SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000 Commission file number 0-18761
HANSEN NATURAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 39-1679918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1010 Railroad Street
Corona, California 92882
(Address of principal executive offices) (Zip Code)
(909) 739 - 6200
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The registrant had 9,950,069 shares of common stock
outstanding as of November 3, 2000
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
September 30, 2000
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations for the
three and nine-months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
nine-months ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Items 1-5. Not Applicable 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
September 30, December 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 125,144 $ 2,009,155
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $879,308
in 2000 and $415,305 in 1999 and promotional allowances
of $2,348,874 in 2000 and $1,651,604 in 1999) 7,361,309 3,751,258
Inventories, net 10,777,659 9,894,414
Prepaid expenses and other current assets 1,025,799 553,689
Deferred income tax asset 743,364 743,364
------------------- ------------------
20,033,275 16,951,880
PROPERTY AND EQUIPMENT, net 1,266,909 504,191
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated amortization
of $3,242,975 in 2000 and $2,995,285 in 1999) (Note 2) 16,985,932 10,768,493
Deposits and other assets 925,935 484,388
------------------- ------------------
17,911,867 11,252,881
------------------- ------------------
$ 39,212,051 $ 28,708,952
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,577,900 $ 5,936,873
Accrued liabilities 823,682 345,794
Accrued compensation 191,629 462,285
Current portion of long-term debt (Note 4) 264,460 863,501
Income taxes payable 468,043 346,636
------------------- ------------------
7,325,714 7,955,089
LONG-TERM DEBT, less current portion (Note 4) 8,803,671 902,716
DEFERRED INCOME TAX LIABILITY 1,225,271 1,225,271
SHAREHOLDERS' EQUITY:
Common stock - $.005 par value; 30,000,000 shares authorized; 9,950,069 and
10,010,084 shares issued
and outstanding in 2000 and 1999, respectively 50,677 50,050
Additional paid-in capital 11,596,086 11,340,074
Retained earnings 10,941,130 7,235,752
Common stock in treasury, at cost - 185,375 and 0 shares
in 2000 and 1999 respectively (730,498)
------------------- ------------------
Total shareholders' equity 21,857,395 18,625,876
------------------- ------------------
$ 39,212,051 $ 28,708,952
=================== ==================
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTHS AND NINE-MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -----------------------------------
2000 1999 2000 1999
---------------- ----------------- ---------------- ----------------
NET SALES $ 22,701,624 $ 20,491,265 $ 61,346,401 $ 54,862,616
COST OF SALES 11,723,298 11,060,928 32,472,187 29,044,061
---------------- ----------------- ---------------- ----------------
GROSS PROFIT 10,978,326 9,430,337 28,874,214 25,818,555
OPERATING EXPENSES:
Selling, general and administrative 8,576,155 7,121,372 22,322,793 19,373,804
Amortization of trademark license and trademarks 82,638 76,604 247,935 224,900
Other expenses 30,000
---------------- ----------------- ---------------- ----------------
Total operating expenses 8,658,793 7,197,976 22,570,728 19,628,704
---------------- ----------------- ---------------- ----------------
OPERATING INCOME 2,319,533 2,232,361 6,303,486 6,189,851
NONOPERATING EXPENSE (INCOME)
Interest and financing expense 76,873 34,651 169,059 137,763
Interest income (2,917) (40,758) (11,467) (90,781)
---------------- ----------------- ---------------- ----------------
Net nonoperating expense (income) 73,956 (6,107) 157,592 46,982
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,245,577 2,238,468 6,145,894 6,142,869
PROVISION FOR INCOME TAXES 880,389 901,700 2,440,516 2,457,000
---------------- ----------------- ---------------- ----------------
NET INCOME $ 1,365,188 $ 1,336,768 $ 3,705,378 $ 3,685,869
================ ================= ================ ================
NET INCOME PER COMMON SHARE:
Basic $ 0.14 $ 0.13 $ 0.37 $ 0.37
