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 March 31, 1999
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 April 30, 1999 the Registrant had 8,318,283 shares of
Common Stock, $0.01 Par Value, outstanding. This report on Form
10-Q contains 17 pages.
<PAGE>
CELESTIAL SEASONINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION
- ------------------------------
PAGE(S)
-------
ITEM 1. FINANCIAL STATEMENTS
Unaudited consolidated income 3
statements
Unaudited consolidated balance sheets 4
Unaudited consolidated statements of 5
cash flows
Notes to unaudited consolidated 6-8
financial statements
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS 9-13
OF FINANCTIAL CONDITION AND RESULTS OF
OPERATIONS
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 14
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
PAGE 2
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Case volume 1,733 1,611 3,629 3,102
Net sales $31,576 $32,329 $69,238 $59,729
Cost of goods sold 10,332 11,198 24,335 21,329
------- ------- ------- -------
Gross profit 21,244 21,131 44,903 38,400
Operating expenses:
Selling and marketing 15,288 13,723 32,532 25,342
General and administrative 1,284 1,516 2,978 3,091
Amortization of intangibles 305 343 616 663
------- ------- ------- -------
Total operating expenses 16,877 15,582 36,126 29,096
Operating income 4,367 5,549 8,777 9,304
Interest expense 186 116 428 232
------- ------- ------- -------
Income before income taxes 4,181 5,433 8,349 9,072
Income taxes 1,568 2,092 3,131 3,493
------- ------- ------- -------
Net income $ 2,613 $ 3,341 $ 5,218 $ 5,579
======= ======= ======= =======
Earnings per share-basic:
Net income per common share $ 0.31 $ 0.40 $ 0.63 $ 0.68
======= ======= ======= =======
Weighted average common shares 8,313 8,256 8,310 8,206
======= ======= ======= =======
Earnings per share-assuming dilution:
Net income per common share $ 0.29 $ 0.38 $ 0.59 $ 0.65
======= ======= ======= =======
Weighted average common shares 9,003 8,692 8,902 8,615
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 3
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 276 $ 2,533
Accounts receivable, net of allowance
(Mar. - $549 Sept. - $534) 16,569 15,156
Inventory 19,256 23,185
Deferred income taxes 451 93
Prepaid income taxes 80 630
Prepaid expenses 2,576 2,111
-------- --------
Total current assets 39,208 43,708
Property, plant and equipment, net 19,119 19,240
Intangible assets, net 12,207 12,598
Goodwill, net 5,730 5,870
Deferred income taxes 175 217
Other assets 930 1,014
-------- --------
Total assets $ 77,369 $ 82,647
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,649 $ 8,656
Accrued liabilities and wages 6,643 7,551
Accrued interest payable 71 47
Current portion of long-term debt 300 4,323
-------- --------
Total current liabilities 11,663 20,577
Long-term debt 8,900 10,750
Commitments
Stockholders' equity:
Common stock, $.01 par value -
authorized 15,000,000 shares;
Mar. - issued 8,336,083 shares,
outstanding 8,318,283 shares;
Sept. - issued 8,322,528 shares,
outstanding 8,304,728 shares 83 83
Capital surplus 35,279 35,011
Retained earnings 21,619 16,401
Treasury stock, 17,800 shares of
common stock at cost (175) (175)
-------- --------
Total stockholders' equity 56,806 51,320
-------- --------
Total liabilities and stockholders' equity $ 77,369 $ 82,647
======== ========
</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>
Six Months Ended
March 31,
----------------
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,218 $ 5,579
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 848 643
Amortization of intangibles 616 663
Amortization of financing fees 105 97
Deferred income taxes (316) (316)
Gain on sale of asset (100) -
Changes in operating assets and liabilities:
Accounts receivable (1,413) (8,165)
Inventory 3,929 (7,241)
Prepaid income taxes 550 -
Prepaid expenses (465) (572)
Accounts payable (4,007) 5,135
Accrued liabilities and wages (908) 2,250
Accrued income taxes - 1,388
Accrued interest payable 24 (1)
------- -------
Net cash provided by (used in) operating activities 4,081 (540)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of asset 148 -
Capital expenditures (775) (597)
Increase in intangible assets (85) (171)
Increase in other assets (21) -
------- -------
Net cash used in investing activities (733) (768)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 268 948
Increase in long-term debt 2,800 -
Reduction in long-term debt (8,673) (169)
------- -------
Net cash (used in) provided by financing activities (5,605) 779
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,257) (529)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,533 2,829
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 276 $ 2,300
======= =======
CASH PAID FOR INTEREST $ 300 $ 117
CASH PAID FOR INCOME TAXES $ 2,897 $ 2,421
</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 second fiscal quarter ends on the last Saturday
of March. For presentation purposes, however, the second fiscal
quarter is presented as if it ended on March 31.
The unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries. Intercompany balances
have been eliminated in consolidation.
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, 1998. 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, 1999. 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 March 31, 1999 and 1998
covered thereby.
Earnings Per Share - In accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share," the increase in
weighted average common shares - assuming dilution is due to the
application of the treasury share method for outstanding stock
options. The application of the treasury share method resulted in an
additional 690,000 and 436,000 weighted average shares for the three
months ended March 31, 1999 and 1998, respectively, and an
additional 592,000 and 409,000 weighted average shares for the six
months ended March 31, 1999 and 1998 respectively.
Comprehensive Income - In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
requires companies to disclose comprehensive income and its
components. The Company currently has no items of other comprehensive
income and therefore SFAS 130 does not apply.
PAGE 6
<PAGE>
Operating Segments - Commencing with fiscal 1999, the Company
redefined its reportable segments as wellness products and beverage
products. The wellness segment includes the Company's dietary
supplements in capsule form along with related wellness teas. The
beverage segment contains the Company's herb, green, specialty black,
organic and chai teas. The Company believes that its current forms of
advertising are designed to develop an overall brand awareness.
Therefore, advertising is treated as a corporate expense, not
directly attributable to any one segment. Trade and consumer
promotion expenses for specific product lines are charged directly to
operating segments.
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
------------------ ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales:
Beverages $26,820 $25,166 $56,636 $50,690
Wellness 4,756 7,163 12,602 9,039
------- ------- ------- -------
Total net sales $31,576 $32,329 $69,238 $59,729
Operating income:
Beverages $ 8,021 $ 8,191 $18,407 $14,786
Wellness (112) 1,747 464 1,417
------- ------- ------- -------
7,909 9,938 18,871 16,203
Corporate advertising
expense (1,953) (2,530) (6,500) (3,145)
General and administrative (1,284) (1,516) (2,978) (3,091)
Amortization of intangibles (305) (343) (616) (663)
------- ------- ------- -------
Total operating income 4,367 5,549 8,777 9,304
Interest expense 186 116 428 232
------- ------- ------- -------
Income before income taxes $ 4,181 $ 5,433 $ 8,349 $ 9,072
======= ======= ======= =======
<CAPTION>
March 31, September 30,
1999 1998
-------- ------------
<S> <C> <C>
Assets:
Beverages $59,335 $55,894
Wellness 13,663 20,341
Corporate 4,371 6,412
------- -------
Total assets $77,369 $82,647
======= =======
</TABLE>
PAGE 7
<PAGE>
2. DETAIL OF INVENTORY ACCOUNTS
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
-------- ------------
<S> <C> <C>
Raw materials and supplies $11,537 $10,941
Work in process 1,131 2,047
Finished goods 7,026 10,406
------- -------
19,694 23,394
Less inventory reserves 438 209
------- -------
Total $19,256 $23,185
======= =======
</TABLE>
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. On
September 5, 1997, however, the court of appeals reversed the
decision of the district court and returned the case to the district
court for further proceedings. The case has been certified as a class
action. Due to the uncertainties inherent in the litigation process,
the Company is unable to predict the outcome of this matter.
