,038
Income taxes 1,359 1,186
------- -------
Net income $ 2,038 $ 1,852
======= =======
Net income per common share $ 0.49 $ 0.45
======= =======
Weighted average common shares 4,122 4,095
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 3
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,374 $ 204
Accounts receivable, net of allowance
(Dec. - $239 Sept. - $148) 10,087 8,133
Inventory 6,723 6,808
Deferred income taxes 71 7
Prepaid income taxes - 470
Prepaid expenses 644 889
-------- -------
Total current assets 19,899 16,511
Property, plant and equipment, net 16,872 16,871
Intangible assets, net 13,314 13,514
Goodwill, net 6,360 6,430
Deferred income taxes 215 287
Other assets 1,235 1,290
------- -------
Total assets $57,895 $54,903
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,587 $ 3,754
Accrued liabilities and wages 5,380 4,462
Accrued income taxes 874 -
Accrued interest payable 43 52
Current portion of long-term debt 367 361
------- -------
Total current liabilities 12,251 8,629
Long-term debt 6,365 9,057
Commitments
Stockholders' equity:
Common stock, $.01 par value -
authorized 15,000,000 shares;
Dec. - issued 4,055,916 shares,
outstanding 4,050,916 shares
Sept. - issued 4,054,472 shares,
outstanding 4,049,472 shares 41 41
Capital surplus 33,314 33,290
Retained earnings 6,019 3,981
Treasury stock, 5,000 shares of common
stock at cost (95) (95)
------- -------
Total stockholders' equity 39,279 37,217
------- -------
Total liabilities and stockholders' equity $57,895 $54,903
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 4
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,038 $ 1,852
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 273 247
Amortization of intangibles 326 386
Amortization of financing fees 50 56
Deferred income taxes 8 -
Changes in operating assets and liabilities:
Accounts receivable (1,954) (3,180)
Inventory 85 (280)
Prepaid expenses 245 120
Accounts payable 1,833 3,386
Accrued liabilities and wages 918 167
Accrued income taxes 1,344 589
Accrued interest payable (9) (6)
------- -------
Net cash provided by operating activities 5,157 3,337
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (274) (433)
Increase in intangible assets (56) (129)
Decrease in other assets 5 77
------- -------
Net cash used in investing activities (325) (485)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 24 29
Increase in long-term debt 2,285 800
Reduction in long-term debt (4,971) (3,338)
------- -------
Net cash used in financing activities (2,662) (2,509)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,170 343
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 204 375
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,374 $ 718
======= =======
CASH PAID FOR INTEREST $ 133 $ 193
CASH PAID FOR INCOME TAXES $ 6 $ 597
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 5
<PAGE>
CELESTIAL SEASONINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Basis of Presentation - Each fiscal quarter includes
thirteen weeks. The Company's first fiscal quarter ends on
the last Saturday of December. For presentation purposes,
however, the first fiscal quarter is presented as if it
ended on December 31.
The unaudited consolidated financial statements include
the accounts of the Company and its subsidiaries.
Intercompany balances have been eliminated in consolidation.
Certain reclassifications have been made to the Company's
fiscal 1996 financial statements to conform them to fiscal
1997 classifications.
Interim Financial Information - The financial
information contained herein is unaudited but includes all
normal and recurring adjustments which, in the opinion of
management, are necessary to present fairly the information
set forth. The unaudited consolidated financial statements
should be read in conjunction with the consolidated
financial statements which are included in the Company's
Annual Report on Form 10-K for the year ended September 30,
1996. The Company's business is seasonal; therefore, results
for interim periods are not necessarily indicative of
results to be expected for the fiscal year of the Company
ending September 30, 1997. The Company believes that this
Quarterly Report filed on Form 10-Q is representative of its
financial position, its results of operations and its cash
flows for the periods ended December 31, 1996 and 1995
covered thereby.
