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 March 31, 2001 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)
Registrant's telephone number, including area code:
(909) 739 - 6200
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 10,045,003 shares of common stock
outstanding as of May 1, 2001
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
March 31, 2001
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 3
Consolidated Statements of Income for the
three-months ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the
three-months ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements for the
three-months ended March 31, 2001 and year
ended December 31, 2000 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. OTHER INFORMATION
Items 1-5. Not Applicable 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 (Unaudited) AND DECEMBER 31, 2000
- --------------------------------------------------------------------------------
March 31, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 193,626 $ 130,665
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $771,150
in 2001 and $486,462 in 2000 and promotional allowances
of $2,752,010 in 2001 and $2,583,088 in 2000) 6,326,432 6,584,486
Inventories, net 10,192,788 10,907,895
Prepaid expenses and other current assets 1,003,669 823,387
Deferred income tax asset 881,618 881,618
------------------ -----------------
Total current assets 18,598,133 19,328,051
PROPERTY AND EQUIPMENT, net 1,868,088 1,863,044
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated amortization
of $3,489,590 in 2001 and $3,366,358 in 2000) 16,774,691 16,887,914
Deposits and other assets 680,354 665,731
------------------ -----------------
Total intangible and other assets 17,455,045 17,553,645
------------------ -----------------
$ 37,921,266 $ 38,744,740
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,027,810 $ 3,681,956
Accrued liabilities 496,396 607,443
Accrued compensation 86,369 281,629
Current portion of long-term debt 236,553 234,655
Income taxes payable 849,166 878,266
------------------ -----------------
Total current liabilities 5,696,294 5,683,949
LONG-TERM DEBT, less current portion 8,542,068 9,731,956
DEFERRED INCOME TAX LIABILITY 1,274,139 1,274,139
SHAREHOLDERS' EQUITY:
Common stock - $.005 par value; 30,000,000 shares authorized; 10,251,764 shares
issued, 10,045,003 outstanding
in 2001; 10,148,882 shares issued, 9,942,121 outstanding in 2000. 51,259 50,744
Additional paid-in capital 11,695,725 11,667,619
Retained earnings 11,476,326 11,150,878
Common stock in treasury; at cost - 206,761 shares
in 2001 and 2000 respectively (814,545) (814,545)
------------------ -----------------
Total shareholders' equity 22,408,765 22,054,696
------------------ -----------------
$ 37,921,266 $ 38,744,740
================== =================
See accompanying notes to consolidated financial statements.
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited)
- --------------------------------------------------------------------------------
2001 2000
---- ----
NET SALES $ 18,768,796 $ 15,978,002
COST OF SALES 10,518,471 8,774,042
--------------------- --------------------
GROSS PROFIT 8,250,325 7,203,960
OPERATING EXPENSES:
Selling, general and administrative 7,383,006 5,953,412
Amortization of trademark license and trademarks 123,232 82,659
--------------------- --------------------
Total operating expenses 7,506,238 6,036,071
--------------------- --------------------
OPERATING INCOME 744,087 1,167,889
NON-OPERATING EXPENSE (INCOME):
Interest and financing expense 202,956 28,295
Interest income (1,284) (7,244)
--------------------- --------------------
Net non-operating expense 201,672 21,051
--------------------- --------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 542,415 1,146,838
PROVISION FOR INCOME TAXES 216,967 458,735
--------------------- --------------------
NET INCOME $ 325,448 $ 688,103
===================== ====================
NET INCOME PER COMMON SHARE:
Basic $ 0.03 $ 0.07
===================== ====================
Diluted $ 0.03 $ 0.07
===================== ====================
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 10,009,955 9,998,657
===================== ====================
Diluted 10,306,699 10,481,940
===================== ====================
See accompanying notes to consolidated financial statements.