PAGE 8
<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 six most recent quarters.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
Fiscal 1999 Fiscal 1998
----------------- -------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
------- ------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Case sales 1,733 1,896 1,120 857 1,611 1,491
Net sales $31,576 $37,662 $23,073 $19,395 $32,329 $27,400
Gross profit 21,244 23,659 14,586 12,573 21,131 17,269
Operating income 4,367 4,410 1,782 355 5,549 3,755
Operating margin 13.8% 11.7% 7.7% 1.8% 17.2% 13.7%
Net income $ 2,613 $ 2,605 $ 1,053 $ 124 $ 3,341 $ 2,238
Percent of fiscal
year net sales N/A N/A 22.6% 19.0% 31.6% 26.8%
</TABLE>
Quarterly fluctuations in sales volume and operating results are
due to a number of factors, including the timing of trade promotions,
advertising, consumer promotions, production requirements and
inventory adjustments by customers. Due to the timing and extent of
these factors the impact on sales volume and operating results can be
significant.
RESULTS OF OPERATIONS
The following table is derived from the Company's unaudited
consolidated income statements 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 Percentage Increase/(Decrease)
----------------------- ------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
------------ ----------- ------------ -----------
1999 1998 1999 1998 1999 to 1998 1999 to 1998
----- ----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% (2.3)% 15.9%
Cost of goods sold 32.7 34.6 35.2 35.7 (7.7) 14.1
----- ----- ----- -----
Gross profit 67.3 65.4 64.8 64.3 0.5 16.9
Selling and marketing 48.4 42.5 47.0 42.4 11.4 28.4
General and
administrative 4.1 4.7 4.3 5.2 (15.3) (3.7)
Amortization of
intangibles 1.0 1.0 0.9 1.1 (11.1) (7.1)
----- ----- ----- -----
Operating income 13.8 17.2 12.6 15.6 (21.3) (5.7)
Interest expense 0.6 0.4 0.6 0.4 60.3 84.5
----- ----- ----- -----
Income before income
taxes 13.2 16.8 12.0 15.2 (23.0) (8.0)
Income taxes 4.9 6.5 4.5 5.9 (25.0) (10.4)
----- ----- ----- -----
Net income 8.3% 10.3% 7.5% 9.3% (21.8)% (6.5)%
===== ===== ===== =====
</TABLE>
PAGE 9
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998
Net sales. Net sales for the three months ended March 31, 1999
decreased 2.3% to $31.6 million from $32.3 million for the comparable
period in fiscal 1998. The net sales decline was primarily the result
of a 33.6% decrease in sales of the Company's wellness products to
$4.8 million during the second quarter of fiscal 1999 from $7.2
million for the comparable period in 1998. A general softness in
dietary supplements and 1998's inventory build up contributed to the
decline. While the wellness capsules experienced a significant sales
decrease, an increase in the Company's wellness teas partially offset
this decline. In addition, a significant number of late orders for
the Company's tea products were not shipped prior to the conclusion
of the three months ended March 31, 1999 due to transition issues
related to a new leased warehouse and production shortages of certain
tea products. These issues are being addressed by the Company through
the completion of the transition to its new warehouse, and the
installation of a new production line which is anticipated to be
completed during the fall of 1999. This new line is expected to
increase production capacity by approximately 18%. The net sales
decrease was partially offset by a 6.6% increase in sales of the
Company's beverage products to $26.8 million from $25.1 million for
the comparable period in 1998. The increase was primarily
attributable to increased sales of the Company's green tea products.
Gross profit. Gross profit for the three months ended March 31,
1999 was essentially unchanged from the comparable period in fiscal
1998. The Company's gross profit margin as a percent of net sales
increased to 67.3% from 65.4% for the comparable prior year period.
The Company experienced increased margins in its beverage segment due
to increased sales of its higher margin green tea products and
decreased sales of its lower margin specialty black tea products.
This increase was partially offset by the effect of lower margins
realized on the Company's wellness products. Lower margins from its
wellness products are expected to continue for the next few quarters
as the Company transitions its customers to a new 60-count line of
capsules from the existing 30-count line. The Company believes this
new line will represent a better value to the consumer and hopes to
implement production improvements that will permit gross margins to
recover to that of previous levels for capsule products.
Selling and marketing expenses. Selling and marketing expenses
for the three months ended March 31, 1999 increased 11.4% to $15.3
million from $13.7 million for the comparable period in fiscal 1998,
and increased as a percentage of net sales to 48.4% from 42.5%. The
increase in selling and marketing expenses was primarily due to
increased trade promotion expenses associated with the ongoing
development of its wellness products and increased consumer promotion
expenses associated with the Company's beverage products. The
increase was partially offset by a decrease in advertising expenses.
