Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Form 10-K for Fiscal Year Ended August 29, 1998 39 191K
2: EX-23.1 Consent of Independent Accountants 1 5K
3: EX-27.1 Financial Data Schedule 1 8K
10-K405 — Form 10-K for Fiscal Year Ended August 29, 1998
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 29, 1998
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 0-23036
ODWALLA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 77-0096788
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
120 Stone Pine Road
Half Moon Bay, California 94019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (415) 726-1888
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
Title of each class Name of Exchange on which registered
none none
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock (no par
value)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by a 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. [ ]
[Cover page 1 of 2 pages]
The aggregate market value of voting stock held by non-affiliates of
the Registrant, as of November 18, 1998, was approximately $29,739,000 (based on
the closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading day prior to that date). Shares of
Common Stock held by each executive officer, director, and holder of 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
On November 18, 1998 approximately 5,060,651 shares of the Registrant's
Common Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the Registrant's definitive Proxy Statement to
be issued in conjunction with the Registrant's Annual Meeting of Shareholders
for the 1998 fiscal year.
[Cover Page 2 of 2 pages]
CAUTIONS ABOUT FORWARD LOOKING STATEMENTS
This Form 10-K includes forward-looking statements about future events,
products or future financial performance that haven't happened. For example,
statements like "we expect" or "we anticipate" are forward-looking statements.
Investors should be aware that actual results may differ materially from our
expectations because of risks and uncertainties about the future. In addition,
we will not necessarily update the information in this Form 10-K if any
forward-looking statement later turns out to be inaccurate. Details about risks
affecting various aspects of our business are included throughout this Form
10-K. Investors should read all of these risks carefully, and should pay
particular attention to risks affecting the following areas: availability and
pricing of raw materials (page 3); competition (page 4); our dependence on
significant trade partners (page 5); government regulations that may impact our
business (page 5); the specific risk factors discussed on pages 5 to 8;
remaining legal proceedings (page 8); commitments and contingencies described in
Note 4 to the financial statements.
PART I
ITEM 1. BUSINESS
Odwalla began operations in September 1980 and was incorporated in
California in September 1985. Our principal executive offices are located at 120
Stone Pine Road, Half Moon Bay, California, 94019, and our telephone number is
(650) 726-1888. When we refer to "we," "Odwalla" or the "Company" in this Form
10-K, we mean the California corporation (Odwalla, Inc.) and its currently
inactive Canadian subsidiary.
Odwalla's business is to provide easy access to great tasting
nourishment. We are the leading branded fresh juice and beverage company in the
country, serving selected markets in the western, mid-west and mid-Atlantic
regions of the United States. Odwalla's complete product line consists of more
than 25 fresh-squeezed and nutritionally fortified juices and smoothies,
all-natural meal replacement beverages, geothermal natural spring water and
all-natural food bars. Our beverage product line appeals to many consumers
because of its superior taste of fresh and minimally processed beverages and
greater nutritional value compared to juice from concentrate or with artificial
flavors.
We want to be the leading nourishment company in our existing and
future markets. We seek to achieve this objective by leading the industry in
beverage and other food knowledge, optimizing quality through sourcing and
production, controlling product access and distribution from production through
retail, artful presentation, growing through geographic and product line
expansion, leveraging our information systems, interacting with consumers and
living our vision.
Odwalla's sourcing procedures and production methods enable us to
create products with high nutritional and flavor quality. The distribution of
our products through both our own and other direct-store-delivery ("DSD")
systems allows us to control product quality and presentation, as well as to
develop relationships with trade partners. Odwalla sells and distributes our
products to almost 3,000 retail locations, including supermarkets, specialty
retailers, natural food stores, warehouse outlets, convenience stores and food
service operators through our DSD system.
Odwalla is committed to certain values -- nourishing consumers,
shareholders and other stakeholder groups; environmental awareness; and support
for the communities we serve. We believe that our products reflect these values.
PRODUCTS, DISTRIBUTION AND TRADE PARTNERS
Our current product line consists of single-flavor and blended fruit-
and vegetable-based juice products, meal replacement beverages, wholesome food
bars and natural spring water. Except for our 100% fresh squeezed citrus line,
all juices are minimally processed (some produced on a seasonal basis). These
products are currently sold in California, Washington, Oregon, Colorado, New
Mexico, Nevada, Texas, Illinois, Wisconsin, Arizona, Michigan, Minnesota,
Pennsylvania, Maryland and the Washington, D.C. area. We strive for consistent
"day-of-production" quality in all our products. Shelf life standards are based
primarily on maintaining the flavor quality and nutrient integrity of the
beverages. The shelf life of Odwalla's fruit and vegetable based products is
typically between 8 and 17 days at the retail
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outlet. Our food bars have a significantly longer shelf life.
We establish shelf life standards for each product to maintain the
flavor and nutritional integrity that consumers associate with freshly produced
fruit and vegetable beverages. Our policy is to have all products removed from
trade partners' shelves on or before their Odwalla-established expiration date.
In addition, because of our "day of production" quality standards, products
reflect the seasonal changes in fruit varieties in color and taste. Our
production methods are designed to minimize the effect of processing on the
fruit juice extracted. Our entire product line varies due to a significant
component of seasonal ingredients, seasonal product usage, and the addition and
deletion of products.
Our products are sold and distributed primarily through our DSD system,
which is serviced by route sales people who deliver and merchandise products to
our trade partners. This DSD system is designed to allow us to optimally manage
delivery schedules, efficiently control product mix, keep store shelves or our
own coolers stocked with fresh products and have a greater influence on
determining in-store location and merchandising of our products.
At most DSD accounts, we are responsible to stock, order and
merchandise our products at the point of sale, and we issue credits to the trade
partner for unsold product. This full service relationship allows us to avoid
paying slotting fees for shelf space as well as other handling fees and to
maintain control over our product merchandising at the point of sale. We provide
a lesser degree of service to certain trade partners who are responsible for
stocking, ordering and merchandising Odwalla products. These trade partners
don't receive credit for unsold products. Consumers can purchase our products at
supermarkets, specialty retail stores, natural food stores, convenience stores,
warehouse outlets and institutional food service trade partners.
We also distribute our products through third party distributors.
Although we have used distributors to some extent for several years (primarily
in geographic regions outside of our then base geographic markets and to comply
with certain trade partner requests), we began actively exploring this channel
at the very end of fiscal 1997 when we transferred approximately 40% of our
Northern California account base (which represented a significantly smaller
percentage of our Northern California sales volume) to an independent
distributor. This distribution channel, with merchandising support provided by
our employees, provides an opportunity to expand product distribution, increase
DSD efficiency, and still maintain relationships with trade partners. During the
past year, we began using third party distributors primarily in the Chicago,
Detroit, Philadelphia, Minneapolis and Phoenix markets. We sell directly to the
third party distributors and they generally don't receive credit for unsold
product.
RAW MATERIALS
Producing and selling our minimally processed products entails special
requirements in ingredient sourcing, production, distribution and sales in order
to preserve and maximize the products freshness and flavor quality. We source
and select fruits and vegetables to meet a variety of established criteria,
including overall quality, flavor profile, variety, ripeness and other factors.
Processing of the fruit and vegetables is performed in a manner to capture and
preserve various qualities of fresh flavors and consistency. Odwalla has focused
on each of these elements in an effort to achieve our goal of providing the
safest, best tasting and most nutritious beverage and other products for
consumers.
Odwalla buys ingredients according to stringent specifications. Fruits
and vegetables, in particular, are purchased year-round or seasonally depending
on the type of produce. Because various types of fruit and vegetable crops are
harvested at different times of the year, we obtain and produce different juices
on a seasonal basis. Most of our fruits and vegetables are purchased in the open
market on a negotiated basis. Historically, oranges, apples and carrots are the
largest volume commodities we purchase. For example, we sourced over 60 million
pounds of oranges last year. We have developed an extensive network of
ingredient sourcing relationships over the years and rely on this network and
new sources for the ingredients we need. In 1998 we contracted for a substantial
portion of our fall apple needs through McAfee Apple Gardens, a California
Central Valley grower using Good Agricultural Practices, field Hazard Analysis
Critical Control Points ("HACCP") plan and sustainable farming practices. We
also farm a small orange ranch in a part of California to have access to local
fresh fruit in the early winter months. Recently, we began purchasing organic
oats as a significant ingredient in our food bars. All of these key ingredients
are subject to volatility
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in supply, price and quality that could materially and adversely affect our
business and results of operations. We are subject to the same issues with our
other ingredients as well.
We also source a number of fruits, such as tropical fruits, from
foreign suppliers in the form of frozen fruit puree. A puree is whole fruit that
has been processed, finely cut, heat treated, packed in a container and frozen.
A puree is not a concentrate. Purees are combined with the freshly extracted
and/or flash pasteurized juices of other fruits in a number of our products. The
purees we purchase are heat treated to increase safety and meet Government
regulations. Most purees are purchased under annual price contracts.
As with most agricultural products, the supply and price of raw
materials we use can be affected by a number of factors beyond our control, such
as frost, drought, flood, hurricane and other natural disasters. Weather
conditions, economic factors affecting growing decisions, various plant diseases
and pests will affect the condition and size of the crop. The heavy rains and
flooding that occurred in California in the first and second quarters of fiscal
1995 resulted in higher costs of fruit and lower yields from the California
orange crop in the last quarter of fiscal 1995 and the first quarter of fiscal
1996. We understand that the El Nino conditions and other weather patterns in
the winter of 1997-1998 caused temporary shortages of certain tropical products.
Weather conditions reduced the Florida projected orange harvest for the
1998-1999 season. The La Nina weather pattern expected in the western part of
North and Central America in the 1998-1999 winter season may have an adverse
effect on the prices and availability of fruits and vegetables. Significant
events such as the recent devastation caused by Hurricane Mitch in Honduras,
Nicaragua and neighboring countries could negatively impact the supply and
pricing of certain ingredients.
COMPETITION
In a broad sense, our beverages compete with all beverages available to
consumers and our food bars compete with all food bars currently available. The
natural foods market is highly competitive. It includes national, regional and
local producers and distributors; many of them have greater resources than we
do, and many of them have shelf stable products that can be distributed with
significantly less cost. We believe our niche is easily accessed nourishing
beverages in the super premium juice, emerging meal replacement beverage,
all-natural food bar and bottled water categories. We believe our direct
competition in this market niche is currently from nationally, regionally and
locally focused juice producers, certain of which are owned by major beverage
producers, nationally branded meal replacement beverage producers, food and
energy bar companies and premium bottled waters. Our direct competitors in the
juice business are national brands such as Just Squeezed, Tropicana, Minute Maid
and Nantucket Nectars. Our juice products compete with regional brands such as
Naked Juice (owned by a large international company, Chiquita Brands
International, Inc. ("Chiquita")) in Southern California and Colorado, Fresh
Samantha's in the Northeastern United States and Fantasia in the Chicago area.
Juice and smoothie bars such as Jamba Juice are also competitors. In addition, a
number of major supermarkets and other retail outlets squeeze and market their
own brand of fresh juices that compete with the Company's products. A decision
by Chiquita or any other large company to focus on Odwalla's existing markets or
target markets could have a material adverse effect on our business and results
of operations. We are just beginning the introduction of food bars. Our food bar
products will compete with several more established companies, such as PowerBar,
Balance Bar or Clif Bar. While we believe that we compete favorably with our
competitors on factors such as quality, nutritional integrity, food safety,
merchandising, service, sales and distribution, multiple flavor categories,
brand name recognition and loyalty, our products are typically sold at prices
higher than most other competing beverage and bar products. Significant
competitive pressure from these or other companies could negatively impact our
sales and results of operations.