================ ================= ================ ================
Diluted $ 0.13 $ 0.13 $ 0.35 $ 0.35
================ ================= ================ ================
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 9,937,509 9,975,976 9,959,592 9,950,566
================ ================= ================ ================
Diluted 10,467,662 10,625,105 10,440,377 10,544,156
================ ================= ================ ================
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)
- --------------------------------------------------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,705,378 $ 3,685,869
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of trademark license and trademarks 247,690 224,900
Depreciation and other amortization 207,782 139,939
Loss on disposal of fixed assets 15,417
Compensation expense related to issuance of stock options 73,026
Deferred income taxes 199,525
Effect on cash of changes in operating assets and liabilities:
Accounts receivable (3,610,051) (2,594,138)
Inventories (883,245) (2,614,996)
Prepaid expenses and other current assets (472,110) (345,751)
Accounts payable (358,973) 4,425,599
Accrued liabilities 477,888 81,906
Accrued compensation (270,656) (162,752)
Income taxes payable 121,407 (1,146,843)
----------------- -----------------
Net cash (used in) provided by operating activities (819,473) 1,966,284
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (985,917) (129,585)
Increase in trademark license and trademarks (6,465,129) (960,146)
Decrease in note receivable from director 20,861
Increase in deposits and other assets (441,547) (431,836)
----------------- -----------------
Net cash used in investing activities (7,892,593) (1,500,706)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line-of-credit borrowings 8,285,884
Principal payments on long-term debt (1,519,202) (1,904,926)
Increase in long-term debt 535,231 431,250
Issuance of common stock 256,640 27,781
Redemption of common stock (730,498)
----------------- -----------------
Net cash provided by (used in) financing activities 6,828,055 (1,445,895)
----------------- -----------------
NET DECREASE IN CASH (1,884,011) (980,317)
CASH, beginning of period 2,009,155 3,806,089
----------------- -----------------
CASH, end of period $ 125,144 $ 2,825,772
================= =================
SUPPLEMENTAL INFORMATION Cash paid during the year for:
Interest $ 144,473 $ 152,701
================= =================
Income taxes $ 2,319,109 $ 3,370,000
================= =================
5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)
- --------------------------------------------------------------------------------
NONCASH TRANSACTIONS:
During the nine-month period ended September 30, 2000, the Company issued
15,360 shares of common stock to employees in connection with a net
exercise of options to purchase 23,327 shares of common stock.
During the nine-month period ended September 30, 1999, the Company issued
67,876 shares of common stock to employees in connection with a net
exercise of options to purchase 92,800 shares of common stock.
6
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE-MONTHS ENDED
SEPTEMBER 30, 2000 AND YEAR-ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Reference is made to the Notes to Consolidated Financial Statements,
in the Company's Form 10-K for the year ended December 31, 1999, which
is incorporated by reference, for a summary of significant policies
utilized by Hansen Natural Corporation ("Hansen" or "Company") and its
subsidiaries, Hansen Beverage Company ("HBC"), and Hard e Beverage
Company (formerly known as Hard Energy Company). HBC owns all of the
issued and outstanding common stock of Blue Sky Natural Beverage Co.
which was incorporated in Delaware on September 8, 2000 ("BSNBC")
(Note 2). The information set forth in these interim financial
statements is unaudited and is subject to normal year-end adjustments.
The information reflects all adjustments, which include only normal
recurring adjustments, which in the opinion of management are
necessary to make the financial statements not misleading. Results of
operations covered by this report may not necessarily be indicative of
results of operations for the full fiscal year.