2. DETAIL OF INVENTORY ACCOUNTS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
Raw materials and supplies $4,784 $4,486
Work in process 711 888
Finished goods 1,718 1,665
------ ------
7,213 7,039
Less inventory reserves 490 231
------ ------
Total $6,723 $6,808
====== ======
</TABLE>
PAGE 6
<PAGE>
3. LEGAL PROCEEDINGS
On May 5, 1995, a purported stockholder of the Company
filed a lawsuit, Schwartz v. Celestial Seasonings, Inc. et. al.,
----------------------------------------------
in the United States District Court for the District of
Colorado (Civil Action Number: 95-K-1045), in connection
with disclosures by the Company concerning the Company's
license agreement with Perrier Group of America, Inc. which
was terminated on January 1, 1995. In addition to the
Company, the complaint names as defendants certain of the
Company's present and former directors and officers,
PaineWebber, Inc., Shearson/Lehman Brothers, Inc., and
Vestar/Celestial Investment Limited Partnership. The
complaint, which was pled as a class action on behalf of
persons who acquired the Company's common stock from July
12, 1993 through May 18, 1994, sought money damages from the
Company and the other defendants for the class in the amount
of their loss on their investment in the Company's common
stock, punitive damages, costs and expenses of the action,
and such other relief as the court may order.
On November 6, 1995, the federal district court granted
a motion by the Company and the other defendants to dismiss
the case. The court's order became final on December 11,
1995, after the plaintiff failed to amend the complaint
within the time permitted by the district court. The
plaintiff has appealed the district court's decision to the
United States Court of Appeals for the Tenth Circuit. Due to
the uncertainties inherent in the litigation process, the
Company is unable to predict the outcome of this matter.
PAGE 7
<PAGE>
CELESTIAL SEASONINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEASONALITY
The Company's business is seasonal and its quarterly results of
operations reflect the results of increased demand for the Company's
hot tea products in the cooler months of the year. The following
table sets forth selected unaudited quarterly consolidated financial
and operational data for the five most recent quarters.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------
Fiscal 1997 Fiscal 1996
----------- ----------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
----------- ---------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Case sales 1,439 832 647 1,437 1,422
Net sales $25,673 $14,587 $10,829 $23,950 $23,632
Gross profit 16,599 8,536 5,840 15,195 14,882
Operating income (loss) 3,578 906 (139) 4,929 3,294
Operating margin 13.9% 6.2% (1.3)% 20.6% 13.9%
Net income (loss) $ 2,038 $ 466 $ (136) $ 2,841 $ 1,852
Percent of fiscal year
net sales N/A 20.0% 14.8% 32.8% 32.4%
</TABLE>
The Company has experienced quarterly fluctuations in sales
volume and operating results when compared to previous years due to a
number of factors, including the timing of trade promotions,
advertising and consumer promotional expenditures. The Company, as
is common in the tea industry, offers trade promotions for limited
time periods on specific items in order to provide incentives for the
purchase and promotion of products. The impact on case sales from
period to period due to the timing and extent of such trade
promotions can be significant.
RESULTS OF OPERATIONS
The following table is derived from the Company's unaudited
consolidated statements of operations for the periods indicated and
presents (i) the results of operations as a percentage of net sales
and (ii) the percentage change in the dollar amounts of each item
from the prior period.