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DEPENDENCE ON ONE OR A FEW MAJOR TRADE PARTNERS
Safeway, Inc. ("Safeway") is our largest single account and accounted
for 13% of our fiscal 1998 sales. We spend considerable time to maintain a good
relationship with Safeway and other significant accounts, but we can't offer any
assurance that sales to significant accounts will not decrease or that these
trade partners will not choose to replace our products with those of
competitors. The loss of Safeway or other significant accounts or any
significant decrease in the volume of products purchased by their customers in
the future would materially and adversely affect our business and results of
operations. Continuity of trade partner relationships is important, and events
that impact our trade partners, such as labor disputes, may have an adverse
impact on our results of operations.
GOVERNMENT REGULATION
The production and sales of beverages are subject to the rules and
regulations of various federal, state and local food and health agencies,
including the U.S. Food and Drug Administration ("FDA"). On September 8, 1998,
the FDA regulations for fresh apple juice went into effect. The regulations for
fresh-squeezed citrus juices are scheduled to go into effect in May 1999. The
FDA's guidelines for fresh juice requires producers to achieve at least a 5-log
reduction in potential pathogens (99.999% barrier). Pasteurization is one way
for juice producers to meet the requirement. We currently Flash Pasteurize our
apple juice and are in compliance with the FDA regulations. For juice producers
who choose not to use pasteurization, the FDA has mandated either a HACCP plan
that achieves the required 5-log reduction or a warning label on the bottle to
alert consumers of the presence of unprocessed produce. Because all products
produced in our Dinuba, California production facility are manufactured under a
HACCP plan with validated critical control points, we are already in compliance
with the new FDA regulations and will not need to use warning labels on
unpasteurized juice products. For our 100% fresh-squeezed citrus juices (orange,
grapefruit, tangerine, lemon and lime), we've designed a process that has been
scientifically validated to achieve the FDA-required 5-log reduction without
pasteurizing. Because our process meets the FDA's new requirements, and our own
quality assurance standards, Odwalla continues to offer our 100% fresh-squeezed,
unpasteurized citrus juice without a warning label. We don't anticipate
significant additional costs to comply with current FDA regulations.
We are also subject to various federal, state and local environmental
laws and regulations that limit the discharge, storage, handling and disposal of
a variety of substances and by laws and regulations relating to workplace safety
and worker health, principally the Occupational Safety and Health Administration
Act, as well as similar state laws and regulations. We believe that we comply in
all material respects with these laws and regulations, although we cannot assure
that future compliance with such laws or regulations will not have a material
adverse effect on our results of operations or financial condition. We did not
incur any significant costs in fiscal 1998 to comply with environmental laws.
EMPLOYEES
As of November 18, 1998, Odwalla had approximately 500 employees, 450
of whom were full-time employees. We don't have any collective bargaining
agreements with our employees, and we believe employee relations are generally
good.
OTHER FACTORS AFFECTING ODWALLA'S BUSINESS
Risks associated with perishable products. Except for geothermal spring
water, meal replacement beverages and food bars, Odwalla's products are fresh,
flash pasteurized or heat treated and don't contain any preservatives. They have
a limited shelf life because of this. In order to maintain our
"day-of-production" quality standards, we further restrict the shelf life of
products through early expiration dates. The restricted shelf life means that we
don't have any significant finished goods inventory and our operating results
are highly dependent on our ability to accurately forecast near term sales in
order to adjust fresh fruit and vegetable sourcing and production. We've
historically experienced difficulties in accurately forecasting product demands
and expect that challenge to continue. When we don't accurately forecast product
demand, we are either unable to meet higher than anticipated demand or we
produce excess inventory that cannot be profitably sold. In addition, most of
our trade partners have the right to return any products that are not
5
sold by their expiration date. Our inability to meet higher than anticipated
demand or excess production or significant amounts of product returns on any of
our products could have a material negative effect on our business and results
of operations.
Cost sensitivity. Our profitability is highly sensitive to increases in
raw materials, labor and other operating costs. Unfavorable trends or
developments concerning factors such as inflation, raw material supply, labor
and employee benefit costs (including increases in hourly wage and minimum
unemployment tax rates), rent increases resulting from the rent escalation
provisions in our leases, and the availability of hourly employees may also
adversely affect our results. We've benefited recently from relatively favorable
inflation rates and part-time labor supplies in our principal market areas in
recent years. However, there is no assurance that these conditions will continue
or that we will have the ability to control costs in the future.
Product liability. Because our 100% fresh-squeezed citrus products and
certain other citrus-based products are not pasteurized, nuclearly irradiated or
chemically treated, they are highly perishable and contain certain naturally
occurring microorganisms. In addition to the Recall (see "Item 3. Legal
Proceedings" on page 8) associated with the E. coli O157:H7 bacteria in 1996,
from time to time we receive complaints from consumers regarding ill effects
allegedly caused by our products. These past claims haven't resulted in any
material liability to date, but there can be no assurance that we won't have
future claims or that any claims associated with the Recall in 1996 will not
result in adverse publicity or monetary damages, either of which could
materially and adversely affect our business and results of operations. We
currently maintain $52,000,000 in product liability insurance, which may not be
sufficient to cover the cost of defense or related damages in the event of a
significant product liability claim.
Orchard production. Historically, we've depended upon the fruit
produced from the trees of large orchards. These trees may become damaged,
diseased or destroyed as a result of windstorms, pests or fungal disease.
Additionally, there are types of controllable fungal diseases that can affect
fruit production although not fatal to the trees themselves. These types of
fungal diseases are generally controllable with fungicides. However, we can't be
sure that such control measures will continue to be efficacious. Any decrease in
the supply of fresh fruit as a result of windstorms, pests or fungal disease
could have a material adverse effect on our business and results of operations.
Geographic concentration. Our wholesale accounts and retail trade
partners have their largest concentration in Northern California, with most
located in the metropolitan areas surrounding the San Francisco Bay. Due to this
concentration, natural occurrences, economic downturns and other conditions
affecting Northern California may adversely affect our business and results of
operations.
Concentration of production capacity. Virtually all of our juice
production capacity is located at our Dinuba, California facility. Because we
maintain minimal finished goods inventory as part of our "day-of-production"
production system, we could be unable to continue to produce fresh beverages in
the event that production at or transportation from Dinuba were interrupted by
fire, earthquakes, floods or other natural disasters, work stoppages, regulatory
actions or other causes. Such an interruption would materially and adversely
affect our business and results of operations. Separate companies produce our
meal replacement beverages, water and food bars.
Lack of diversification. Odwalla business is vertically integrated and
centered around essentially one product, fresh beverages, sold primarily through
our DSD system. Although we've added meal replacement beverages, water and food
bars and are using more third party distributors, the risks associated with
focus on essentially one product are exemplified by the material adverse effect
on our business and results of operations that resulted from the Recall in
October 1996. Any significant decrease in the consumption of beverages generally
or specifically with respect to our products would have an adverse effect on our
business and results of operations.
Risks related to expansion. Continued growth depends in part upon our
ability to expand into new geographic areas, either through internal growth or
by acquisition. Following the 1996 Recall, management attention was primarily
focused on restoring production and sales in our then-existing markets and
dealing with legal and other company issues. This diverted our plans for
expansion, for the most part, until fiscal 1998. Due to the extent of our
operating losses in recent years, we currently anticipate limited expansion in
fiscal 1999 beyond existing markets. There can be no
6
assurance that we will expand into new geographic areas or continue to invest in
newer markets or if such expansion or investment is undertaken that it will be
successful or that such expansion can be accomplished on a profitable basis.
Demands on management and working capital costs associated with the Recall as
well as the perishability of our products and current reliance on the
personnel-intensive direct-store-delivery system may limit the ability, or
increase the cost of, expansion into new regions. Furthermore, perceptions of
the Recall and consumer tastes vary by region and there can be no assurance that
consumers located in other regions will be receptive to our products.
We've expanded into certain new markets, such as the Pacific Northwest
and Colorado, through acquisitions of local juice manufacturers. Acquisitions
involve a number of special risks, including the diversion of management's
resources, issues related to the assimilation of the operations and personnel of
the acquired businesses, potential adverse effects on operating results and
amortization of acquired intangible assets. In addition, gross margins may be
negatively impacted to the extent that gross margins on acquired product lines
are lower than Odwalla's average gross margins. We aren't actively considering
any acquisitions at this time and we don't know whether or when any prospective
acquisition candidates will become available. Even if we find attractive
acquisition candidates, we may not be able to complete the transaction on
acceptable terms, to successfully integrate the acquisition into our operations,
or to assure that the acquisition won't have an adverse impact on our
operations.
Any plans to invest in new markets or to consider acquisitions may
cause us to seek additional financing that may be dilutive to current investors
or result in a higher debt-to-equity ratio than would otherwise be the case. Any
financing we obtain may not be on terms favorable to us, even if it is
available.
Intellectual property rights. We believe our trademarks, trade dress,
trade secrets and similar intellectual property are critical to Odwalla's
success and we attempt to protect such property with registered and common law
trademarks and copyrights, restrictions on disclosure and other actions to
prevent infringement. We've licensed elements of our distinctive trademarks,
trade dress and similar proprietary rights to third parties in the past and may
continue this practice. While we attempt to ensure that the quality of the brand
is maintained by such licenses, we can't be sure that such licensees will not
take actions that might materially and adversely affect the value of our
proprietary rights or the reputation of our products, either of which could have
a material adverse effect on our business. Product package and merchandising
design and artwork are important to the success of Odwalla, and we intend to
take action to protect against imitation of our products and packages and to
protect our trademarks and copyrights as necessary. This action could be
time-consuming, result in costly litigation and divert management personnel.
Furthermore, there can be no assurance that we would be successful in such
action. We don't have any patents.
Control by officers and directors. Odwalla's officers, directors and
their affiliates beneficially own, in the aggregate, approximately 24% of the
outstanding shares of Common Stock. Through their holdings, these shareholders,
acting together, would be able to significantly influence most matters requiring
shareholder approval, including the election of a majority of the Board of
Directors. This control could have the effect of delaying, deferring or
preventing a change of control of the Company.
Dependence on key personnel. Odwalla's success depends to a significant
extent upon the continued service of its senior management, including Stephen
Williamson, our Chairman and Chief Executive Officer, and the loss of services
from any of such key personnel could have a material adverse effect on our
business or results of operations. Furthermore, our continued growth strategy
depends on the ability to identify, recruit and retain key management personnel.
The competition for such employees is intense, and there can be no assurance we
will be successful in such efforts. We are also dependent on our ability to
continue to attract, retain and motivate production, distribution, sales,
communications and other personnel.
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Volatility of stock price. Odwalla's common stock price has, at certain
times, experienced significant price volatility. Announcements of developments
related to our business, fluctuations in operating results, failure to meet
securities analysts' expectations, general conditions in the fruit and vegetable
industries and the worldwide economy, announcements of innovations, new products
or product enhancements by us or our competitors, fluctuations in the level of
cooperative development funding, acquisitions, changes in governmental
regulations, developments in patents or other intellectual property rights and
changes in our relationships with trade partners and suppliers could cause the
price of our common stock to fluctuate substantially. In addition, in recent
years the stock market in general, and the market for small capitalization
stocks in particular, has experienced extreme price fluctuations which have
often been unrelated to the operating performance of affected companies. Such
fluctuations could adversely affect the market price of our common stock. Read
"Item 5, Market For Registrant's Common Equity And Related Shareholder Matters."
ITEM 2. PROPERTIES
Our production facility is in Dinuba, California and consists of
approximately 85,000 square feet of production, office and cold storage space on
a 13-acre parcel of land plus approximately 33 acres of land adjacent to the
production facility. We own this property and believe we carry adequate property
insurance. Our administrative offices are located in Half Moon Bay, California.
We also have distribution centers throughout California and in Seattle,
Washington; Denver, Colorado; Albuquerque, New Mexico; Eugene and Portland,
Oregon; Capital Heights, Maryland; and Austin, Houston and Dallas, Texas. We
lease all our facilities other than the production facility.