2. ACQUISITION
On September 20, 2000, the Company acquired through its subsidiary,
BSNBC, the beverage business from Blue Sky Natural Beverage Co., a New
Mexico corporation, including the Blue Sky trademarks and certain
other assets for a purchase price of $6.5 million. The Blue Sky(R)
products include a range of all-natural carbonated sodas and seltzers
that are marketed throughout the United States and in certain
international markets, principally to the health food trade. The
acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
Accordingly, the purchase price inclusive of certain acquisition
costs, was allocated to the tangible and intangible assets acquired
based on a preliminary valuation of their respective fair values at
the date of acquisition. The purchase price, inclusive of certain
acquisition costs, was financed through the Company's modified line of
credit (Note 4).
Trademarks acquired will be amortized on a straight-line basis over
forty years. The operating results of BSNBC have been included in the
Company's results of operations since the date of acquisition.
7
3. INVENTORIES
Inventories consist of the following at:
September 30, December 31, 1999
2000
--------------------- ---------------------
Raw materials $4,066,120 $3,615,269
Finished goods 6,879,947 6,442,193
--------------------- ---------------------
10,946,067 10,057,462
Less inventory reserves (168,408) (163,048)
--------------------- ---------------------
$10,777,659 $9,894,414
===================== =====================
4. LONG-TERM DEBT
In 1997, HBC obtained a credit facility from Comerica-Bank California
("Comerica"), consisting of a revolving line of credit of up to $3
million in aggregate at any time outstanding and a term loan of $4
million. That facility was subsequently modified from time to time. In
the third quarter ended September 30, 2000, the Company entered into a
modification agreement with Comerica to amend certain agreements under
the above facility in order to finance the acquisition of BSNBC
(Note2), payoff the term loan, and provide additional working
capital ("Modification Agreement"). Pursuant to the Modification
Agreement, the revolving line of credit was increased to $12.0 million,
reducing to $6.0 million by September 2004. The revolving line of
credit remains of full force and effect through September 2005.
Further, the rate of interest payable by the Company on advances
under the line of credit are based on the bank's base (prime) rate,
plus an additional amount of up to .5% or the bank's LIBOR rate, plus
an additional amount of up to 2.5%, depending upon certain financial
ratios of the Company from time to time.
The initial use of proceeds under the Modification Agreement was to pay
$6.5 million to the seller in connection with the acquisition of BSNBC,
to payoff the remaining $807,000 balance due under the term loan and
to finance working capital. The Company's borrowings on the line of
credit at September 30, 2000 were $8,286,000.
The Modification Agreement contains financial covenants that require
the Company to maintain certain financial ratios and achieve certain
levels of annual income. The Modification Agreement also contains
certain non-financial covenants. At September 30, 2000, the Company was
in compliance with all covenants.
In the third quarter ended September 30, 2000, the Company entered into
capital leases for the acquisition of certain fixed assets having a
cost value of $544,000, payable over a five-year period. The effective
interest rate payable under such capital leases is 8.8%.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
General
For the three months ended September 30, 2000, net sales were $22.7
million, an increase of $2.2 million or 10.8% over net sales of $20.5 million
for the three months ended September 30, 1999. The increase in net sales during
the three months ended September 30, 2000 was primarily attributable to
increased sales of the Company's functional drinks and apple juice. The increase
in net sales was also attributable, to a lesser extent, to the introduction of
Healthy Start in glass bottles in the first quarter of 2000, and Hard e, an
alcoholic malt beverage, fruit and grain bars and functional cereals in the
third quarter of 2000. The increase in net sales was partially offset by
decreased sales of Smoothies in cans and glass bottles, Healthy Start in P.E.T.
plastic bottles and other product lines.
In the third quarter of 2000, the Company introduced a line of
functional fruit and grain energy bars as well as a line of gourmet genetically
modified organism-free (G.M.O. free) functional cereals. Additionally, the
Company's subsidiary, Hard e Beverage Company, commenced limited sales of its
malt based drink, called Hard e, which contains five percent alcohol. The Hard e
product is not being marketed under the Hansen's(R) name.