<TABLE>
<CAPTION>
Period-to-Period
Percentage of Net Sales Increase/(Decrease)
----------------------- -------------------
Three Months Ended Three Months Ended
December 31, December 31,
------------------ ------------------
1996 1995 1996 to 1995
-------- -------- ------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 8.6%
Cost of goods sold 35.3 37.0 3.7
----- -----
Gross profit 64.7 63.0 11.5
Selling and marketing 45.6 43.0 15.4
General and administrative 3.8 4.5 (6.8)
Amortization of intangibles 1.3 1.6 (15.5)
----- -----
Operating income 14.0 13.9 8.6
Interest expense 0.7 1.1 (29.3)
----- -----
Income before income taxes 13.3 12.8 11.8
Income taxes 5.3 5.0 14.6
----- -----
Net income 8.0% 7.8% 10.0%
===== =====
</TABLE>
PAGE 8
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1995
Net sales. Net sales for the three months ended December 31,
1996 increased 8.6% to $25.7 million from $23.6 million for the
comparable period in fiscal 1996. Case sales increased 1.2% to
1,439,000 cases from 1,422,000 cases. Case sales growth was the
result of a 3.9% increase in sales of the Company's herb and
specialty black dry tea products and the contribution of
nutraceutical product sales. Net sales of dry tea products for fiscal
1997 reflect a price increase which was implemented during the third
quarter of fiscal 1996. The Company's nutraceutical products
contributed net sales of approximately $0.7 million during the first
quarter of fiscal 1997, a 73.7% increase from fiscal 1996. Fiscal
1996 case and net sales reflect sales of bottled iced tea, a product
now licensed to Royal Crown Company, Inc. and not included in the
comparable period of fiscal 1997.
Gross profit. Gross profit for the three months ended December
31, 1996 increased 11.5% to $16.6 million from $14.9 million for the
comparable period in fiscal 1996. The Company's gross profit margin
increased to 64.7% from 63.0% for the comparable prior year period.
The increase in gross margin is primarily due to increased sales of
the Company's higher margin hot herb tea products in its more
profitable channels of distribution. In addition, the Company's
nutraceutical products realized higher gross margins during fiscal
1997, as compared to fiscal 1996, due to greater efficiencies.
Selling and marketing expenses. Selling and marketing expenses
for the three months ended December 31, 1996 increased 15.4% to $11.7
million from $10.2 million for the comparable period in fiscal 1996,
and increased as a percentage of net sales to 45.6% from 43.0%. The
increase in selling and marketing expenses primarily was due to
increased advertising and trade promotion expenses.
General and administrative expenses. General and administrative
expenses for the three months ended December 31, 1996 decreased 6.8%
from the comparable period in fiscal 1996, and decreased as a
percentage of net sales to 3.8% from 4.5%. The decrease was
primarily due to temporary reductions and spending controls
implemented by the Company which resulted in reduced expenses in
several areas.
Amortization of intangibles. Amortization of intangibles,
including amortization of goodwill and other intangible assets for
the three months ended December 31, 1996, decreased 15.5% from the
comparable period in fiscal 1996. Amortization of intangibles was
lower for fiscal 1997, as compared to fiscal 1996, as certain
intangible assets became fully amortized or were written off. These
reductions were partially offset by increases in amortization on new
additions to artwork and plates resulting from the Company's
continued development of new products and improved packaging
Operating income. Operating income for the three months ended
December 31, 1996, increased 8.6% to $3.6 million from $3.3 million
for the comparable period in fiscal 1996. Operating income as a
percentage of net sales remained relatively unchanged.
Interest expense. Interest expense for the three months ended
December 31, 1996 declined 29.3% from the comparable period in fiscal
1996 primarily as a result of reduced outstanding borrowings. The
Company extinguished its bank debt during the quarter. Interest
expense for the three months ended December 31, 1996 primarily
relates to Industrial Revenue Bonds which are secured by the
Company's facility and fees relating to continued availability of the
Company's bank credit facility.
Income taxes. Income tax expense for the three months ended
December 31, 1996 increased 14.6% from the comparable period in
fiscal 1996, primarily due to increased pre-tax income.
PAGE 9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The operations of the Company historically have been funded with
a combination of internally generated funds and external borrowings.
Purchases of inventory, marketing expenditures and support of
accounts receivable have historically been, and are expected to
remain, the Company's principal recurring uses of funds for the
foreseeable future. The Company's other principal uses of funds in
the future will be the development of new or existing products,
including the Company's iced teas and nutraceutical products, and the
possible acquisition of brands, product lines or other assets. The
Company expects its primary sources of financing for its future
business activities will be funds from operations plus borrowings
under the credit facility. The Company currently believes that funds
from operations and funds expected to be available under the
Company's credit facility are likely to be sufficient to meet
operating and capital requirements unless a significant acquisition
is made.
