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, 2003 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
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
The Registrant had 10,365,103 shares of common stock outstanding as of
November 5, 2003.
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
September 30, 2003
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2003 (Unaudited) and December 31, 2002 3
Condensed Consolidated Statements of Income for the three-
and nine-months ended September 30, 2003 and 2002 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows or the
three- and nine-months ended September 30, 2003 and 2002
(Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Items 2-5. Not Applicable 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 22
Certifications 23
2
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 (Unaudited) AND DECEMBER 31, 2002
- -----------------------------------------------------
September 30, December 31,
2003 2002
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 975,976 $ 537,920
Accounts receivable (net of allowance for doubtful accounts,
sales returns and cash discounts of $848,520 in 2003 and
$1,098,645 in 2002 and promotional allowances of
$5,139,778 in 2003 and $3,170,171 in 2002) 10,156,056 5,949,402
Inventories, net 13,608,915 11,643,734
Prepaid expenses and other current assets 913,984 1,627,685
Deferred income tax asset 1,145,133 1,145,133
-------------- --------------
Total current assets 26,800,064 20,903,874
PROPERTY AND EQUIPMENT, net 2,715,691 1,862,807
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated
amortization of $121,261 in 2003 and $84,330 in 2002) 17,760,994 17,360,455
Deposits and other assets 287,082 336,369
-------------- --------------
18,048,076 17,696,824
-------------- --------------
$ 47,563,831 $ 40,463,505
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,075,716 $ 4,732,261
Accrued liabilities 1,144,686 680,959
Accrued compensation 709,370 310,064
Current portion of long-term debt 232,232 230,740
-------------- --------------
Total current liabilities $ 11,162,004 $ 5,954,024
LONG-TERM DEBT, less current portion 392,472 3,606,040
DEFERRED INCOME TAX LIABILITY 2,532,697 2,532,697
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $0.005 par value; 30,000,000 shares authorized;
10,545,864 shares issued, 10,339,103 outstanding in 2003;
10,259,764 shares issued, 10,053,003 outstanding in 2002 52,729 51,299
Additional paid-in capital 12,334,958 11,934,564
Retained earnings 21,903,516 17,199,426
Common stock in treasury, at cost; 206,761 in 2003 and 2002 (814,545) (814,545)
-------------- --------------
Total shareholders' equity 33,476,658 28,370,744
-------------- --------------
$ 47,563,831 $ 40,463,505
============== ==============
See accompanying notes to consolidated financial statements.
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -----------------------------------
2003 2002 2003 2002
------------- ------------ -------------- -------------
GROSS SALES $42,613,935 $34,458,591 $105,369,780 $89,632,151
LESS: Discounts, allowances
and promotional payments 9,322,847 7,473,335 21,583,206 17,789,713
------------- ------------ -------------- -------------
NET SALES 33,291,088 26,985,256 83,786,574 71,842,438
COST OF SALES 20,004,236 17,307,405 50,751,336 45,520,669
------------- ------------ -------------- -------------
GROSS PROFIT 13,286,852 9,677,851 33,035,238 26,321,769
OPERATING EXPENSES
Selling, general and administrative 9,743,117 7,478,308 25,035,334 21,138,618
Amortization of trademark
license and trademarks 15,346 13,415 36,579 39,087
------------- ------------ -------------- -------------
Total operating expenses 9,758,463 7,491,723 25,071,913 21,177,705
------------- ------------ -------------- -------------
OPERATING INCOME 3,528,389 2,186,128 7,963,325 5,144,064
NET NONOPERATING
EXPENSE 9,337 51,295 57,291 182,798
------------- ------------ -------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 3,519,052 2,134,833 7,906,034 4,961,266
PROVISION FOR INCOME
TAXES 1,425,217 864,608 3,201,944 2,009,313
------------- ------------ -------------- -------------
NET INCOME $ 2,093,835 $1,270,225 $ 4,704,090 $ 2,951,953
============= ============ ============== =============
NET INCOME PER COMMON SHARE:
Basic $ 0.20 $ 0.13 $ 0.46 $ 0.29
============= ============ ============== =============
Diluted $ 0.19 $ 0.12 $ 0.45 $ 0.29
============= ============ ============== =============
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 10,253,818 10,053,003 10,233,182 10,052,302
============= ============ ============== =============
Diluted 10,755,822 10,389,920 10,534,573 10,356,586
============= ============ ============== =============
See accompanying notes to consolidated financial statements.