During the three months ended September 30, 2000, the gross profit
margins achieved by the Company increased to 48.4% from 47.2% during the second
quarter of 2000. For the nine months ended September 30, 2000, the gross profit
margin was 47.1%, which was consistent with the gross profit margin achieved by
the Company for the nine months ended September 30, 1999.
The Company continues to incur expenditures in connection with
development and introduction of new products and flavors.
During the nine months ended September 30, 2000, the Company
repurchased an aggregate of 185,375 shares of its common stock at an average
price of $3.94 per share. The Company did not repurchase any shares of common
stock during the three months ended September 30, 2000.
9
Results of Operations For The Three-Months Ended September 30, 2000 Compared to
the Three-Months Ended September 30, 1999
Net Sales. For the three months ended September 30, 2000, net sales
were $22.7 million, an increase of $2.2 million or 10.8% over net sales of $20.5
million for the three months ended September 30, 1999. The increase in net sales
during the three months ended September 30, 2000 was primarily attributable to
increased sales of the Company's functional drinks in 8.2 oz. cans and apple
juice. The increase in net sales was also attributable, to a lesser extent, to
the introduction of Healthy Start in glass bottles in the first quarter of 2000,
and Hard e, an alcoholic malt beverage, fruit and grain bars and functional
cereals in the third quarter of 2000. The increase in net sales was partially
offset by decreased sales of Smoothies in cans and glass bottles, Healthy Start
in P.E.T. plastic bottles and other product lines.
Gross Profit. Gross profit was $11.0 million for the three-months ended
September 30, 2000, an increase of $1.5 million or 16.4% over the $9.4 million
gross profit for the three-months ended September 30, 1999. Gross profit as a
percentage of net sales increased to 48.4% for the three-months ended September
30, 2000 from 46.0% for the three-months ended September 30, 1999. The increase
in gross profit and gross profit as a percentage of net sales was primarily
attributable to higher margins achieved as a result of a change in the Company's
product mix.
Total Operating Expenses. Total operating expenses were $8.7 million
for the three-months ended September 30, 2000, an increase of $1.5 million or
20.3% over total operating expenses of $7.2 million for the three-months ended
September 30, 1999. Total operating expenses as a percentage of net sales
increased to 38.1% for the three-months ended September 30, 2000 from 35.1% for
the three-months ended September 30, 1999. The increase in total operating
expenses and total operating expenses as a percentage of net sales was primarily
attributable to increased selling, general and administrative expenses.
Selling, general and administrative expenses were $8.6 million for the
three-months ended September 30, 2000, an increase of $1.5 million or 20.4% over
selling, general and administrative expenses of $7.1 million for the
three-months ended September 30, 1999. Selling, general and administrative
expenses as a percentage of net sales increased to 37.8% for the three-months
ended September 30, 2000 from 34.8% for the three-months ended September 30,
1999. The increase in selling expenses and selling expenses as a percentage of
net sales was primarily attributable to increases in distribution (freight and
warehouse) costs and promotional allowances and expenditures as well as slotting
fees and expenditures for merchandise displays which was partially offset by a
decrease in expenditures for in-store demonstrations. The increase in general
and administrative expenses and general and administrative expenses as a
percentage of net sales was primarily attributable to increased payroll, in part
due to new hires in anticipation of new and current product launches.
Amortization of trademark license and trademarks was $83,000 for the
three-months ended September 30, 2000, as compared to amortization of trademark
license and trademarks of $77,000 for the three-months ended September 30, 1999.
10
Operating Income. Operating income was $2.3 million for the
three-months ended September 30, 2000, an increase of $87,000 or 3.9% over
operating income of $2.2 million for the three-months ended September 30, 1999.
Operating income as a percentage of net sales decreased to 10.2% for the
three-months ended September 30, 2000 from 10.9% in the comparable period in
1999. The increase in operating income was attributable to the $1.5 million
increase in gross profit which was substantially offset by the increase of $1.5
million in operating expenses. The decrease in operating income as a percentage
of net sales was primarily attributable to the increase in selling, general and
administrative expenses as a percentage of net sales.