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited)
- --------------------------------------------------------------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 325,448 $ 688,103
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of trademark license and trademarks 123,232 82,414
Depreciation and other amortization 97,654 45,995
Effect on cash of changes in operating assets and liabilities:
Accounts receivable 258,054 (493,064)
Inventories 715,107 (100,440)
Prepaid expenses and other current assets (180,282) (153,340)
Accounts payable 345,854 (1,384,801)
Accrued liabilities (111,047) (105,651)
Accrued compensation (195,260) (420,656)
Income taxes payable (29,100) 423,929
---------------- ----------------
Net cash provided by (used in) operating activities 1,349,660 (1,417,511)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (102,698) (138,306)
Increase in trademark license and trademarks (10,009) (4,431)
Increase in deposits and other assets (14,623) (127,191)
---------------- ----------------
Net cash used in investing activities (127,330) (269,928)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on short-term debt 350,000
Principal payments on long-term debt (1,187,990) (178,085)
Issuance of common stock 28,621 230,000
Purchases of common stock, held in treasury (589,944)
---------------- ----------------
Net cash used in financing activities (1,159,369) (188,029)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH 62,961 (1,875,468)
CASH AND CASH EQUIVALENTS, beginning of the period 130,665 2,009,155
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of the period $ 193,626 $ 133,687
================ ================
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Interest $ 215,395 $ 22,078
================ ================
Income taxes $ 246,067 $ 34,806
================ ================
NONCASH TRANSACTIONS:
During the three month period ended March 31, 2001, the Company issued
84,882 shares of common stock to employees in connection with a net
exercise of options to purchase 134,500 shares of common stock.
During the three month period ended March 31, 2000, the Company issued
4,114 shares of common stock to employees in connection with a net
exercise of options to purchase 5,600 shares of common stock.
See accompanying notes to consolidated financial statements.
5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE-MONTHS ENDED
MARCH 31, 2001 (Unaudited) AND YEAR ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
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, 2000, which is
incorporated by reference, for a summary of significant policies
utilized by Hansen Natural Corporation ("Hansen" or "Company") and its
wholly-owned subsidiaries, Hansen Beverage Company ("HBC") and Hard e
Beverage Company ("HEB"). Additionally, the Company's reporting on
Form 10-Q does not include all the information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America. HBC owns all of the issued and outstanding common stock of
Blue Sky Natural Beverage Co. The information set forth in these
interim consolidated financial statements for the three months ended
March 31, 2001 and 2000 is unaudited and may be subject to normal
year-end adjustments. The information contained in these interim
consolidated financial statements reflects all adjustments, which
include only normal recurring adjustments, which in the opinion of
management are necessary to make the interim consolidated financial
statements not misleading. Results of operations covered by this
report may not necessarily be indicative of results of operations for
the full year.
2. INVENTORIES
Inventories consist of the following at:
March 31, December 31,
2001 2000
(Unaudited)
------------------ -----------------
Raw materials $ 4,777,510 $ 4,704,363
Finished goods 5,587,809 6,371,941
------------------ -----------------
10,365,319 11,076,304
Less inventory reserves (172,531) (168,409)
------------------ -----------------
$ 10,192,788 $ 10,907,895
================== =================
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
General
The increase in sales during the first quarter of 2001 was primarily
attributable to sales of the Blue Sky Natural Sodas, which business was acquired
during the third quarter of 2000, and increased sales of the Company's
functional drinks in 8.2-ounce slim cans. The Company also benefited from sales
of Hard e, a malt based alcoholic drink, which was introduced in the third
quarter of 2000, and increased sales of apple juice, juice blends and Natural
Sodas. The increase in net sales was partially offset by decreased sales of the
Company's children's multi-vitamin juice drinks in 8.45-ounce aseptic packages,
Smoothies in glass and polyethylene terephthalate ("P.E.T.") bottles and
Signature Sodas.
The decrease in gross profit margin as a percentage of net sales to 44.0%
for the quarter ended March 31, 2001 from 45.1% for the quarter ended March 31,
2000 was due primarily to a change in the product mix.