General and administrative expenses. General and administrative
expenses for the three months ended March 31, 1999 decreased 15.3%
from the comparable period in fiscal 1998, and decreased as a
percentage of net sales to 4.0% from 4.7%. The decrease was
primarily due to decreased expenses associated with the support of
accounts receivable.
Operating income. Operating income for the three months ended
March 31, 1999, decreased 21.3% to $4.4 million from $5.5 million for
the comparable period in fiscal 1998 and as a percentage of net sales
decreased to 13.9% from 17.2%, primarily due to matters discussed in
Net sales coupled with increased selling and marketing expenses.
Interest expense. Interest expense for the three months ended
March 31, 1999 increased 60.3% from the comparable period in fiscal
1998 primarily as a result of increased borrowings under the
Company's credit facility in support of inventories of its wellness
capsule products and accounts receivable.
PAGE 10
<PAGE>
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO THE SIX MONTHS ENDED
MARCH 31, 1998
Net sales. Net sales for the six months ended March 31, 1999
increased 15.9% to $69.2 million from $59.7 million for the
comparable period in fiscal 1998. Net sales growth was primarily the
result of increased sales of the Company's green tea and wellness tea
products. This increase was partially offset by a decrease in sales
of the Company's specialty black tea products. The Company's wellness
products contributed net sales of approximately $12.6 million during
the first half 1999, as compared to $9.0 million for the comparable
period in 1998. Net sales of the Company's beverage products
increased 11.7% to $ 56.6 million from $50.7 million for the
comparable period in fiscal 1998.
Gross profit. Gross profit for the six months ended March 31,
1999 increased 16.9% to $44.9 million from $38.4 million for the
comparable period in fiscal 1998. The Company's gross profit margin
as a percent of net sales remained relatively unchanged from 1998.
The Company experienced increased margins in its beverage segment due
to increased sales of its higher margin green tea products and
decreased sales of its lower margin specialty black tea products. The
increase was partially offset by the effect of lower margins realized
on sales of the Company's wellness products.
Selling and marketing expenses. Selling and marketing expenses
for the six months ended March 31, 1999 increased 28.4% to $32.5
million from $25.3 million for the comparable period in fiscal 1998,
and increased as a percentage of net sales to 47.0% from 42.4%. The
increase in selling and marketing expenses was primarily due to
increased advertising expenses associated with the building the
Company's brand awareness, increased trade promotion expenses
associated with ongoing development of its wellness products and
increased consumer promotion expenses associated with the Company's
beverage products.
General and administrative expenses. General and administrative
expenses for the six months ended March 31, 1999 decreased 3.7% from
the comparable period in fiscal 1998, and decreased as a percentage
of net sales to 4.3% from 5.2%. The decrease was primarily due to the
recognition of a gain associated with the sale of an asset and
decreased expenses associated with the support of accounts
receivable.
Operating income. Operating income for the six months ended
March 31, 1999, decreased 5.7% to $8.8 million from $9.3 million for
the comparable period in fiscal 1998, and as a percentage of net
sales decreased to 12.6% from 15.6%, primarily due to increased
selling and marketing expenses.
Interest expense. Interest expense for the six months ended
March 31, 1999 increased 84.5% from the comparable period in fiscal
1998 primarily as a result of increased borrowings under the
Company's credit facility in support of inventories of its wellness
capsule products and accounts receivable.
PAGE 11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The operations of the Company historically have been funded with
a combination of internally generated funds and external borrowings.
Other than funding ongoing operations, the Company's principal uses
of funds in the future are expected to be the development of new or
existing beverage and wellness 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 credit facilities. The
Company currently believes that funds from operations and funds
expected to be available under the Company's credit facilities are
likely to be sufficient to meet operating and capital requirements
unless a significant acquisition is made.
Cash and cash equivalents decreased $2.2 million for the six
months ended March 31, 1999. Cash provided by operating activities
was $4.1 million for the six months ended March 31, 1999. The
Company's investing activities used cash of $0.7 million and
financing activities used cash of $5.6 million for the six months
ended March 31, 1999.