Net Nonoperating Expense. Net nonoperating expense was $74,000 for the
three-months ended September 30, 2000, an increase of $80,000 from net
nonoperating income of $6,000 for the three-months ended September 30, 1999. Net
nonoperating expense consists of interest and financing expense and interest
income. Interest and financing expense was $77,000 for the three-months ended
September 30, 2000 as compared to $35,000 for the comparable period in 1999. The
increase in interest and financing expense was primarily attributable to
interest incurred on increased borrowings under the Company's line of credit for
working capital and borrowings in connection with the acquisition of BSNBC and
interest incurred in connection with the capital leases entered into. Interest
income was $3,000 for the three-months ended September 30, 2000, as compared to
interest income of $41,000 during the comparable period in 1999. The decrease in
interest income is attributable to a decrease in cash available for investing in
interest bearing securities.
Provision for Income Taxes. Provision for income taxes was $880,000 for
the three-months ended September 30, 2000, a decrease of $21,000 over the
provision for income taxes of $902,000 for the comparable period in 1999. The
effective tax rate for the three-months ended September 30, 2000 was 39.2% as
compared to 40.3% for the comparable period in 1999. The decrease in the
effective tax rate is attributable to a decrease in the provision for income
taxes due to a refund of certain taxes paid in the prior year.
Net Income. Net income was $1,365,000 for the three-months ended
September 30, 2000, compared to net income of $1,337,000 for the three-months
ended September 30, 1999, an increase of $28,000 or 2.1%. The increase in net
income consists of an increase in operating income of $87,000 and decrease in
provision for income taxes of $21,000 which was partially offset by an increase
in net interest and financing expense of $80,000.
11
Results of Operations For The Nine-months Ended September 30, 2000 Compared to
The Nine-months Ended September 30, 1999
Net Sales. For the nine-months ended September 30, 2000, net sales were
approximately $61.3 million, an increase of $6.5 million or 11.8% over the $54.9
million net sales for the nine-months ended September 30, 1999. The increase in
net sales was primarily attributable to increased sales of the Company's
functional drinks in 8.2 oz. cans, the introduction of the Company's new line of
children's multi-vitamin juice drinks in aseptic packaging which was introduced
in the third quarter of 1999, and increased sales of apple juice. The increase
in net sales was also attributable, to a lesser extent, to increased sales of
Natural Sodas and the introduction of Super Smoothies in cans in the third
quarter of 1999, the introduction of Healthy Start in glass bottles in the first
quarter of 2000 and the introduction of Hard e, an alcoholic malt beverage,
fruit and grain bars and functional cereals in the third quarter of 2000. The
increase in net sales was partially offset by decreased sales of Healthy Start
in P.E.T. bottles, Smoothies in cans, P.E.T. and glass bottles, and Signature
Sodas.
Gross Profit. Gross profit was $28.9 million for the nine-months ended
September 30, 2000, an increase of $3.1 million or 11.8% over the $25.8 million
gross profit for the nine-months ended September 30, 1999. Gross profit as a
percentage of net sales remained consistent at 47.1% of net sales for the
nine-months ended September 30, 2000 and 1999 respectively. The increase in
gross profit was primarily attributable to increased net sales.
Total Operating Expenses. Total operating expenses were $22.6 million
for the nine-months ended September 30, 2000, an increase of $2.9 million or
15.0% over total operating expenses of $19.6 million for the nine-months ended
September 30, 1999. Total operating expenses as a percentage of net sales
increased to 36.8% for the nine-months ended September 30, 2000 from 35.8% for
the nine-months ended September 30, 1999. The increase in total operating
expenses and total operating expenses as a percentage of net sales was primarily
attributable to increased selling, general and administrative expenses.