The Company continues to incur expenditures in connection with the
development and introduction of new products and flavors.
Results of Operations for the Three-months Ended March 31, 2001 Compared to the
Three-months Ended March 31, 2000
Net Sales. For the three-months ended March 31, 2001, net sales were $18.8
million, an increase of $2.8 million or 17.5% higher than the $16.0 million net
sales for the three-months ended March 31, 2000. The increase in net sales was
primarily attributable to sales of the Blue Sky Natural Sodas, which business
was acquired in the third quarter of 2000, and increased sales of the Company's
functional drinks in 8.2-ounce slim cans. The Company also benefited from sales
of Hard e, a malt based alcoholic drink, which was introduced in the third
quarter of 2000 and increased sales of apple juice, juice blends and Natural
Sodas. The increase in net sales was partially offset by decreased sales of the
Company's children's multi-vitamin juice drinks in 8.45-ounce aseptic packages,
Smoothies in glass and P.E.T. bottles and Signature Sodas.
Gross Profit. Gross profit was $8.3 million for the three-months ended
March 31, 2001, an increase of $1.1 million or 14.5% higher than the gross
profit for the three-months ended March 31, 2000 of $7.2 million. Gross profit
as a percentage of net sales, however, decreased to 44.0% for the three-months
ended March 31, 2001 from 45.1% for the three-months ended March 31, 2000. The
decrease in gross profit as a percentage of net sales was primarily attributable
to a change in the product mix.
Total Operating Expenses. Total operating expenses were $7.5 million for
the three-months ended March 31, 2001, an increase of $1.5 million or 24.4%
higher than total operating expenses of $6.0 million for the three-months ended
March 31, 2000. Total operating expenses as a percentage of net sales increased
to 40.0% for the three-months ended March 31, 2001 from 37.8% for the
three-months ended March 31, 2000. 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 and, to a lesser
extent, increased amortization of trademark license and trademarks due to the
acquisition of the Blue Sky trademark in the third quarter of 2000.
7
Selling, general and administrative expenses were $7.4 million for the
three-months ended March 31, 2001, an increase of $1.4 million or 24.0% higher
than selling, general and administrative expenses of $6.0 million for the
three-months ended March 31, 2000. The increase in selling expenses was
primarily attributable to increased promotional allowances granted to customers,
increased payroll expenses primarily for selling and marketing support
activities, and increased expenditures for in-store demonstrations, merchandise
displays, premiums, sponsorships and indirect sales support expenses. The
increase in general and administrative expenses was primarily attributable to
increased legal, insurance, travel and other operating expenses to support the
increase in sales.
Operating Income. Operating income was $744,000 for the three-months ended
March 31, 2001, a decrease of $424,000 or 36.3% lower than operating income of
$1.2 million for the three-months ended March 31, 2000. Operating income as a
percentage of net sales decreased to 4.0% for the three-months ended March 31,
2001 from 7.3% for the three-months ended March 31, 2000. The decrease in
operating income was attributable to a $1.5 million increase in operating
expenses which was partially offset by a $1.1 million increase in gross profit.
The 3.3% decrease in operating income as a percentage of net sales was partially
attributable to a 1.1% decrease in gross profit as a percentage of net sales and
a 2.2% increase in operating expenses as a percentage of net sales.
Net Non-operating Expense. Net non-operating expense was $202,000 for the
three-months ended March 31, 2001, an increase of $181,000 over net
non-operating expense of $21,000 for the three-months ended March 31, 2000. Net
non-operating expense was primarily attributable to increased interest expense
incurred on the Company's increased borrowings, which were primarily
attributable to the acquisition of the Blue Sky business and the financing of
vehicles acquired by the Company.