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (Unaudited
September 30, September 30,
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,704,090 $ 2,951,953
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of trademark license and trademarks 36,579 39,087
Depreciation and other amortization 416,239 360,705
Loss on disposal of plant and equipment 11,361
Effect on cash of changes in operating assets and liabilities:
Accounts receivable (4,206,654) (1,016,431)
Inventories (1,965,181) 63,663
Prepaid expenses and other current assets 327,261 59,416
Accounts payable 4,343,455 1,977,032
Accrued liabilities 463,727 (208,089)
Accrued compensation 399,306 (201,185)
Income taxes payable/prepaid income taxes 386,440 (122,033)
------------- -------------
Net cash provided by operating activities 4,916,623 3,904,118
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,300,272) (317,060)
Proceeds from sale of property and equipment 19,788
Increase in trademark license and trademarks (437,118) (43,242)
Decrease in deposits and other assets 49,287 267,436
------------- -------------
Net cash used in investing activities (1,668,315) (92,866)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (3,212,076) (1,154,673)
Issuance of common stock 401,824 8,000
------------- -------------
Net cash used in financing activities (2,810,252) (1,146,673)
------------- -------------
NET INCREASE IN CASH 438,056 2,664,579
CASH AND CASH EQUIVALENTS, beginning of year 537,920 247,657
------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 975,976 $ 2,912,236
============= =============
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest $ 67,102 $ 188,818
============= =============
Income taxes $ 2,815,503 $ 2,131,346
============= =============
See accompanying notes to consolidated financial statements.
5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2002, 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"). HBC owns all of
the issued and outstanding common stock of Blue Sky Natural Beverage Co. and
Hansen Junior Juice Company.
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. The information set forth in these interim condensed consolidated
financial statements for the three- and nine-months ended September 30, 2003 and
2002 is unaudited and may be subject to normal year-end adjustments. The
information contained in these interim condensed, consolidated financial
statements reflects all adjustments, which include only normal recurring
adjustments, which in the opinion of management are necessary to make the
interim condensed 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.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America necessarily
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from these estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories - Inventories are valued at the lower of first-in, first-out
(FIFO) cost or market value (net realizable value).
Property and Equipment - Property and equipment are stated at cost.
Depreciation of furniture, office equipment, equipment and vehicles is based on
their estimated useful lives (three to ten years) and is calculated using the
straight-line method. Amortization of leasehold improvements is based on the
lesser of their estimated useful lives or the terms of the related leases and is
calculated using the straight-line method.
Trademark License and Trademarks - Trademark license and trademarks
represents the Company's exclusive ownership of the Hansen's(R) trademark in
connection with the manufacture, sale and distribution of beverages and water
and non-beverage products. The Company also owns in its own right, a number of
other trademarks in the United States as well as in a number of countries around
the world. The Company also owns the Blue Sky(R) trademark, which was acquired
in September 2000, and the Junior Juice(R) trademark, which was acquired in May
2001. The Company amortizes its trademark license and trademarks with a finite
life (as discussed below) over 1 to 25 years. The adoption of Statement of
Financial Accounting Standards ("SFAS") No. 142, effective January 1, 2002,
resulted in the elimination of amortization of indefinite life assets. The
following provides additional information concerning the Company's trademark
licenses and trademarks as of September 30, 2003 and December 31, 2002:
6
September 30, December 31,
2003 2002
--------------- ---------------
Amortizing trademark licenses and trademarks $ 1,153,351 $ 1,138,902
Accumulated amortization (121,261) (84,330)
--------------- ---------------
1,032,090 1,054,572
Non-amortizing trademark licenses and trademarks 16,728,904 16,305,883
--------------- ---------------
$ 17,760,994 $ 17,360,455
=============== ===============
All amortizing trademark licenses and trademarks have been assigned an
estimated finite useful life, and are amortized on a straight-line basis over
the number of years that approximate their respective useful lives ranging from
1 to 25 years (weighted average life of 23 years). The straight-line method of
amortization allocates the cost of the trademark licenses and trademarks to
earnings in proportion to the amount of economic benefits obtained by the
Company in that report period. Total amortization expense during the nine-months
ended September 30, 2003 was $36,579. As of September 30, 2003, future estimated
amortization expense related to amortizing trademark licenses and trademarks
through the year ended December 31, 2008 is:
2003 - Remainder $15,709
2004 51,825
2005 50,690
2006 50,547
2007 44,996
2008 44,847
Revenue Recognition - The Company records revenue at the time the related
products are shipped and the risk of ownership has passed. Management believes
an adequate provision against net sales has been made for estimated returns,
allowances and cash discounts based on the Company's historical experience.