ITEM 3. LEGAL PROCEEDINGS
The following personal injury claims and legal proceedings seeking
monetary damages and other relief relating to the Recall, as discussed in MD&A
are pending against Odwalla:
1. The McGregor Case: A personal injury lawsuit filed in Santa
Clara County Superior Court, San Jose, California on June 2,
1997 and served on June 16, 1997. There is no trial date set.
2. The Sawchuk Case: A personal injury lawsuit filed in the
United States District Court for the Northern District of
California and served on or about October 10, 1997. The case
is set for trial on June 14, 1999.
3. The Shaffer Case: A personal injury lawsuit filed in King
County Superior Court, Seattle, Washington, and served on or
about October 13, 1997. The case is set for trial on March 8,
1999.
4. The Jackson Case: A personal injury lawsuit filed in King
County Superior Court, Seattle, Washington, and served on or
about June 8, 1998. The case is set for trial on October 25,
1999.
5. The Nixon Case: A personal injury lawsuit filed in Sacramento
County Municipal Court, Sacramento, California on August 15,
1997. There is no trial date set.
The Company has one additional proceeding allegedly arising out of
product consumption prior to the Recall:
1. The Fujita Case: A personal injury lawsuit filed in Alameda
Superior Court. The case has no trial date and discovery has
commenced.
We maintained commercial general liability insurance totaling
$27,000,000 during the period including the Recall. We have notified our
insurance carrier of these events. At this time, we are unable to determine the
potential liability from the remaining legal proceedings and claims.
The Recall related legal proceedings settled to date were covered under
our commercial general liability insurance policy and did not result in any
additional costs to us.
In early 1997, Odwalla was informed that it was the subject of a
federal grand jury investigation (Eastern District of California) concerning the
E. coli O157:H7 incident and related issues. In July 1998, we entered into a
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misdemeanor plea agreement with the United States, concerning 16 shipments in
October 1996 of unpasteurized apple juice from a single contaminated batch. As
part of the plea agreement, Odwalla agreed to pay, over a period of five years,
$1.25 million to the U.S. Government and $250,000 to three non-profit
organizations involved with advancing the cause of food safety. We also agreed,
as part of the conditions attached to a five year term of unsupervised Court
probation, to develop and implement a HACCP plan and to undertake other measures
related to food safety.
We are subject to other legal proceedings and claims that arise in the
course of our business. We currently believe that the ultimate amount of
liability, if any, for any pending actions (either alone or combined) will not
materially affect our financial position, results of operations or liquidity.
However, the ultimate outcome of any litigation is uncertain, and unfavorable
outcomes could have a material negative impact.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the
fourth quarter of fiscal 1998.
EXECUTIVE OFFICERS AND DIRECTORS
Odwalla founder Greg Steltenpohl notified the Board of Directors of his
resignation as Chairman and as an Odwalla employee. Effective November 18, 1998,
our Board of Directors elected Stephen Williamson as Chairman of the Board, in
addition to his current position as Chief Executive Officer. Mr. Steltenpohl
will continue as a director. Odwalla and Mr. Steltenpohl have agreed that he
will provide consulting services to Odwalla for the next two years. Certain
information about the Company's directors and executive officers as of November
18, 1998 is listed below:
[Enlarge/Download Table]
Name Age Position
---- --- --------
D. Stephen C. Williamson 40 Chairman of the Board and Chief Executive Officer
James R. Steichen 48 Senior Vice President, Finance and Chief Financial Officer
Michael G. Casotti 39 Vice President, Sales
Frank J. Ballentine 40 Vice President, Manufacturing
Linda A. Frelka 37 Vice President, Quality Assurance
Susan M. Kirmayer 40 Vice President, Human Resources
Greg A. Steltenpohl 44 Director
Martin S. Gans (1)(2) 56 Director
Richard L. Grubman (1)(2) 36 Director
Ranzell Nickelson, II 54 Director
(1) Member of Audit Committee
(2) Member of Compensation Committee
D. STEPHEN C. WILLIAMSON currently serves as Chairman of the Board and
as Chief Executive Officer, a position he has held since June 1996. Prior to
that time, Mr. Williamson served as Co-Chairman of the Board and Co-Chief
Executive Officer from January 1995 to June 1996 and as Chief Financial Officer
of the Company from March 1991 to August 1996. Mr. Williamson also served as the
Company's President from May 1992 until January 1995. From 1988 to March 1991,
Mr. Williamson was a general partner of Ellistan Partners, a private investment
firm. Prior to that, Mr. Williamson worked as an analyst and an associate at
First Boston Corp. Mr. Williamson holds a B.A. degree in history from the
University of California at Berkeley. He is also Chairman of Avenal Land & Oil
Company, a private investment company.
JAMES R. STEICHEN has served as Senior Vice President, Finance since
August 1998 and as Chief Financial Officer since September 1996. From May 1996
to August 1996, Mr. Steichen served as Vice President, Finance and had served as
a consultant to the Company since August 1995. Prior to that, he had been a
partner with BDO Seidman, LLP since December 1990. Mr. Steichen is a Certified
Public Accountant and holds a B.S. degree from the University of South Dakota.
9
MICHAEL G. CASOTTI has served as Vice President, Sales since February
1996. From 1983 to 1996, Mr. Casotti was employed by Nestle Beverage Company,
most recently serving as Customer Division Manager from 1994 to 1996. From 1990
to 1994, Mr. Casotti was the National Sales Manager for Sark's Gourmet Coffee, a
division of Nestle Beverage Company. Mr. Casotti holds a B. S. in Marketing from
California State University at Northridge.
FRANK J. BALLENTINE has served as Vice President, Manufacturing since
July 1995. From February 1990 to July 1995, Mr. Ballentine served as Logistics
Manager at Zacky Foods, Inc. Mr. Ballentine holds a B. S. degree in Vineyard and
Winery Management from the University of California at Davis and an MBA from
California State University in Fresno.
LINDA A. FRELKA has served as Vice President, Quality Assurance since
September 1997. From October 1987 to August 1997, Ms. Frelka worked at Redi-Cut
Foods, Inc. in several Quality Assurance roles, most recently as Vice President
from 1995 to 1997. Ms. Frelka has a B.S. degree in Biological Sciences, emphasis
Microbiology, from Northern Illinois University.
SUSAN M. KIRMAYER has served as Vice President, Human Resources since
August 1998. From October 1997 until August 1998, Ms. Kirmayer served as
Director, Human Resources. From February 1992 to October 1997, Ms. Kirmayer
served as Director of Human Resources and Administrative Services for Collagen
Corporation. Ms. Kirmayer attended San Jose State University and majored in
Business Administration.
GREG A. STELTENPOHL, the founder of the Company and a director, served
as Chairman of the Board from June 1996 until November 18, 1998. Mr. Steltenpohl
served as Co-Chairman of the Board and Co-Chief Executive Officer from January
1995 to June 1996. From the Company's incorporation in December 1985 until
January 1995, Mr. Steltenpohl served as Chairman of the Board and Chief
Executive Officer. In addition, Mr. Steltenpohl served as the Company's
President from November 1985 until May 1992. Mr. Steltenpohl holds a B.S. degree
in environmental sciences from Stanford University.
MARTIN S. GANS has been a director of the Company since December 1992.
Mr. Gans served as Executive Vice President and Chief Financial Officer of Sun
World International, Inc. from 1978 until 1987, and he was a partner at Touche
Ross & Co., an accounting firm, from 1972 until 1978. Mr. Gans is a certified
public accountant and holds a B.B.A. from the University of Miami and an M.B.A.
from Northwestern University. Mr. Gans is also a director of Best Collateral,
Inc., a publicly-traded company. In addition, Mr. Gans is Chairman of
International Storage Management, N.V. and LSL Biotechnologies, Inc.
RANZELL "NICK" NICKELSON, II has been a director of the Company since
August 1997. Dr. Nickelson has served as Director, International Food Safety at
IDEXX Laboratories, Inc. since October 1997. From 1996 to October 1997, he
served as President of Red Mesa Microbiology, Inc. From 1991 to 1996, Dr.
Nickelson was vice president, Silliker Laboratories Group, Inc. Dr. Nickelson
served as a member of the National Advisory Committee on Microbiological
Criteria for Foods and as Coordinator, Blue Ribbon Task Force on E. coli O157:H7
for the National Live Stock and Meat Board. Dr. Nickelson holds a B.S. in Animal
Science, a M.S. in Food Technology and a Ph.D in Microbiology from Texas A&M
University.
RICHARD L. GRUBMAN has been a director of the Company since August
1997. Mr. Grubman has been a Managing Director of Highfields Capital Management,
LP since April 1998. Prior to this, Mr. Grubman was a Managing Director of
Development Capital, LLC since January 1997 and a general partner of its
affiliate, Corporate Value Partners, LP, since November 1996. Mr. Grubman was
also previously President of Sycamore Capital Management, Inc., a position he
held since January 1996. From December 1992 to November 1995, Mr. Grubman was a
general partner of Lakeview Partners, L.P. During 1992, he was a vice president
of Gollust, Tierney and Oliver, Incorporated. Mr. Grubman holds an A.B. degree
in Art and Archaeology from Princeton University. He is also a director of the
Children's Motility Disorder Foundation.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Odwalla's common stock began trading on the Nasdaq SmallCap Market in
December 1993 at the time of our initial public offering. Since May 18, 1995,
our stock has traded on the Nasdaq National Market under the symbol "ODWA." The
following table shows the range of high and low closing sales prices reported on
the Nasdaq National Market for the periods indicated. On November 18, 1998, the
closing price of Odwalla's common stock was $7.75.
[Download Table]
FISCAL YEAR ENDED AUGUST 29, 1998 HIGH LOW
Fourth Quarter $12.875 $9.00
Third Quarter $10.25 $7.50
Second Quarter $8.75 $5.625
First Quarter $11.00 $7.375
FISCAL YEAR ENDED AUGUST 31, 1997
Fourth Quarter $14.125 $9.75
Third Quarter $13.50 $10.00
Second Quarter $15.00 $9.75
First Quarter $18.75 $10.375
As of November 18, 1998, there were approximately 277 holders of
record of the Company's Common Stock.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock. We currently
anticipate that we will retain all future earnings for use in our business, so
we don't anticipate paying any cash dividends in the foreseeable future.
11
ITEM 6. SELECTED FINANCIAL DATA
The following table shows selected consolidated financial information
for Odwalla for the past five fiscal years. To better understand the information
in the table, investors should also read "Management's Discussion and Analysis
of Financial Condition and Results of Operations" beginning on page 13, and the
Consolidated Financial Statements and Notes beginning on page 21.