Selling, general and administrative expenses were $22.3 million for the
nine-months ended September 30, 2000, an increase of $2.9 million or 15.2% over
selling, general and administrative expenses of $19.4 million for the
nine-months ended September 30, 1999. Selling, general and administrative
expenses as a percentage of net sales increased to 36.4% for the nine-months
ended September 30, 2000 from 35.3% for the nine-months ended September 30,
1999. The increase in selling expenses and selling expenses as a percentage of
net sales was primarily attributable to increases in distribution (freight and
warehouse) costs, promotional allowances and expenditures, slotting fees and
expenditures for merchandise displays which was partially offset by a decrease
in expenditures for in-store demonstrations. The increase in general and
administrative expenses and general and administrative expenses as a percentage
of net sales was primarily attributable to increased payroll, in part due to new
hires in anticipation of new and current product launches.
Amortization of trademark license and trademarks was $248,000 for the
nine-months ended September 30, 2000, an increase of $23,000 or 10.2% over
amortization of trademark license and trademarks of $225,000 for the nine-months
ended September 30, 1999.
12
Other expenses of $30,000 for the nine-months ended September 30, 1999
related to a consulting agreement with a director of the Company that expired
during 1999.
Operating Income. Operating income was $6,303,000 for the nine-months
ended September 30, 2000, an increase of $114,000 or 1.8% over operating income
of $6,190,000 for the nine-months ended September 30, 1999. Operating income as
a percentage of net sales decreased to 10.3% for the nine-months ended September
30, 2000 from 11.3% in the comparable period in 1999. The increase in operating
income was primarily attributable to the increase in gross profit of $3.1
million which was substantially offset by the increase in operating expenses of
$2.9 million. The decrease in operating income as a percentage of net sales was
primarily attributable to the increase in selling, general and administrative
expenses as a percentage of net sales for the nine-months ended September 30,
2000.
Net Nonoperating Expense. Net nonoperating expense was $158,000 for the
nine-months ended September 30, 2000, an increase of $111,000 from net
nonoperating expense of $47,000 for the nine-months ended September 30, 1999.
Net non-operating expense consists of interest and financing expense and
interest income. Interest and financing expense was $169,000 for the nine-months
ended September 30, 2000 as compared to $138,000 for the comparable period in
1999. The increase in interest and financing expense was primarily attributable
to interest incurred on increased borrowings under the Company's line of credit
for working capital and amounts borrowed in connection with the acquisition of
BSNBC and interest incurred in connection with the capital leases entered into.
Interest income was $11,000 for the nine-months ended September 30, 2000, as
compared to interest income of $91,000 during the comparable period in 1999. The
decrease in interest income is attributable to a decrease in cash available for
investing in interest bearing securities.
Provision for Income Taxes. Provision for income taxes was $2,441,000
for the nine months ended September 30, 2000, a decrease of $16,000 over the
provision for income taxes of $2,457,000 for the comparable period in 1999. The
effective tax rate for the nine-months ended September 30, 2000 was 39.7% as
compared to 40.0% for the comparable period in 1999. The decrease in the
effective tax rate is attributable to a decrease in the provision for income
taxes due to a refund of certain taxes paid in the prior year.
Net Income. Net income was $3,705,000 for the nine-months ended
September 30, 2000 compared to net income of $3,686,000 for the nine-months
ended September 30, 1999. The $19,000 increase in net income consists of an
increase in operating income of $114,000 and decrease in provision for income
taxes of $16,000 which was offset by an increase of $111,000 in non operating
expenses.
13
Liquidity and Capital Resources
As of September 30, 2000, the Company had working capital of
$12,708,000 compared to working capital of $8,997,000 as of December 31, 1999.
The increase in working capital was primarily attributable to net income earned
after adjustments for certain noncash expenses, primarily amortization of
trademark license and trademarks and depreciation and other amortization. The
increase in working capital was partially offset by repurchases by the Company
of the Company's common stock, acquisitions of property and equipment and
increases in deposits and other assets.