Advertising and Promotional Allowances - The Company accounts for
advertising production costs by expensing such production costs the first time
the related advertising takes place. Advertising expenses included in selling,
general and administrative expenses amounted to $6.5 million and $5.0 million
for the nine-months ended September 30, 2003 and 2002, respectively. In
addition, the Company supports its customers, including distributors, with
promotional allowances, a portion of which is utilized for marketing and
indirect advertising by them. Such promotional allowances amounted to $13.2
million and $10.7 million for the nine-months ended September 30, 2003 and 2002,
respectively.
Stock Based Compensation - The Company accounts for its stock option plans
in accordance with Accounting Principals Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. Under APB
Opinion No. 25, no compensation expense is recognized because the exercise price
of the Company's employee stock options equals the market price of the
underlying stock at the date of the grant. In December 2002, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No.
123, Accounting for Stock-based Compensation, and was effective immediately upon
issuance. SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation as well as amending the disclosure requirements of
Statement No. 123 to require interim and annual disclosures about the method of
accounting for stock based compensation and the effect of the method used on
reported results. The Company follows the requirements of APB Opinion No. 25 and
the disclosure-only provision of SFAS No. 123, as amended by SFAS No. 148. Had
compensation cost for the Company's option plans been determined based on the
fair value at the grant date for awards consistent with the provisions of SFAS
No. 123, the Company's net income and net income per common share for the
nine-months ended September 30, 2003 and 2002 would have been reduced to the pro
forma amounts indicated below:
7
Nine Months Ended September 30
2003 2002
---- ------
Net income, as reported $4,704,090 $2,951,953
Less: total stock based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects 164,297 182,050
Net income, pro forma $4,539,793 $2,769,903
Net income per common share, as reported - Basic $ 0.46 $ 0.29
Net income per common share, as reported - Diluted $ 0.45 $ 0.29
Net income per common share, pro forma-Basic $ 0.44 $ 0.28
Net income per common share, pro forma - Diluted $ 0.43 $ 0.27
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used:
Risk Free
Dividend Yield Expected Volatility Interest Rate Expected Lives
-------------- ------------------- ------------- --------------
2003 0% 13% 3.5% 8 years
2002 0% 8% 4.6% 8 years
3. NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring.) The Company adopted the provisions of SFAS No. 146 for exit or
disposal activities that are initiated after December 31, 2002.
8
In November 2002 the FASB issued Interpretation ("FIN") No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN No. 45 clarifies and expands on
existing disclosure requirements for guarantees, including loan guarantees. It
also would require that, at the inception of a guarantee, the Company must
recognize a liability for the fair value of its obligation under that guarantee.
The initial fair value recognition and measurement provisions will be applied on
a prospective basis to certain guarantees issued or modified after December 31,
2002. The disclosure provisions are effective for financial statements of
periods ending after December 15, 2002. The initial adoption of FIN No. 45 did
not have a material impact on its financial position, cash flows or results of
operations.
In January 2003 the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 ("FIN No. 46"). FIN
No. 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN No. 46 must be applied for the first
interim or annual period beginning after June 15, 2003. Since the Company has no
interests in variable interest entities, the initial adoption of FIN No. 46 did
not have a material impact on its financial position, cash flows or results of
operations.
4. INVENTORIES
Inventories consist of the following at:
September 30, 2003 December 31,
(Unaudited) 2002
--------------- --------------
Raw Materials $ 4,843,653 $ 4,267,055
Finished Goods 9,737,357 8,023,118
--------------- --------------
14,581,010 12,290,173
Less inventory reserve (972,095) (646,439)
--------------- --------------
$ 13,608,915 $ 11,643,734
=============== ===============
5. COMMITMENTS
In March 2003, HBC entered into an advertising display agreement ("Monorail
Agreement") with the Las Vegas Monorail Company ("LVMC") in terms of which HBC
was granted the right, in consideration of the payment by HBC to LVMC of the sum
of $1,000,000 per year, payable quarterly, to advertise and promote its products
on a designated four car monorail vehicle as well as the right to sell certain
of its products on all monorail stations for payment of additional
consideration.
9
It is anticipated that the initial term will commence in early 2004. The
initial term of the Monorail Agreement ends on the first anniversary of its
commencement date. Not less than 120 days before the expiration of the initial
term and each renewal term, as the case may be, HBC has the right to renew the
Monorail Agreement for a further one year term up to a maximum of nine
additional one year terms and the LVMC has the right, not withstanding such
election by HBC, to terminate the Monorail Agreement at the expiration of the
then current term.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
historical consolidated financial statements and notes thereto.