[Enlarge/Download Table]
Year Ended August,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA: (in thousands, except per share data)
Net sales ......................... $ 18,153 $ 35,869 $ 59,197 $ 52,630 $ 59,088
Cost of sales ..................... 8,984 18,425 29,889 27,650 29,236
-------- -------- -------- -------- --------
Gross Profit ...................... 9,169 17,444 29,308 24,980 29,852
Operating expenses:
Sales and distribution ........... 6,212 11,588 20,158 22,046 19,886
Marketing ........................ 484 891 2,257 2,844 2,582
General and administrative ....... 1,973 3,576 6,206 8,119 7,383
Recall and related costs ......... -- -- -- 6,518 1,242
-------- -------- -------- -------- --------
Total operating expenses ..... 8,669 16,055 28,621 39,527 31,093
-------- -------- -------- -------- --------
Income (loss) from operations ..... 500 1,389 687 (14,547) (1,241)
Other income (expense), net ....... (199) 108 346 210 (163)
-------- -------- -------- -------- --------
Income (loss) before income taxes . 301 1,497 1,033 (14,337) (1,404)
Income tax (expense) benefit ...... -- (500) (400) 1,901 25
-------- -------- -------- -------- --------
Net income (loss) ................. $ 301 $ 997 $ 633 $(12,436) $ (1,379)
======== ======== ======== ======== ========
Basic net income (loss) per share . $ 0.09 $ 0.24 $ 0.13 $ (2.49) $ (0.27)
======== ======== ======== ======== ========
Diluted net income (loss) per share $ 0.08 $ 0.22 $ 0.12 $ (2.49) $ (0.27)
======== ======== ======== ======== ========
[Enlarge/Download Table]
End of Fiscal Year
-------------------------------------------------------------------
1994 1995 1996 1997 1997
------- ------- ------- ------- -------
(in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments .. $ 2,137 $18,496 $12,413 $ 3,225 $ 3,191
Working capital ......... 2,516 17,918 14,655 1,300 1,669
Total assets ............. 12,072 35,481 37,700 31,006 29,350
Long-term liabilities .... 872 736 501 441 888
Total shareholders' equity 8,719 28,499 29,574 17,635 16,445
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking" statements about future
financial results, future business changes and other events that haven't yet
occurred. For example, statements like we "expect," we "anticipate" or we
"believe" are forward-looking statements. Investors should be aware that actual
results may differ materially from our expressed expectations because of risks
and uncertainties about the future. We will not necessarily update the
information in this Form 10-K if any forward-looking statement later turns out
to be inaccurate. Details about risks affecting various aspects of our business
are discussed throughout this Form 10-K. Investors should read all of these
risks carefully.
OVERVIEW
In the Management Discussion and Analysis section of this 10-K we are
providing more detailed information about our operating results and changes in
financial position over the past three years. This section should be read in
conjunction with the Consolidated Financial Statements and related Notes
beginning on page 21.
PRODUCT RECALL
On October 30, 1996, Odwalla was notified by the State of Washington
Environmental Health Services of an epidemiological link between several cases
of E. coli O157:H7 and Odwalla's apple juice products. We immediately
implemented a recall (the "Recall") of all Odwalla products containing apple
juice.
We experienced a significant decline in sales immediately following the
Recall and we weren't able to immediately and significantly modify certain
on-going production, distribution and other costs. Cost of sales as a percentage
of net sales increased significantly following the Recall due to reduced
production volume, especially from October 30, 1996 through the second quarter
of fiscal 1997, although this increase from historical levels continued through
fiscal 1997. In late November 1997, we reduced our work force by approximately
50 employees primarily involved in sales and distribution, followed by a further
work force reduction in other areas of the Company in the spring of 1997.
We also incurred significant direct costs as a result of the Recall,
including advertising and public relations costs, legal and professional fees,
cost of the product recalled (including the labor and freight involved in the
recall process), destruction of unsold product in inventory and packaging
supplies, costs of leased sales and distribution equipment in excess of current
volume requirements, costs of reformulating products and costs associated with
the flash pasteurization process. Total Recall and related costs in fiscal 1997
were $6,518,000, including a $2.3 million reserve for future legal costs related
to the Recall. Approximately $1.3 million of this reserve remains at August 29,
1998.
Twenty-two personal injury claims and legal proceedings have been filed
against Odwalla seeking monetary damages and other relief relating to the
Recall. There was also one legal proceeding alleging fraudulent business acts
and practices relating to the recall products. Seventeen of these claims and
proceedings have been settled. In addition, approximately 585 other claims for
damages resulting from the Recall were presented to our insurance carrier and
approximately 570 of those claims have been settled. Settlement of the personal
injury legal proceedings and claims was covered under our insurance policy. At
this time, we are unable to determine the potential liability from the remaining
legal proceedings and claims. We believe our insurance coverage is adequate to
cover such claims and legal proceedings, but the ultimate outcome of any
litigation is uncertain and we cannot be certain that insurance coverage will be
adequate. Litigation can also have an adverse impact on a company, regardless of
the outcome, due to defense costs, diversion of management resources and other
factors.
In early 1997, Odwalla was informed that it was the subject of a
federal grand jury investigation (Eastern District of California) concerning the
E. coli O157:H7 incident and related issues. In July 1998, we entered into a
13
misdemeanor plea agreement with the United States, concerning 16 shipments in
October 1996 of unpasteurized apple juice from a single contaminated batch. As
part of the plea agreement, Odwalla agreed to pay, over a period of five years,
$1.25 million to the U.S. Government and $250,000 to three non-profit
organizations involved with advancing the cause of food safety. We also agreed,
as part of the conditions attached to a five year term of unsupervised Court
probation, to develop and implement a HACCP plan and to undertake other measures
related to food safety. The net present value of the payments, $1.24 million,
was recorded as a Recall and related cost in fiscal 1998.
Odwalla maintains insurance coverage for product recall, product
adulteration, lost income and other first party business risks. We submitted a
claim to our insurance carriers for product recall costs and for business losses
incurred due to the Recall. The amount and timing of proceeds, if any, from the
claims and any future insurance claims cannot be presently determined.
GENERAL BUSINESS
Net sales in fiscal 1998 increased to $59.1 million, an increase of 12%
from $52.6 million of sales last year. We had growth in all of our geographic
market areas in fiscal 1998 and, at the very end of the year, introduced our
newest product, the natural food bar. On a generally accepted accounting
principles ("GAAP") basis, net loss for the year was $1.4 million or $.27 per
share compared to a loss of $12.4 million or $2.49 last year.
We believe it is useful to compare net income (loss) without the direct
Recall and related costs to better understand changes from year to year. Net
income, excluding 1997 and 1998 Recall and related costs and the associated tax
effects, is summarized as follows for the past three years (in thousands):
[Download Table]
YEAR ENDED AUGUST,
-----------------------------------------
1996 1997 1998
-------- -------- --------
Net sales $ 59,197 $ 52,630 $ 59,088
Gross profit 29,308 24,980 29,852
Total operating expenses 28,621 33,009 29,851
Income (loss) from operations 687 (8,029) 1
Net income (loss) 633 (6,782) (136)
Basic net income (loss) per share $ 0.13 $ (1.36) $ (0.03)
======== ======== ========
We believe that above summary shows the improvements made in fiscal
1998 to increase gross profit and decrease overall operating expenses to return
to break even operating results in the fiscal year following the Recall.
However, it also shows that we have not returned to the operating margin level
of fiscal 1996. We continue to invest in marketing and infrastructure to support
growth and expansion plans, although there is no assurance that we will see the
desired results of this investment.
Our sales strength, both historically and post-Recall, has come
predominantly from continued penetration in existing markets, sales of new
products and expansion into new markets. We believe that continued recognition
of the Odwalla brand and consumer attraction to our products, new product
introductions, better store shelves placement, increased placement of branded
in-store coolers and increased support for our route sales persons have
contributed to our sales growth.
We experience quarterly fluctuations, sometimes significant, and
anticipate that these fluctuations will continue in future quarters. Some
factors behind the fluctuations include: changes in the price or availability of
raw materials, particularly fruit products, due to seasonality, weather and
other factors; new product introductions; costs of expansion into new markets,
which can continue for many quarters beyond the market entry date; sales
promotions; buying patterns of consumers; competitor product introductions;
overall economic trends influencing consumers. In addition, weather patterns
impacting consumers, such as unseasonably cool or rainy weather, can result in
fewer sales to
14
consumers and ultimately lower sales to trade partners and higher return credits
issued if we haven't been able to forecast and adjust for the change in consumer
buying patterns. While the DSD system offers many benefits to us, it is also an
expensive and fairly fixed cost distribution system. We have invested
significantly in our production facility and management team; the benefit of
this investment will result from higher volume of product through the facility.
Conversely, lower volume than expected will result in higher fixed costs as a
percentage of sales. Finally, we may choose to reduce prices or increase
spending in response to competition in some markets, which usually has a
negative short-term effect on our results of operations.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain
statements of operations data for fiscal years 1996, 1997 and 1998. These
operating results are not necessarily indicative of the results for any future
period.
[Download Table]
YEAR ENDED AUGUST,
1996 1997 1998
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 50.5 52.5 49.5
----- ----- -----
Gross margin 49.5 47.5 50.5
Operating expenses
Sales and distribution 34.1 41.9 33.7
Marketing 3.8 5.4 4.4
General and administrative 10.5 15.4 12.5
Recall and related costs -- 12.4 2.1
Income (loss) from operations 1.2 (27.6) (2.1)
Interest and other income (expense), net .6 .4 (.2)
Income tax (expense) benefit (.7) 3.6 0.0
Net income (loss) 1.1% (23.6)% (2.3)%
NET SALES. Net sales for fiscal 1998 increased 12% to $59.1 million
compared to $52.6 million in fiscal 1997, and decreased 11% in fiscal 1997 from
$59.2 million in fiscal 1996. The 1998 sales increase, which occurred in all
geographic regions, resulted primarily from (i) new and returning products and
(ii) sales volume from new markets. Net sales are also impacted by our expanded
use of third party distributors. Because we sell product to distributors at a
wholesale price lower than the price to retail trade partners, our increased use
of distributors will not produce the same net sales growth that would occur if
the same number of products were sold to retail trade partners. We also believe
that there was a continuing negative impact on sales due to post-Recall
publicity. Sales in the third and fourth quarter of fiscal 1998 were each up
about 13% from the prior year corresponding quarter. Net sales decreased in
fiscal 1997 as compared to fiscal 1996 due to the impact of the Recall although
the impact was offset to some extent by (i) new product introductions, including
reformulated products and (ii) increased sales volumes in newly entered markets.
COST OF SALES. Cost of sales decreased to 49.5% of net sales or $29.2
million in fiscal 1998 compared to 52.5% or $27.6 million in fiscal 1997. Cost
of sales was $29.9 million or 50.5% of net sales in fiscal 1996. Gross margin
improved from 47.5% in fiscal 1997 to 50.5% in fiscal 1998 after decreasing from
49.5% in fiscal 1996. The increase in gross margin in fiscal 1998 resulted
primarily from (i) favorable sourcing, pricing and yield for fruit and other
ingredients, and (ii) an increase in operating efficiency due to increased
volume. We don't expect fruit pricing to be as favorable in the winter of
1998-1999 due to weather conditions impacting Florida oranges. As we noted
earlier, our raw material costs are always subject to varying conditions beyond
our control that impact the pricing and availability of raw ingredients. The
continued use of third party distributors can also negatively impact gross
margins.
The decrease in gross margin in fiscal 1997 resulted primarily from (i)
an increase in plant operating expenses, including depreciation and consulting
services, and (ii) an increase in labor costs as a percentage of net sales. The
increase in these two cost areas is directly related to the lower volume of
production resulting from the Recall.
15
SALES AND DISTRIBUTION. Sales and distribution expenses in fiscal 1998
decreased 10% to $19.9 million compared to $22.0 million in fiscal 1997, and
increased 9% in fiscal 1997 from $20.2 million in fiscal 1996. Sales and
distribution expenses decreased as a percentage of net sales in fiscal 1998 to
33.7% compared to 41.9% in fiscal 1997. In both the sales and cost of sales
discussions above, we mentioned the impact that the expanded use of third party
distributors would have on each line item. The expected benefit should be
reflected in lower sales and distribution expenses and we believe the change
contributed to reduced costs in fiscal 1998. We continue to look for
efficiencies in this part of our business. However, expansion into markets
serviced by our DSD system, such as the Washington, D.C. area, will require an
investment for some initial period. Expenses will also be impacted as we
experiment to find the proper mix between third party distributors and our DSD
system in a given market. Finally, the perishable nature of most of our products
and the stringent service standards established can make it difficult to find
responsible distributors in some markets.