Net cash used in operating activities was $819,000 for the nine-months
ended September 30, 2000 as compared to net cash provided by operating
activities of $1,966,000 for the comparable period in 1999. For 2000, net cash
used in operating activities was primarily attributable to increases in
operating assets and decreases in operating liabilities including increases in
accounts receivable and inventories and increased payments on account of
accounts payable and accrued compensation. The increase in cash used in
operating activities was partially offset by an increase in accrued liabilities.
Net cash used in investing activities was $7,893,000 for the
nine-months ended September 30, 2000 as compared to net cash used in investing
activities of $1,501,000 for the comparable period in 1999. The increase in net
cash used in investing activities was primarily attributable to the acquisition
of BSNBC as well as purchases of property and equipment.
Net cash provided by financing activities was $6,828,000 for the
nine-months ended September 30, 2000 as compared to net cash used in financing
activities of $1,446,000 for the comparable period in 1999. The increase in net
cash provided by financing activities was primarily attributable to borrowings
on the Company's line of credit to finance the acquisition of BSNBC. The
increase in net cash provided by financing activities was partially offset by
repurchases by the Company of the Company's common stock and principal payments
made in reduction of HBC's term loan.
In 1997, HBC obtained a credit facility from Comerica-Bank California
("Comerica"), consisting of a revolving line of credit of up to $3 million in
aggregate at any time outstanding and a term loan of $4 million. That facility
was subsequently modified from time to time. In the third quarter ended
September 30, 2000, the Company entered into a modification agreement with
Comerica to amend certain agreements under the above facility in order to
finance the acquisition of BSNBC (Note 2), payoff the term loan, and provide
additional working capital ("Modification Agreement"). Pursuant to the
Modification Agreement, the revolving line of credit was increased to $12.0
million, reducing to $6.0 million by September 2004. The revolving line of
credit remains of full force and effect through September 2005. Further, the
rate of interest payable by the Company on advances under the line of credit are
based on the bank's base (prime) rate, plus an additional amount of up to .5% or
the bank's LIBOR rate, plus an additional amount of up to 2.5%, depending upon
certain financial ratios of the Company from time to time.
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The initial use of proceeds under the Modification Agreement was to pay
$6.5 million to the seller in connection with the acquisition of BSNBC, to
payoff the remaining $807,000 balance due under the term loan and to finance
working capital. The Company's borrowings on the line of credit at September 30,
2000 were $8,286,000.
The Modification Agreement imposes quarterly and annual financial
covenants requiring the Company to maintain certain financial ratios and achieve
certain levels of annual income. The Modification Agreement also contains
certain non-financial covenants. At September 30, 2000, the Company was in
compliance with all covenants.
In the third quarter ended September 30, 2000, the Company entered into
capital leases for the acquisition of certain fixed assets having a cost value
of $544,000, payable over a five-year period. The effective interest rate
payable under such capital leases is 8.8%.
Increases in accounts receivable, the acquisition of increased
inventory, property and equipment, increases in deposits and other assets,
repayment of the Company's long-term debt, repurchases of the Company's common
stock, as well as HBC's acquisition and development plans are, and for the
foreseeable future are, expected to remain HBC's principle recurring use of cash
and working capital funds. Management, from time to time, considers the
acquisition of capital equipment, particularly coolers, merchandise displays,
vans and promotional vehicles, trademarks, and businesses compatible with the
image of the Hansen's(R) brand as well as the development and introduction of
new product lines. The Company may require additional capital resources for, or
in connection with, such activities depending upon the cash requirements
relating thereto. Any such activities will also be subject to the terms and
restrictions of HBC's credit facilities.
Management believes that cash generated from operations and the
Company's cash resources and amounts available under HBC's line of credit, will
be sufficient to meet its working capital requirements in the foreseeable
future, including purchase commitments for raw materials, debt servicing,
expansion and development needs as well as any purchases of capital assets or
equipment and repurchases of the Company's common stock.