Provision for Income Taxes. Provision for income taxes for the three-months
ended March 31, 2001 was $217,000 as compared to provision for income taxes of
$459,000 for the comparable period in 2000. The $242,000 decrease in provision
for income taxes was primarily attributable to the decrease in operating income
and an increase in non-operating expense.
Net Income. Net income was $325,000 for the three-months ended March 31,
2001, a decrease of $363,000 or 53% lower than net income of $688,000 for the
three-months ended March 31, 2000. The decrease in net income was attributable
to the increase in operating expenses of $1.5 million and the increase in
non-operating expense of $181,000 which was partially offset by the increase in
gross profit of $1.1 million and the decrease in provision for income taxes of
$242,000.
Liquidity and Capital Resources
As of March 31, 2001, the Company had working capital of $12.9 million, as
compared to working capital of $13.6 million as of December 31, 2000. The
decrease in working capital was primarily attributable to the repayment of a
portion of Company's long-term debt and the acquisition of property and
equipment. The decrease was partially offset by net income earned after
adjustment for certain noncash expenses, primarily amortization of trademark
license and trademarks and depreciation and other amortization as well as the
issuance of common stock.
8
Net cash provided by operating activities was $1.3 million for the
three-months ended March 31, 2001 as compared to net cash used in operating
activities of $1.4 million for the comparable period in 2000. This consisted of
net income plus amortization of trademark license and trademarks, depreciation
and other amortization, decreases in accounts receivable and inventories , and a
small increase in current liabilities which was partially offset by increases in
prepaid expenses and other current assets.
Net cash used in investing activities decreased to $127,000 for the
three-months ended March 31, 2001 as compared to net cash used in investing
activities of $270,000 for the comparable period in 2000. This consisted
primarily of purchases of property and equipment, increases in trademark license
and trademarks, and increases in deposits and other assets. Management, from
time to time, considers the acquisition of capital equipment, particularly
coolers, merchandise display racks, vans and promotional vehicles, 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 in for or as a result of any such activities or
transactions, depending upon the cash requirements relating thereto. Any such
activities or transactions will also be subject to the terms and restrictions of
HBC's credit facilities.
Net cash used in financing activities increased to $1.2 million for the
three-months ended March 31, 2001 as compared to net cash used in financing
activities of $188,000 for the comparable period in 2000. The increase in net
cash used in financing activities was primarily attributable to increased
principal payments of long-term debt.
HBC's revolving line of credit has been renewed by its bank until September
2005. The rate of interest payable by the Company on advances under the line of
credit is based on bank's base (prime) rate, plus an additional percentage of up
to 0.5% or the LIBOR rate, plus an additional percentage of up to 2.5% depending
upon certain financial ratios of the Company from time to time. As of March 31,
2001, approximately $8.0 million was outstanding under the revolving line of
credit.
The credit facility contains financial covenants, which require the Company
to maintain certain financial ratios and achieve certain levels of annual
income. The facility also contains certain non-financial covenants. As of March
31 2001, the Company was in compliance with all covenants.
Management believes that cash available from operations, including cash
resources and the revolving line of credit, will be sufficient for its working
capital needs, including purchase commitments for raw materials, payments of tax
liabilities, debt servicing, expansion and development needs, purchases of
shares of common stock of the Company, as well as any purchases of capital
assets or equipment over the current year.
9
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 its 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, 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 and/or the Bureau of Alcohol,
Tobacco and Firearms and/or certain state regulatory agencies;
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;
10
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 its 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, Smoothies in 11.5 ounce cans
and other products.
The foregoing list of important factors is not exhaustive.
Inflation
The Company does not believe that inflation has a significant impact on the
Company's results of operations for the periods presented.
11
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 - None
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: May 9, 2001 /s/ RODNEY C. SACKS
-------------------
Rodney C. Sacks
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2001 /s/ HILTON H. SCHLOSBERG
------------------------
Hilton H. Schlosberg
Vice Chairman of the Board of Directors,
President, Chief Operating Officer,
Chief Financial Officer and Secretary
12