In fiscal 1997, the expense increase resulted primarily from our
decision to maintain our existing sales and distribution infrastructure, which
had been designed for growth in both existing and newly entered markets, despite
the significantly reduced sales volume following the Recall. For example, the
cost to deliver to a given trade partner did not vary significantly despite the
lower sales associated with each stop, particularly from November 1996 and well
into the third quarter. In late July and early August 1997, we expanded the use
of the distribution channel by transferring approximately 40% of our accounts
(which represented a significantly lower percent of our sales volume) in
Northern California to a third party distributor.
MARKETING. Marketing expenses decreased 9% to $2.6 million in fiscal
1998 compared to $2.8 million in fiscal 1997, and increased 26% in fiscal 1997
compared to $2.3 million in fiscal 1996. The marketing expenditures decreased in
absolute dollars and as a percentage of net sales in fiscal 1998 primarily due
to reduced executive payroll and operating expenses offset by an increase in
advertising. We increased marketing expenses in absolute dollars and as a
percentage of net sales in fiscal 1997 to reinforce the existing consumer base
and attract new consumers to the brand and products following the Recall, expand
outside communications, develop and launch new and newly formulated products and
incur professional services related to consumer research. We expect marketing
expenses to increase in both dollars and as a percentage of net sales.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased 9% to $7.4 million in fiscal 1998 from fiscal 1997 and increased 31%
to $8.1 million in fiscal 1997 from $6.2 million in fiscal 1996. As a percentage
of net sales, general and administrative expenses decreased from 15.4% in fiscal
1997 to 12.5% in fiscal 1998. In 1998, reductions in administrative payroll and
consulting fees are the primary reasons for the change. The increase in general
and administrative expenses in absolute dollars and as a percentage of net sales
in fiscal 1997 resulted from an increase in (a) personnel in operations support,
customer service, and finance and (b) occupancy costs.
RECALL AND RELATED COSTS. Recall and related costs in fiscal 1998
represent the present value of the settlement with the U.S. Government in
connection with the grand jury investigation begun in fiscal 1997. See Item 3,
"Legal Proceedings" on page 8 for additional information.
Recall and related costs were $6.5 million in fiscal 1997. This total
represents the costs directly associated with the Recall, including: advertising
and public relations costs; legal and professional fees; costs of the product
recalled, including the labor and freight involved in the recall process;
destruction of unsold product and obsolete packaging supplies; costs of leased
equipment in excess of volume requirements; costs of reformulating products; and
costs associated with the flash pasteurization process.
Included in the $6.5 million of Recall and related costs in fiscal 1997
was a $2.2 million charge to establish a liability for future professional fees
related to the Recall. This is an estimate, and there can be no assurance that
the actual liability established will be adequate. We reviewed this charge
during fiscal 1998 and, except for the settlement noted above, believe that the
reserve established is adequate. We will continue to assess this liability and
will make appropriate adjustments if circumstances change.
16
INTEREST AND OTHER EXPENSE (INCOME). Odwalla had net interest expense
in fiscal 1998 of $206,000 compared to net interest income of $173,000 in fiscal
1997 and $541,000 in fiscal 1996. Gross interest income of $160,000 in fiscal
1998 and $322,000 in fiscal 1997 resulted primarily from the remainder of the
proceeds of the May 1996 public offering. Gross interest expense of $366,000 in
fiscal 1998 and $149,000 in fiscal 1997 resulted primarily from interest on the
line of credit established in May 1997, capital lease interest and other debt.
Gross interest expense of $94,000 in fiscal 1996 resulted from interest on
capital leases.
INCOME TAX EXPENSE (BENEFIT). The $25,000 and the $1.9 million income
tax benefit for fiscal 1998 and 1997 results from the tax benefit associated
with the loss following the Recall. The 15% effective tax rate in 1998 (after
offsetting the impact of the non-deductible settlement with the U.S. Government
discussed previously) and the 13% effective tax benefit rate in 1997 varies from
the federal statutory tax rate primarily due to the effect of establishing a
deferred tax asset valuation allowance. We recorded a valuation allowance for a
portion of the net deferred tax asset due to uncertainty as to the ultimate
realization of such assets. We will continue to assess the valuation allowance
as additional information regarding the impact of the Recall on the Company's
future profitability is available. The effective income tax rate for fiscal 1996
of 39% varies from the federal statutory tax rate of 34% primarily due to the
effective tax rate of California and other state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At August 29, 1998, we had working capital of $1.7 million compared to
working capital of $1.3 million at August 31, 1997. The increase resulted
primarily from cash provided from operations. At August 29, 1998, the Company
had cash, cash equivalents and short term investments of $3.2 million, the same
balance we reported at the end of 1997.
Net cash provided by operating activities in fiscal 1998 was $1.5
million. This consisted of the net loss plus depreciation, amortization and the
US Government settlement, a reduction in inventory, and the collection of
refundable income taxes from 1997, offset by decreases in other accrued
expenses. Net cash used in investing activities for fiscal 1998 was $284,000,
consisting primarily of capital expenditures for production equipment at the
Dinuba plant and, to a lesser extent, computer equipment and coolers offset by
sale of short-term investments. Net cash used in financing activities for fiscal
1998 was $290,000, consisting primarily of payments of long-term debt and
capital lease obligations offset by the sale of common stock through stock
option exercises.
We had purchase commitments for the future delivery of raw materials as
of August 29, 1998, approximately $1.3 million of which are under one-year
contracts to be completed through August 1999. One three-year contract is also
open, requiring purchase of $2.0 million of raw material product, and is to be
completed by May 1999.
We've used, and expect to continue to use, both operating and capital
lease financing to obtain coolers used in selling our products, computer and
communication equipment, and production assets, primarily equipment. We are
currently discussing additional lease lines with several companies, although we
don't have any commitments from a leasing company and there can be no assurance
that we will obtain the requested commitment. If we don't obtain adequate lease
other financing, our ability to obtain needed equipment may negatively impact
our operations. At August 29, 1998, we owed $165,000 for capital lease
obligations, primarily related to leasing of production equipment and delivery
vehicles.
In May 1997, we entered into a Loan and Security Agreement ("Security
Agreement") with a lender, which provides a revolving line of credit up to $5
million. Our borrowings cannot exceed 85% of eligible accounts receivable
("Receivable Line") plus up to $500,000 for new capital equipment ("Equipment
Line"). Eligible accounts receivable are defined in the Security Agreement and
generally represent all trade accounts receivable less balances that are
delinquent. We pay monthly interest on borrowings at prime plus 1.5% (10% at
August 29, 1998). The Security Agreement ends on May 31, 1999 and all borrowed
amounts will be due. We paid $47,000 in fees to obtain the Security Agreement
and will incur a termination fee (ranging from 3% to 1% of the committed
balance, depending upon the remaining loan term) if the Security Agreement is
terminated prior to May 31, 1999. The Security Agreement contains certain
restrictions, including the ability to borrow additional funds, pay dividends,
17
purchase or otherwise acquire Company stock, or encumber or sell Company assets.
The interest rate changes to prime plus 2% if our adjusted net worth, as
defined, is less than $14 million. We are required to pay interest on $2 million
and, accordingly, borrowed approximately that amount under the Receivable Line
at August 29, 1998. All of our assets are pledged as collateral under the
Security Agreement. We don't know if we will be able to extend the Security
Agreement beyond May 1999 or obtain another source of financing at terms
acceptable to us. Our working capital would be negatively impacted and we may
not have the ability to implement certain product extensions, growth plans or
other business opportunities if an acceptable source of financing is not
available.
The increased costs associated with recovering from the impact of the
Recall, our plans to invest in certain new market areas, and general corporate
needs may cause us to seek additional financing that may be dilutive to current
investors or result in a higher debt-to-equity ratio than would otherwise be the
case. Any financing we obtain may not be on terms favorable to us, even if it is
available.
Based upon information currently available, we believe that our
existing cash and cash equivalents and our current and anticipated borrowing
capability will be adequate to meet its obligations as they become due in the
next twelve months.
YEAR 2000
Many existing computer systems use only the last two digits to identify
a year. Consequently, as the year 2000 approaches, many systems do not yet
recognize the difference in a year that begins with "20" instead of "19." This,
as well as other date related processing issues, may cause systems to fail or
malfunction unless corrected.
We are currently taking steps to identify and address our internal Year
2000 issues. Our internal team, which has executive sponsorship, consists of
both internal and external personnel. We have reviewed certain systems,
including information systems, handheld computer systems, production systems and
non-information systems such as phones. We have modified certain systems and
have scheduled modifications on other systems. We have not yet addressed the
readiness of third parties with which we have relationships other than to
initiate inquiries with financial institutions. While we may obtain assurances
from third parties regarding their Year 2000 readiness, we do not have any plans
to otherwise assess their readiness and do not expect to perform such an
assessment.
While Year 2000 costs incurred to date have not been material, we will
incur additional costs as we complete our readiness. We don't believe that the
additional costs will be material, but we have not completed our assessment and
can't offer assurance regarding the additional costs. We believe we are
dedicating adequate resources toward attaining Year 2000 readiness, but there is
no assurance that we will be successful in our efforts to address all Year 2000
issues. As with all companies, we also rely on other more widely used entities
such as government agencies, public utilities and other external forces common
to business and industry. Consequently, if such entities were to experience Year
2000 failures, this could disrupt our ability to conduct ongoing operations.
We have not developed a contingency plan in the event we experience
potential failures. We intend to assess the need for contingency plans, but
can't offer any assurance that we will successfully develop such plans for areas
that might result in significant exposure.
The above discussion regarding costs, risks and estimated completion
dates for the Year 2000 is based on our best estimates given information that is
currently available, and is subject to change. As we continue to study this
issue, we may discover that actual results will differ materially from the
estimates noted above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
The following financial statements are filed as part of this Form 10-K:
18
[Enlarge/Download Table]
PAGE
----
Report of independent accountants 21
Consolidated Balance Sheets, August 31, 1997 and August 29, 1998 22
Consolidated Statements of Operations, three years in the period ended August 29, 1998 23
Consolidated Statements of Changes in Shareholders' Equity, three years in the period
ended August 29, 1998 24
Consolidated Statements of Cash Flows, three years in the period ended August 29, 1998 25
Notes to Consolidated Financial Statements 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information about executive officers and key employees required by
this Item is included under the caption "Executive Officers and Directors" in
Part I on page 9. The information about directors is incorporated by reference
to our Proxy Statement for the Annual Meeting of Shareholders to be held
February 1, 1999 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to our Proxy Statement
for the Annual Meeting of Shareholders to be held February 1, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to our Proxy Statement
for the Annual Meeting of Shareholders to be held February 1, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to our Proxy Statement
for the Annual Meeting of Shareholders to be held February 1, 1999.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS
[Download Table]
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1* Amended and Restated Articles of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant, including all related amendments.
4.1* Reference is made to Exhibits 3.1 and 3.2.
10.1** Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
10.2* Registrant's Stock Option Plan, as amended (and related stock
option grant forms).
10.6** Promissory Note dated March 1, 1993 between the Registrant
and Greg A. Steltenpohl.
10.7** Promissory Note dated March 1, 1993 between the Registrant
and Bonnie Bassett Steltenpohl.
10.8* Lease Agreement between Fred M. Bailey and Bren E. Bailey and
the Registrant, dated December 6, 1982 as amended on June 19,
1991, November 13, 1991, and July 22, 1994.
10.9* Registrant's 1994 Non-Employee Directors' Stock Option Plan
(and related stock option grant forms).
10.13# Loan and Security Agreement dated May 22, 1997 between the
Registrant and Coast Business Credit.
23.1 Consent of independent accountants
27.1 Financial Data Schedule
----------
* Incorporated by reference to Registrant's Report on Form 10-KSB for the
fiscal year ended August 31, 1994, as filed with the SEC.
** Incorporated by reference to Registrant's Registration Statement on
Form SB-2, SEC File No. 33-71530-LA, as filed with the SEC on November
9, 1993, as amended.