Cash and cash equivalents increased $2.2 million for the three
months ended December 31, 1996. Cash provided by operating activities
was $5.2 million for the three months ended December 31, 1996. The
Company's investing and financing activities used cash of $0.3
million and $2.7 million, respectively, for the three months ended
December 31, 1996.
The Company incurred capital expenditures of approximately
$330,000 during the three months ended December 31, 1996, including
$274,000 primarily for factory and computer equipment and $56,000 for
the design and development of new packaging artwork. The Company
anticipates making capital expenditures of approximately $1.75 to
$2.0 million in fiscal 1997.
OTHER DEVELOPMENTS
The Company incurred legal expenses of approximately $400,000
during the quarter associated with a lawsuit against a competitor
relating to trade dress infringement and unfair competition claims.
On January 13, 1997, judgment was entered in the United States
District Court for the District of Colorado which absolved the
competitor of any claims, and there were no monetary damages
assessed. The Company believes that additional legal costs associated
with this lawsuit are not expected to exceed $300,000.
The statements contained in this Quarterly Report on Form 10-Q
which are not historical facts, including, but not limited to,
statements found under the captions "Results of Operations,"
"Liquidity and Capital Resources" and "Other Developments" above, are
forward-looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in
such forward-looking statements could differ materially from those
stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are the risks and uncertainties
discussed in this Quarterly Report, including, without limitation,
the portions of such reports under the captions referenced above, and
the uncertainties set forth from time to time in the Company's
filings with the Securities and Exchange Commission, and other public
statements. Such risks and uncertainties include, without limitation,
seasonality, interest in the Company's products, general economic
conditions, consumer trends, costs and availability of raw materials,
competition and the effect of governmental regulation.
PAGE 10
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The information in Note 3 to the Unaudited Consolidated Financial
Statements included in Part I is incorporated herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
--------
Exhibit No. Description
- ----------- -----------
23.1 - Report of Deloitte & Touche LLP on consolidated
financial statements
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K for the quarter ended December 31, 1996.
PAGE 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CELESTIAL SEASONINGS, INC.
(Registrant)
February 7, 1997 By: /s/ Darrell F. Askey
---------------------
Darrell F. Askey
Vice President - Finance, Secretary and
Treasurer
(Principal Financial Officer)
PAGE 12
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
Sequentially
Exhibit Numbered
No. Description Pages
- ------- ----------- ------------
23.1 - Report of Deloitte & Touche LLP on 14
consolidated financial statements
PAGE 13
Exhibit 23.1
INDEPENDENT ACCOUNTANTS' REPORT
Celestial Seasonings, Inc.:
We have reviewed the accompanying consolidated balance sheet of
Celestial Seasonings, Inc. and subsidiaries (the "Company") as of
December 31, 1996 and the related consolidated statements of income
and cash flows for the three-month period ended December 31, 1996 and
1995. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such consolidated financial statements for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of the Company and
subsidiaries as of September 30, 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated
November 4, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of
September 30, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
Deloitte & Touche LLP
Denver, Colorado
January 15, 1997
PAGE 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CELESTIAL SEASONINGS, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,374
<SECURITIES> 0
<RECEIVABLES> 10,326
<ALLOWANCES> (239)
<INVENTORY> 6,723
<CURRENT-ASSETS> 19,899
<PP&E> 26,550
<DEPRECIATION> (9,678)
<TOTAL-ASSETS> 57,895
<CURRENT-LIABILITIES> 12,251
<BONDS> 6,365
0
0
<COMMON> 41
<OTHER-SE> 39,238
<TOTAL-LIABILITY-AND-EQUITY> 57,895
<SALES> 25,673
<TOTAL-REVENUES> 25,673
<CGS> 9,074
<TOTAL-COSTS> 9,074
<OTHER-EXPENSES> 13,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> 3,397
<INCOME-TAX> 1,359
<INCOME-CONTINUING> 2,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,038
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