The Company incurred capital expenditures of approximately
$860,000 during the six months ended March 31, 1999, including
$775,000 for factory and computer equipment and $85,000 for the
design and development of new packaging artwork. The Company
currently anticipates making additional capital expenditures of
approximately $4.9 million during the remainder of fiscal 1999.
YEAR 2000 COMPLIANCE
A number of computer programs are written using two digits
rather than four to define the applicable year. As a result, computer
programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal
business activities.
The Company, after an inventory of its business systems and
business interactions, is currently executing a plan to prepare its
systems and business relationships for the Year 2000. The major
internal components of the Company's systems are Year 2000 compliant,
the Company expects to complete its plan of preparation for other
peripheral components on or around July 1, 1999. In the event there
is a delay in the completion of the Year 2000 compliance plan, the
Company has developed a contingency plan which will include non-
computerized backup systems. The ability of the Company to achieve
Year 2000 compliance is, however, highly dependent upon compliance of
the systems of the Company's customers, suppliers and other third
parties with which the Company has business relationships.
The total cost to the Company of Year 2000 compliance activities
has not yet been, and is not anticipated to be, material to the
Company's financial position or results of operations in any given
year. These costs, and the date on which the Company plans to
complete the Year 2000 modification and testing processes, are based
on management's best estimates, which were derived using numerous
assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.
PAGE 12
<PAGE>
FORWARD LOOKING STATEMENTS
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 "Year 2000 Compliance" 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, inventory levels
maintained by customers, costs and availability of raw materials and
management information systems, competition, litigation and the
effect of governmental regulation. The Company disclaims any
intention or obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
PAGE 13
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on
February 11, 1999. The following matters were submitted to a vote of
the stockholders:
(a) Election of directors - Three Class II directors were elected to
serve until the 2002 annual meeting of stockholders and until their
successors are elected.
Total Votes For Total Votes Withheld
--------------- --------------------
Ronald V. Davis 7,487,513 46,965
John D. Howard 7,486,685 47,793
Gregg A. Ostrander 7,486,805 47,671
Incumbent Class III directors with terms expiring in 2000 are Mo
Seigel and James P. Kelly. Incumbent Class I directors with terms
expiring in 2001 are Marina Hahn, Stephen B. Hughes and Leonard
Lieberman.
(b) Appointment of independent auditors - The proposal to ratify the
appointment of Deloitte & Touche LLP as the Company's certified
public accountants for the fiscal year ending September 30, 1999 was
approved by a vote of 7,498,667 shares in favor, 28,950 shares
against, and 6,862 shares abstaining.
ITEM 5. OTHER INFORMATION
Stockholders who would like to submit proposals to be voted on at the
Company's 2000 annual meeting must submit the proposals to the
Company by certain deadline dates. If the stockholder would like to
have the proposals included in the Company's proxy statement, the
proposals must be submitted by September 17, 1999. If the stockholder
does not want their proposals included in the Company's proxy
statement but still wants to raise the proposals at the 2000 annual
meeting, the proposal must be submitted between November 5, 1999 and
December 1, 1999. Under SEC rules, proxies solicited by the Company's
management will confer discretionary voting authority on proposals
that are not received by December 1, 1999. The Company's bylaws
require that specific information be provided to the Company if a
stockholder wants to submit proposals or nominate directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit No. Description
- ----------- -----------
23.1 - Report of Deloitte & Touche LLP on unaudited
consolidated financial statements
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K for the quarter ended March
31, 1999.
PAGE 14
<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)
May 7, 1999 By: /s/ Darrell F. Askey
--------------------
Darrell F. Askey
Vice President - Finance and Chief Financial
Officer
(Principal Financial Officer)
PAGE 15
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
Sequentially
Exhibit No. Description Numbered Pages
- ----------- ----------- --------------
23.1 - Report of Deloitte & Touche LLP on
unaudited consolidated financial
statements 17
PAGE 16
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
March 31, 1999 and the related consolidated statements of income and
cash flows for the three-month and six-month periods ended March 31,
1999 and 1998. 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 as
of September 30, 1998, 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 10, 1998, 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, 1998 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
April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CELESTIAL SEASONING, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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