# Incorporated by reference to Registrant's Report on Form 10-Q for the
fiscal quarter ended May 31, 1997.
(b) REPORTS ON FORM 8-K.
1. On June 2, 1998, Odwalla filed a report on Form 8-K to report a
settlement with five separate plaintiffs in previously reported legal matters.
2. On July 31, 1998, Odwalla filed a report on Form 8-K to report that
we had reached an agreement with the U.S. Attorney to plead guilty to sixteen
shipments from one batch that contained adulterated, unpasteurized apple juice.
The introduction of shipments of an adulterated food product in interstate
commerce, even when done unknowingly, is a misdemeanor crime under Federal law.
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Odwalla, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Odwalla, Inc. and its subsidiary at August 29, 1998 and August 31, 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended August 29, 1998, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
October 26, 1998
21
ODWALLA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
[Enlarge/Download Table]
AUGUST 31, AUGUST 29,
1997 1998
-------- --------
Current assets
Cash and cash equivalents $ 2,217 $ 3,191
Short term investments 1,008 --
Trade accounts receivable, less allowance for doubtful
accounts of $592 and $588 4,610 5,491
Inventories 3,910 3,044
Refundable income taxes 660 --
Prepaid expenses and other 730 796
Deferred tax asset, current 1,095 1,164
-------- --------
Total current assets 14,230 13,686
-------- --------
Plant, property and equipment, net 13,875 13,135
-------- --------
Other assets
Officer and shareholder loans 117 52
Goodwill, net 1,333 1,225
Covenants not to compete, net 738 606
Deferred tax asset, non-current 410 366
Other noncurrent 303 280
-------- --------
Total other assets 2,901 2,529
-------- --------
Total assets $ 31,006 $ 29,350
======== ========
Current liabilities
Accounts payable $ 5,395 $ 5,339
Accrued payroll and related items 1,263 1,091
Line of credit 2,014 2,044
Other accruals 3,947 2,963
Current maturities of capital lease obligations 212 159
Current maturities of long-term debt 99 421
-------- --------
Total current liabilities 12,930 12,017
Capital lease obligations, less current maturities 162 6
Long-term debt, less current maturities 262 882
Other 17 --
-------- --------
Total liabilities 13,371 12,905
-------- --------
Commitments and contingencies (Note 4)
Shareholders' equity
Preferred stock, no par value, shares authorized, 5,000,000; no shares
issued or outstanding -- --
Common stock, no par value, shares authorized, 15,000,000; shares
issued and outstanding, 5,024,000 and 5,061,000 29,310 29,499
Retained earnings (deficit) (11,675) (13,054)
-------- --------
Total shareholders' equity 17,635 16,445
-------- --------
Total liabilities and shareholders' equity $ 31,006 $ 29,350
======== ========
See accompanying notes to consolidated financial statements.
22
ODWALLA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Download Table]
YEAR ENDED
------------------------------------------
1996 1997 1998
-------- -------- --------
Net sales $ 59,197 $ 52,630 $ 59,088
Cost of sales 29,889 27,650 29,236
-------- -------- --------
Gross profit 29,308 24,980 29,852
-------- -------- --------
Operating expenses
Sales and distribution 20,158 22,046 19,886
Marketing 2,257 2,844 2,582
General and administrative 6,206 8,119 7,383
Recall and related costs -- 6,518 1,242
-------- -------- --------
Total operating expenses 28,621 39,527 31,093
-------- -------- --------
Income (loss) from operations 687 (14,547) (1,241)
Other (expense) income, net 346 210 (163)
-------- -------- --------
Income (loss) before income taxes 1,033 (14,337) (1,404)
Income tax (expense) benefit (400) 1,901 25
-------- -------- --------
Net income (loss) $ 633 $(12,436) $ (1,379)
======== ======== ========
Basic net income (loss) per share $ 0.13 $ (2.49) $ (0.27)
======== ======== ========
Shares used in per share amounts 4,921 4,988 5,045
======== ======== ========
Diluted net income (loss) per share $ 0.12 $ (2.49) $ (0.27)
======== ======== ========
Shares used in per share amounts 5,337 4,988 5,045
======== ======== ========
See accompanying notes to consolidated financial statements.
23
ODWALLA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
[Enlarge/Download Table]
Common Stock Retained
----------------------- earnings
Shares Amount (deficit) Total
-------- -------- -------- --------
Balance, September 1, 1995 4,891 $ 28,371 $ 128 $ 28,499
Exercise of common stock options, including
related tax benefits 54 442 -- 442
Net income for the year -- -- 633 633
-------- -------- -------- --------
Balance, August 31, 1996 4,945 28,813 761 29,574
Exercise of common stock options, including
related tax benefits 79 497 -- 497
Net loss for the year -- -- (12,436) (12,436)
-------- -------- -------- --------
Balance, August 31, 1997 5,024 29,310 (11,675) 17,635
Exercise of common stock options, including
related tax benefits 37 189 -- 189
Net loss for the year -- -- (1,379) (1,379)
-------- -------- -------- --------
Balance, August 29, 1998 5,061 $ 29,499 $(13,054) $ 16,445
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
24
ODWALLA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Enlarge/Download Table]
YEAR ENDED
1996 1997 1998
-------- -------- --------
Cash flows from operating activities
Net income (loss) $ 633 $(12,436) $ (1,379)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 1,288 1,936 2,084
Amortization 244 273 251
US Government settlement -- -- 1,242
Deferred taxes (276) (1,198) (25)
Loss (gain) on sale of assets 202 (25) (50)
Changes in assets and liabilities
Trade accounts receivable (1,824) 692 (881)
Inventories (1,708) (615) 866
Refundable income taxes -- (660) 660
Prepaid expenses and other current assets (391) 234 (67)
Other noncurrent assets 11 16 77
Accounts payable 948 87 (57)
Accrued payroll and related items 98 167 (172)
Other accrued liabilities 448 3,357 (1,001)
Income taxes payable (129) (281) --
-------- -------- --------
Net cash provided by (used in) operating activities (456) (8,453) 1,548
-------- -------- --------
Cash flows from investing activities
Capital expenditures (5,681) (3,016) (1,422)
Proceeds from short-term investments, net 272 5,430 1,008
Proceeds from sale of assets 57 145 130
-------- -------- --------
Net cash provided by (used in) investing activities (5,352) 2,559 (284)
-------- -------- --------
Cash flows from financing activities
Principal payments under long-term debt (197) (153) (301)
Net borrowings under line of credit -- 2,014 31
Payments of obligations under capital leases (248) (222) (209)
Sale of common stock 442 497 189
-------- -------- --------
Net cash provided by (used in) financing activities (3) 2,136 (290)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (5,811) (3,758) 974
Cash and cash equivalents, beginning of period 11,786 5,975 2,217
-------- -------- --------
Cash and cash equivalents, end of period $ 5,975 $ 2,217 $ 3,191
======== ======== ========
Cash paid during the year for:
Interest $ 94 $ 123 $ 315
Income taxes $ 219 $ 203 $ 1
Noncash investing and financing activities: During 1996, we purchased property
in Dinuba by issuing a $225,000 note payable. During 1997, we purchased property
in Half Moon Bay by assuming a $230,000 mortgage and $45,000 of assessment
bonds. In 1998, we entered into a settlement with the US Government, as
discussed in Note 4, which requires us to pay $1.5 million over a five-year
period.
See accompanying notes to consolidated financial statements.
25
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company. Odwalla's business is to provide easy access to great tasting
nourishment. We are the leading branded fresh juice and beverage company in the
country, serving selected markets in the western, midwest and mid-Atlantic
regions of the United States. Odwalla's complete product line consists of more
than 25 fresh-squeezed and nutritionally fortified juices and smoothies, all
natural meal replacement beverages, geothermal natural spring water and
all-natural food bars.
Basis of presentation and principles of consolidation. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, Odwalla Canada, Inc. We have eliminated all significant
intercompany balances and transactions. Beginning September 1, 1997, we changed
our annual reporting periods to the 52 or 53 week period ending on the Saturday
nearest August 31. The change doesn't materially impact the comparability of
information presented in these financial statements. All references to years
refer to the Company's fiscal year. In these financial statements, our fiscal
years ended August 31, 1996 and 1997 and August 29, 1998.
Use of estimates. To comply with generally accepted accounting principles, we
make estimates and use assumptions that affect the amounts reported in the
financial statements and disclosures made in the accompanying notes. Our most
significant estimates are related to the collectibility of accounts receivable,
reserves for products to be returned and reserves for inventory that may not be
useable. We also use estimates to determine the carrying value of goodwill and
purchased intangibles. Actual results may differ from our estimates.
Cash, cash equivalents and short term investments. We consider all
investments with an initial maturity of three months or less at the date of
purchase to be cash equivalents. Both cash equivalents and short term
investments are considered available-for-sale securities and are reported at
amortized cost, which approximates fair value. The following schedule summarizes
the estimated fair value of our cash, cash equivalents and short-term
investments (in thousands):
[Download Table]
AUGUST 31, AUGUST 29,
1997 1998
--------- ---------
Cash and cash equivalents:
Cash $1,247 $1,092
Money market funds 970 2,099
------ ------
$2,217 $3,191
====== ======
Short term investments
U. S. Government securities $1,008 $ --
====== ======
Interest earned on cash, cash equivalents and short-term investments was
$314,000 and $159,000 in 1997 and 1998.
26
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories. Inventories are valued at the lower of cost (first-in,
first-out) or market (net realizable value). Our inventories consist of the
following (in thousands):
[Download Table]
AUGUST 31, AUGUST 29,
1997 1998
--------- ---------
Raw materials $2,657 $1,755
Packaging supplies and other 420 485
Inventory deposits 329 223
Finished product 504 581
------ ------
Total $3,910 $3,044
====== ======
Plant, property, equipment and depreciation. Plant, property and equipment
are stated at the lower of cost or, if impaired, the fair value at date of
impairment. We calculate depreciation and amortization using the straight-line
method over the estimated useful lives of the assets. For leasehold
improvements, the amortization period is the shorter of the estimated useful
life or the remaining lease term. Amortization of assets under capital leases is
based upon the shorter of the lease term or useful life of the leased asset and
is included with depreciation expense.
Estimated useful lives that we use are as follows:
[Download Table]
Buildings and building improvements .................... 7 to 35 years
Leasehold improvements.................................. 3 to 15 years
Machinery and equipment................................. 3 to 15 years
Vehicles................................................ 5 years
Other................................................... 3 to 7 years
Property and equipment consisted of the following (in thousands):
[Download Table]
AUGUST 31, AUGUST 29,
1997 1998
--------- ---------
Land $ 1,046 $ 1,046
Buildings and building improvements 7,097 7,205
Leasehold improvements 2,441 2,490
Machinery and equipment 6,612 7,054
Vehicles 530 538
Other 2,667 3,179
-------- --------
20,393 21,512
Less accumulated depreciation and amortization (6,518) (8,377)
-------- --------
Plant, property and equipment, net $ 13,875 $ 13,135
======== ========
Goodwill and covenants not to compete. We record goodwill when the cost of
net assets we acquire exceeds their fair value. Goodwill is amortized on a
straight-line basis over a 15-year period. We regularly perform reviews to
determine if the carrying value of the assets is impaired. The reviews look for
the existence of facts or circumstances, either internal or external, which
indicate the carrying value of the asset cannot be recovered. No such impairment
has been indicated to date. If there is impairment in the future, we will
measure the amount of the loss based on
27
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
undiscounted expected future cash flows from the impaired assets. The cash flow
calculations would be based on management's best estimates, using appropriate
assumptions and projections at the time.
We entered into covenants not to compete when we acquired certain
businesses. The cost is amortized on a straight-line basis over the life of the
agreements, currently 5 to 10 years.