Forward Looking Statements
The Private Security Litigation Reform Act of 1995 (the "Act") provides
a safe harbor for forward looking statements made by or on behalf of the
Company. The Company and it's representatives may from time to time make written
or oral forward looking statements, including statements contained in this
report and other filings with the Securities and Exchange Commission and in
reports to shareholders and announcements. Certain statements made in this
report, including certain statements made in management's discussion and
analysis, may constitute forward looking statements (within the meaning of
Section 27.A of the Securities Act 1933 as amended and Section 21.E of the
Securities Exchange Act of 1934, as amended) regarding the expectations of
management with respect to revenues, profitability, adequacy of funds from
operations and the Company's existing credit facility, among other things. All
statements which address operating performance, events or developments that
management expects or anticipates will or may occur in the future including
statements related to new products, volume growth, revenues, profitability,
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adequacy of funds from operations, and/or the Company's existing credit
facility, earnings per share growth, statements expressing general optimism
about future operating results and non-historical Year 2000 information, are
forward looking statements within the meaning of the Act.
Management cautions that these statements are qualified by their terms and/or
important factors, many of which are outside the control of the Company that
could cause actual results and events to differ materially from the statements
made including, but not limited to, the following:
o Company's ability to generate sufficient cash flows to support capital
expansion plans and general operating activities;
o Changes in consumer preferences;
o Changes in demand that are weather related, particular in areas outside of
California;
o Competitive products and pricing pressures and the Company's ability to
gain or maintain share of sales in the marketplace as a result of actions
by competitors;
o The introduction of new products;
o Laws and regulations, and/or any changes therein, including changes in
accounting standards, taxation requirements (including tax rate changes,
new tax laws and revised tax law interpretations) and environmental laws as
well as the Federal Food Drug and Cosmetic Act, the Dietary Supplement
Health and Education Act, and regulations made thereunder or in connection
therewith, especially those that may affect the way in which the Company's
products are marketed as well as laws and regulations or rules made or
enforced by the Food and Drug Administration;
o Changes in the cost and availability of raw materials and the ability to
maintain favorable supply arrangements and relationships and procure timely
and/or adequate production of all or any of the Company's products;
o The Company's ability to achieve earnings forecasts, which may be based on
projected volumes and sales of many product types and/or new products,
certain of which are more profitable than others. There can be no assurance
that the Company will achieve projected levels or mixes of product sales;
o The Company's ability to penetrate new markets;
o The marketing efforts of distributors of the Company's products, most of
which distribute products that are competitive with the products of the
Company;
o Unilateral decisions by distributors, grocery chains, specialty chain
stores, club stores and other customers to discontinue carrying all or any
of the Company's products that they are carrying at any time;
o The terms and/or availability of the Company's credit facilities and the
actions of it's creditors;
o The effectiveness of the Company's advertising, marketing and
promotional programs;
o Adverse weather conditions, which could reduce demand for the Company's
products;
o The Company's ability to make suitable arrangements for the co-packing of
its functional drinks in 8.2-ounce slim cans and Smoothies in 11.5-ounce
cans.
The foregoing list of important factors is not exhaustive.
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Inflation
The Company does not believe that inflation has a significant impact on
the Company's results of operations for the periods presented.
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PART II - OTHER INFORMATION
Items 1 - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-k dated
September 20, 2000, with regards to the Company's
acquisition of certain assets of Blue Sky Natural
Beverage Co., a New Mexico corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HANSEN NATURAL CORPORATION
Registrant
Date: November 9, 2000
/s/ Rodney C. Sacks
Chairman of the Board
and Chief Executive Officer
Date: November 9, 2000
/s/ Hilton H. Schlosberg
Vice Chairman of the Board,
President, Chief Operating Officer,
Chief Financial Officer and Secretary
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EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
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