Goodwill and Covenants not to compete consisted of the following (in
thousands):
[Download Table]
AUGUST 31, AUGUST 29,
1997 1998
---------- ----------
Goodwill $ 1,620 $ 1,620
Accumulated amortization (287) (395)
---------- ---------
Net $ 1,333 $ 1,225
========== =========
Covenants not to compete $ 1,100 $ 1,100
Accumulated amortization (362) (494)
---------- ---------
Net $ 738 $ 606
========== =========
Concentration of credit risk. Odwalla operates a multi-faceted business,
both manufacturing and distribution. Many circumstances could have an
unfavorable impact on our operating results. Examples include unfavorable
weather impact on raw materials, changes in government regulations, changes in
consumer demands or the emergence of significant competitors. A significant
portion of our business and our customers are currently concentrated in Northern
California.
We are also subject to risks related to our significant trade accounts
receivable, although our customer base is generally diversified in each of our
market areas due to the number of accounts that we service. We perform ongoing
evaluations of customer credit to reduce the risk associated with accounts
receivable. We maintain reserves for estimated credit losses, based on specific
customers, historical trends and other information, and those losses have
historically been within our expectations.
One customer represented approximately 14%, 12% and 13% of sales in 1996,
1997, and 1998.
Revenue recognition. We recognize sales when products are delivered to our
customers. Most of our sales are through our own direct-store-delivery or DSD
system. We usually guarantee that sales through our DSD system will be sold to
consumers and we record a reserve for products estimated to be returned. Most of
our sales to independent distributors are not guaranteed.
Earnings per share. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon the exercise of stock options and warrants
under the treasury stock method. This presentation is different this year as
Financial Accounting Standards Board Statement No. 128 ("FAS 128"), Earnings Per
Share, is now effective. FAS 128 establishes new accounting standards for the
computation and manner of presentation of the Company's earnings per share.
28
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the computation of basic and diluted earnings per
share, in thousands except per share data:
[Enlarge/Download Table]
YEAR ENDED
-----------------------------------------
1996 1997 1998
-------- -------- --------
Basic:
Weighted average common shares outstanding 4,921 4,988 5,045
Net income (loss) $ 633 $(12,436) $ (1,379)
Per share amount $ 0.13 $ (2.49) $ (0.27)
Diluted:
Weighted average common shares outstanding 4,921 4,988 5,045
Equivalent shares issuable upon exercise of options 416 -- --
-------- -------- --------
Shares used in per share amounts 5,337 4,988 5,045
Net income (loss) $ 633 $(12,436) $ (1,379)
Per share amount $ 0.12 $ (2.49) $ (0.27)
We had no dilutive common equivalent shares during fiscal 1997 or 1998 due
to the reported net loss.
2. OFFICER AND SHAREHOLDER LOANS
Officer and shareholder loans bear interest at rates generally from
7.0% to 7.5% and are due at various dates through 2001.
3. DEBT
LINE OF CREDIT
In May 1997, we entered into a Loan and Security Agreement ("Security
Agreement") with a lender which provides a revolving line of credit up to $5
million. Our borrowings cannot exceed 85% of eligible accounts receivable
("Receivable Line") plus up to $500,000 for new capital equipment ("Equipment
Line"). Eligible accounts receivable are defined in the Security Agreement and
generally represent all trade accounts receivable less balances that are
delinquent. We pay monthly interest on borrowings at prime plus 1.5% (10% at
August 29, 1998). We currently borrow only under the Receivable Line. If we
borrow under the Equipment Line, we would pay interest only for the first three
months and then pay monthly interest and principal payments using a 45 month
amortization schedule. The Security Agreement ends on May 31, 1999 and all
borrowed amounts will be due. We paid $47,000 in fees to obtain the Security
Agreement and will incur a termination fee (ranging from 3% to 1% of the
committed balance, depending upon the remaining loan term) if the Security
Agreement is terminated prior to May 31, 1999.
The Security Agreement contains certain restrictions, including the
ability to borrow additional funds, pay dividends, purchase or otherwise acquire
Company stock, or encumber or sell Company assets. The interest rate changes to
prime plus 2% if our adjusted net worth, as defined, is less than $14 million.
We are required to pay interest on $2 million whether or not we borrow that
amount and, accordingly, borrowed approximately $2 under the Receivable Line at
August 29, 1998.
Also in May 1997, we entered into a separate Loan Agreement ("Loan
Agreement") with another party to provide a $1 million facility under the same
terms noted for the Security Agreement. The Loan Agreement expired in May 1998.
We also issued a warrant for 7,000 shares of common stock at $12.50 per share
(fair market value at
29
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
issue date) under the Loan Agreement. The fair value of the warrant, which
expires in May 2002, is not significant to these financial statements.
All of our assets are pledged as collateral under the Security
Agreement.
LONG-TERM DEBT
As part of our plea agreement with the US Government discussed in Note
4, we agreed to pay $1.5 million over a five-year period, without interest.
Generally accepted accounting principles require that we impute interest, which
means that we record the obligation on a discounted basis and charge the income
statement with interest expense (in this situation, at 9.5% per year) over the
five-year period. The discounted amount recorded in July 1998 was $1,242,000.
The US Government may file a lien on all of our assets under the plea agreement
but, if they do, has agreed to allow the Security Agreement holder to retain
priority interest in our assets.
In October 1996, we assumed a $230,000 mortgage and $45,000 of Half
Moon Bay assessment bonds when we purchased land adjacent to our Half Moon Bay
administrative offices. Mortgage terms include interest at 8.75% per annum and
monthly principal and interest payments until maturity in 1999 when the
remaining balance of approximately $220,000 is due. The Half Moon Bay assessment
bonds bear interest at 7% per annum and require annual principal and interest
payments to 2006.
The carrying value of debt approximates its fair value except that we
carry the value of the US Government debt at cost less imputed interest, as
discussed above, as there is no reasonable way to evaluate this non-interest
bearing obligation.
The following summarizes long-term debt (in thousands):
[Download Table]
AUGUST 31, AUGUST 29,
1997 1998
---------- ----------
Mortgage on Half Moon Bay property $ 226 $ 221
US Government obligation -- 1,040
Bonds on Half Moon Bay property 45 42
Promissory note (interest at 5%) 75 --
Various equipment loans (interest from 9% to 14%) 15 --
------ ------
361 1,303
Less current portion 99 421
------ ------
$ 262 $ 882
====== ======
4. COMMITMENTS AND CONTINGENCIES
OPERATING AND CAPITAL LEASES
Odwalla leases office space, branch distribution facilities, equipment
and vehicles under various operating leases, including the related party lease
described below. These leases expire at various dates through 2007 and many
facility leases contain renewal options. Most property leases require us to pay
utilities, property taxes and common maintenance costs. Total operating lease
rent expense was $3.5 million, $5.5 million and $5.5 million for the years ended
in 1996, 1997 and 1998. Odwalla also leases some furniture, equipment and
vehicles under capital leases expiring through 2000.
30
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table lists property under capital leases by major
classes (in thousands):
[Download Table]
AUGUST 31, AUGUST 29,
1997 1998
---------- ----------
Machinery and equipment $ 971 $ 971
Vehicles 140 140
Other 84 84
------- -------
1,195 1,195
Less accumulated amortization (410) (638)
------- -------
Net leased equipment under capital leases $ 785 $ 557
======= =======
Future net minimum lease payments under existing capital and
operating leases as of August 29, 1998, are as follows (in thousands):
[Download Table]
CAPITAL OPERATING
YEAR ENDING IN AUGUST LEASES LEASES
--------------------- ------- ---------
1999 $ 166 $ 4,568
2000 8 3,514
2001 - 2,029
2002 - 443
2003 - 290
Thereafter - 975
------ --------
174 $ 11,819
========
Less amount representing interest (9)
------
Present value of net minimum lease payments 165
Less current maturities (159)
-------
Long-term portion $ 6
======
We occasionally sublease portions of our leased facilities to third
parties under short-term agreements. We earned $71,000, $73,000 and $54,000
under sublease agreements in 1996, 1997 and 1998.
RELATED PARTY LEASE
Our storage facility and offices in Davenport, California, were leased
from a partnership of which Mr. Steltenpohl, the Company's Chairman, is a
significant partner. We entered into an agreement to terminate our lease for
this facility as of September 30, 1998, which represented an early termination,
for a $10,000 cash payment and certain equipment valued at approximately
$13,000. In each of the last three years, we paid approximately $112,000 in rent
for this facility.
RAW MATERIAL CONTRACTS
Odwalla signs purchase commitments for the future delivery of selected
raw materials, primarily purees. Approximately $1.3 million of commitments are
under one-year contracts to be completed through August 1999. One three-year
contract requires purchase of $2.0 million of product, and is to be completed by
May 1999.
31
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECALL AND RELATED COSTS
On October 30, 1996, Odwalla was notified by the State of Washington
Environmental Health Services of an epidemiological link between several cases
of E. coli O157:H7 and Odwalla's apple juice products. We immediately
implemented a recall (the "Recall") of all Odwalla products containing apple
juice.
Twenty-two personal injury claims and legal proceedings have been filed
against Odwalla seeking monetary damages and other relief relating to the
Recall. There was also one legal proceeding alleging fraudulent business acts
and practices relating to the recall products. Seventeen of these claims and
proceedings have been settled. In addition, approximately 585 other claims for
damages resulting from the Recall were presented to our insurance carrier and
approximately 570 of those claims have been settled. Settlement of the personal
injury legal proceedings and claims was covered under our insurance policy. At
this time, we are unable to determine the potential liability from the remaining
legal proceedings and claims. We believe our insurance coverage is adequate to
cover such claims and legal proceedings, but the ultimate outcome of any
litigation is uncertain and we cannot be certain that insurance coverage will be
adequate. Litigation can also have an adverse impact on a company, regardless of
the outcome, due to defense costs, diversion of management resources and other
factors.
In early 1997, Odwalla was informed that it was the subject of a
federal grand jury investigation (Eastern District of California) concerning the
E. coli O157:H7 incident and related issues. In July 1998, we entered into a
misdemeanor plea agreement with the United States, concerning 16 shipments in
October 1996 of unpasteurized apple juice from a single contaminated batch. As
part of the plea agreement, Odwalla agreed to pay, over a period of five years,
$1.25 million to the U.S. Government and $250,000 to three non-profit
organizations involved with advancing the cause of food safety. We also agreed,
as part of the conditions attached to a five-year term of unsupervised Court
probation, to develop and implement a HACCP plan and to undertake other measures
related to food safety. The net present value of the payments, $1.24 million,
was recorded as a Recall and related cost in fiscal 1998.
Odwalla incurred significant costs related to the Recall, including
legal and professional fees, cost of the product recalled (including the labor
and freight involved in the recall process), destruction of unsold product and
now obsolete packaging supplies, advertising and public relations costs, costs
of leased sales and distribution equipment in excess of current volume
requirements, costs of reformulating products and costs associated with the
flash pasteurization process. Total Recall and related costs in fiscal 1997 were
$6,518,000, including a $2.3 million reserve for future legal costs related to
the Recall. Approximately $1.3 million of this reserve remains at August 29,
1998. Recall and related costs recorded in 1998 represent the net present value
of the US Government settlement.
Odwalla maintains insurance coverage for product recall, product
adulteration, lost income and other first party business risks. We submitted a
claim to our insurance carriers for product recall costs and for business losses
incurred due to the Recall. The amount and timing of proceeds, if any, from the
claims and any future insurance claims cannot be presently determined.
5. SHAREHOLDERS' EQUITY
Warrants. The underwriters of Odwalla's initial public offering in
December 1993 were issued warrants to purchase 105,000 shares of common stock at
$7.20 per share. These warrants expire in December 1998.
32
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plans. Under the Stock Option Plan, incentive stock
options could be granted to employees and nonstatutory stock options could be
granted to employees, directors or consultants. In December 1994, the Board of
Directors adopted the 1994 Non-Employee Directors' Stock Option Plan
("Directors' Plan") and, in January 1995, the shareholders approved this plan.
Incentive options may be granted at an exercise price not less than 100% of fair
market value on the grant date; nonstatutory options may be granted at an
exercise price not less than 85% of fair market value on the grant date. The
options generally vest one-sixtieth per month from the grant date, although
approximately 85,000 outstanding nonstatutory options vested immediately on the
grant date. Directors' Plan options may be granted at an exercise price not less
than 100% of fair market value and generally vest quarterly over a five-year
period. In general, options terminate ten years from date of grant.
In April 1997, Odwalla's shareholders approved the 1997 Stock Incentive
Plan ("1997 Plan") which replaced both the Stock Option Plan and the Directors'
Plan. The 1997 Plan consists of three programs: (i) a Discretionary Option Grant
Program ("Discretionary Program"), (ii) a Stock Issuance Program ("Stock
Program"), and (iii) an Automatic Option Grant Program ("Automatic Program"). A
total of 1,648,475 shares of Common Stock are reserved for issuance under the
1997 Plan, which includes all outstanding options under the Stock Option Plan
and Directors' Plan.
The Discretionary Program allows us to issue both incentive and
non-qualified stock options, at an exercise price not less than 100% of fair
market value on the grant date, which expire ten years or less from the grant
date; vesting is generally in a series of installments measured from the grant
date. The Stock Program allows us to issue Common Stock directly for cash,
promissory note or for past services with no cash payment; vesting may be
immediate or in one or more installments. The Automatic Program awards 5,000
shares of Common Stock to each non-employee Board member upon initial election
or appointment and 3,000 shares of Common Stock at each annual shareholders
meeting. Awards under the Automatic Program are made at an exercise price equal
to the closing fair market value of the Company's common stock on the award
date, will have a maximum term of ten years from the grant date and vest in
annual installments over a four year period at the 5,000 share award level and
after one year for the 3,000 share award level. Under all programs of the 1997
Plan, accelerated vesting provisions apply in certain situations.
The activity under the above plans was as follows:
[Enlarge/Download Table]
SHARES AVAILABLE OPTIONS OPTION PRICE WEIGHTED AVERAGE
FOR GRANT OUTSTANDING PER SHARE PRICE PER SHARE
---------------- ----------- ------------ ----------------
Balance at September 1, 1995 316,137 701,064 $ 3.33-$8.62 $ 6.04
Additional shares reserved 266,500 --
Options granted (270,906) 270,906 $20.25-$22.28 $ 20.55
Options exercised -- (59,625) $ 3.33-$20.25 $ 6.68
Options canceled 46,471 (46,471) $ 3.90-$20.25 $ 8.20
-------- -------
Balance at August 31, 1996 358,202 865,874 $ 3.33-$22.28 $ 10.30
Additional shares reserved 450,000 --
Options granted (533,329) 533,329 $10.25-$13.75 $ 11.49
Options exercised -- (78,163) $ 3.33-$10.25 $ 6.11
Options canceled 422,205 (422,205) $ 3.33-$22.28 $ 16.64
-------- -------
Balance at August 31, 1997 697,078 898,835 $ 3.33-$13.75 $ 8.59
Options granted (491,915) 491,915 $ 7.88-$12.50 $ 10.36
33
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Download Table]
Options exercised -- (35,182) $3.90-$10.62 $ 5.38
Options canceled 114,919 (114,919) $3.33-$13.75 $ 10.51
-------- --------
Balance at August 29, 1998 320,082 898,835 $3.33-$13.75 $ 9.18
======== ========
We follow Accounting Principles Board Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees," in accounting for stock-based
compensation. Accordingly, we are not required to record compensation expense
when stock options are granted to employees, as long as the exercise price is
not less than the fair market value of the stock when the option is granted. All
options that we have granted were at exercise prices at or above fair market
value of the common stock. In October 1995, the FASB issued SFAS 123,
"Accounting for Stock-Based Compensation." Although SFAS 123 allows us to
continue to follow the present APB 25 guidelines, we are required to disclose
pro forma net income (loss) and net income (loss) per share as if we had adopted
the new statement. The pro forma impact of applying SFAS 123 in fiscal 1996,
1997 and 1998 is not likely to be representative of the pro forma impact in
future years.
We have elected to use the Black-Scholes model to estimate the fair
value of options granted. This valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. This model requires the input of highly subjective
assumptions including the expected stock price volatility. Because our employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect this estimate, we believe the Black-Scholes model does not necessarily
provide a reliable single measure of fair value of our employee stock options.
Inputs used for the valuation model are as follows for 1996, 1997 and 1998:
dividend yield of 0% for all years; expected volatility of 5.1%, 5.1% and 5.2%
for all years; risk-free interest rates of 6.1%, 6.0% and 6.1%; and expected
lives approximating 5 years for all years.
Had the fair value of the options been calculated in accordance with
FAS 123, net income (loss) would have been $242,000, $(13,293,000) and
$(1,786,000) and net income (loss) per share would have been $0.04, $(2.66) and
$(0.35) for fiscal 1996, 1997 and 1998.
There were 408,113, 457,569 and 682,498 options exercisable at the end
of fiscal 1996, 1997 and 1998. The weighted average exercise price of options
exercisable at the end of 1996, 1997 and 1998 was $8.35, $8.54 and $8.05 per
share. At August 29, 1998, a total of approximately 1,648,475 shares of Common
Stock have been reserved for issuance under the Company's stock option plans.
The following table summarizes information about options outstanding at
August 29, 1998:
[Download Table]
Weighted Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (years) Price Exercisable Price
-------- ----------- ---------------- -------- ----------- --------
$3.33 - $6.66 321,465 6.5 $5.14 308,914 $5.11
$7.825 - $10.625 669,784 8.7 $10.01 269,860 $9.67
$11.28 - $13.75 249,400 5.6 $12.61 103,724 $12.59
--------- -------
1,240,649 7.5 $9.18 682,498 $8.05
========= =======
34
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EMPLOYEE BENEFIT PLAN
Odwalla matches 10% of each employee's contribution to our 401(k)
Employee Benefit Plan ("Plan"). Odwalla contributions to the Plan approximated
$36,000, $46,000 and $45,000 in 1996, 1997 and 1998.
7. TAXES ON INCOME
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. We provide a
valuation allowance against certain deferred tax assets due to the uncertainty
of whether we will ultimately realize their benefit.
Deferred tax assets consist principally of the following (in
thousands):
[Download Table]
AUGUST 31, AUGUST 29,
1997 1998
---------- ----------
Reserves and accruals $ 1,800 $ 1,475
Net operating loss carryforward 3,200 3,613
Tax credits 62 61
Property, plant and equipment (319) (237)
Inventories 30 28
State taxes -- --
Other 102 --
------- -------
4,875 4,940
Less valuation allowance (3,370) (3,410)
------- -------
Net deferred tax asset $ 1,505 $ 1,530
======= =======
The Company's effective tax rate differs from the federal statutory
rate as follows:
[Download Table]
YEAR ENDED
------------------------------
1996 1997 1998
--- --- ---
Federal statutory tax rate 34% (34)% (34)%
State income taxes 5 (5) (5)
Deferred tax asset valuation allowance -- 25 12
Benefit of net operating loss carryback -- (5) --
Permanent differences and other (6) 5 25
Taxes for prior periods 6 1 --
--- --- ---
39% (13)% (2)%
=== === ===
The permanent difference in 1998 results from the settlement with the
US Government described previously.
35
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Taxes on income consisted of the following (in thousands):
[Download Table]
YEAR ENDED
---------------------------------------
1996 1997 1998
------- ------- -------
Current:
Federal $ 429 $ (660) $ --
State 127 -- --
------- ------- -------
556 (660) --
------- ------- -------
Deferred:
Federal (130) (3,970) (68)
State (26) (641) 3
------- ------- -------
(156) (4,611) (65)
------- ------- -------
400 (5,271) (65)
Change in valuation allowance -- 3,370 40
------- ------- -------
$ 400 $(1,901) $ (25)
======= ======= =======
At August 29, 1998, we had federal and state net operating loss
carryforwards of $9.1 million and $5.2 million, respectively, which expire
between 2002 and 2018.
During 1996 and 1997, we recognized tax savings from deductions
associated with our stock option plans in the amount of $42,000 and $1,000.
There were no tax savings in 1998. These benefits are recorded as an increase in
shareholders' equity.
8. RELATED PARTY TRANSACTIONS
We retained a current board member for consulting services and incurred
fees of $40,000 and $27,500 in 1997 and 1998. Odwalla incurred consulting fees
of $35,000 and $29,000 during 1996 and 1997 by utilizing a company owned by one
of our former directors. Finally, we recorded executive recruitment fees of
$74,000 in 1996 by utilizing a company of which one of Odwalla's former
directors is a partner.
9. OTHER (EXPENSE) INCOME, NET
Other (expense) income consisted of the following (in thousands):
[Download Table]
YEAR ENDED
----------------------------------
1996 1997 1998
----- ----- -----
Interest income $ 635 $ 322 $ 160
Interest expense (94) (149) (366)
Other (195) 37 43
----- ----- -----
$ 346 $ 210 $(163)
===== ===== =====
36
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following summarizes activity in the allowance for doubtful
accounts for the years shown (in thousands):
[Enlarge/Download Table]
YEAR ENDED
----------------------------------
1996 1997 1998
----- ----- -----
Allowance for doubtful accounts, beginning of year $ 166 $ 306 $ 592
Bad debt expense for the year 398 659 258
Accounts receivable written off during the year (258) (373) (262)
----- ----- -----
Allowance for doubtful accounts, end of year $ 306 $ 592 $ 588
===== ===== =====
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
[Download Table]
Basic and diluted
Net Gross Net income net income
Sales Profit (loss) (loss) per share
----- ------ ----------- ----------------
1997
1st Quarter $ 14,101 $ 7,097 $ (4,844) $ (0.98)
2nd Quarter 11,257 4,830 (3,042) (0.61)
3rd Quarter 13,685 6,566 (1,820) (0.36)
4th Quarter 13,587 6,487 (2,730) (0.54)
-------- -------- --------
$ 52,630 $ 24,980 $(12,436) $ (2.49)
======== ======== ======== ===========
1998
1st Quarter $ 14,150 $ 7,039 $ (175) $ (0.03)
2nd Quarter 14,192 6,949 (274) (0.05)
3rd Quarter 15,446 7,974 140 0.03
4th Quarter 15,300 7,889 (1,070) (0.21)
-------- -------- --------
$ 59,088 $ 29,852 $ (1,379) $ (0.27)
======== ======== ======== ===========
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 25, 1997.
ODWALLA, INC.
By /s/ D. STEPHEN C. WILLIAMSON
--------------------------------------
D. Stephen C. Williamson
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints D. Stephen C. Williamson and James R.
Steichen, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
[Enlarge/Download Table]
SIGNATURE TITLE DATE
/s/ D. STEPHEN C. WILLIAMSON Chairman of the Board, Chief November 20, 1998
------------------------------------- Executive Officer and Director
D. Stephen C. Williamson (Principal Executive Officer)
/s/ GREG A. STELTENPOHL Director November 20, 1998
-------------------------------------
Greg A. Steltenpohl
/s/ RICHARD GRUBMAN Director November 20, 1998
-------------------------------------
Richard Grubman
/s/ RANZELL NICKELSON, II Director November 20, 1998
-------------------------------------
Ranzell Nickelson, II
/s/ MARTIN S. GANS Director November 20, 1998
-------------------------------------
Martin S. Gans
/s/ JAMES R. STEICHEN Chief Financial Officer November 20, 1998
------------------------------------- (Principal Financial and
James R. Steichen Accounting Officer)
Dates Referenced Herein and Documents Incorporated by Reference
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