Critical Accounting Policies
The following summarizes the most significant accounting and reporting
policies and practices of the Company.
Revenue Recognition - The Company recognizes revenue when the product is
shipped and the risks and rewards of ownership have passed based on the terms of
sale. Generally, the Company extends credit to its customers and does not
require collateral. The Company performs ongoing credit evaluations of those
customers and historic credit losses have been within management's expectations.
The Company records a provision for sales returns, allowances and cash discounts
based upon historical experience. Actual returns and allowances in any future
period may differ from the Company's estimates.
Inventories - Inventories are stated at the lower of first-in, first-out
(FIFO) cost or the current estimated market value of the inventory. The Company
regularly reviews its inventory quantities on hand and records a provision for
excess and obsolete inventory based primarily on the Company's estimated
forecast of product demand and production requirements. Factors which could
affect demand for the Company's products include unanticipated changes in
general market conditions or other factors, which may result in cancellations of
advance orders or a reduction in the rate of reorders placed by customers, and
continued weakening of economic conditions, which could reduce demand for
products sold by the Company and which could adversely affect profitability and,
as a result, adversely affect the Company's operations and financial
performance. Additionally, management's estimates of future product demand may
be inaccurate, which could result in an understated or overstated provision
required for excess and obsolete inventory.
Trademark License and Trademarks - Trademark license and trademarks
represent primarily the Company's ownership of the Hansen's(R) trademark in
connection with the manufacture, sale and distribution of beverages, water and
non-beverage products. The Company also owns in its own right, a number of other
trademarks in the United States as well as in a number of countries around the
world. The Company also owns the Blue Sky(R) trademark, which was acquired in
September 2000, and the Junior Juice(R) trademark, which was acquired in May
2001. During 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets. Under the provisions of SFAS No. 142, the Company
discontinued amortization of indefinite-lived trademark licenses and trademarks
while continuing to amortize remaining trademark licenses and trademarks over
one to 25 years.
Long-Lived Assets - Management regularly reviews property and equipment and
other long-lived assets, including certain identifiable intangibles, for
possible impairment. This review occurs annually, or more frequently if events
or changes in circumstances indicate the carrying amount of the asset may not be
recoverable. If there is indication of impairment of property and equipment or
amortizable intangible assets, then management prepares an estimate of future
cash flows (undiscounted and without interest charges) expected to result from
the use of the asset and its eventual disposition. If these cash flows are less
than the carrying amount of the asset, an impairment loss is recognized to write
down the asset to its estimated fair value. The fair value is estimated at the
present value of the future cash flows discounted at a rate commensurate with
management's estimates of the business risks. Annually, or earlier, if there is
indication of impairment of identified intangible assets not subject to
amortization, management compares the estimated fair value with the carrying
amount of the asset. An impairment loss is recognized to write down the
intangible asset to its fair value if it is less than the carrying amount.
Preparation of estimated expected future cash flows is inherently subjective and
is based on management's best estimate of assumptions concerning expected future
conditions. No impairments were identified as of September 30, 2003.
11
Management believes that the accounting estimate related to impairment of
its long lived assets, including its trademark license and trademarks, is a
"critical accounting estimate" because: (1) it is highly susceptible to change
from period to period because it requires company management to make assumptions
about cash flows and discount rates; and (2) the impact that recognizing an
impairment would have on the assets reported on our consolidated balance sheet,
as well as net income, could be material. Management's assumptions about cash
flows and discount rates require significant judgement because actual revenues
and expenses have fluctuated in the past and are expected to continue to do so.
In estimating future revenues, we use internal budgets. Internal budgets
are developed based on recent revenue data and future sales estimates for
existing product lines and planned timing of future introductions of new
products and their impact on our future cash flows.
Advertising and Promotional Allowances - The Company accounts for
advertising production costs by expensing such production costs the first time
the related advertising takes place. In addition, the Company supports its
customers with promotional allowances, a portion of which is utilized for
marketing and indirect advertising by them. In certain instances, portion of the
promotional allowances payable to customers based on the levels of sales to such
customers, promotion requirements or expected use of the allowances, are
estimated by the Company. If the level of sales, promotion requirements or use
of the allowances are different from such estimates, the promotional allowances
could, to the extent based on estimates, be affected. During 2002, the Company
adopted Emerging Issues Task Force ("EITF") No. 01-9 which requires certain
sales promotions and customer allowances previously classified as selling,
general and administrative expenses to be classified as a reduction of sales or
as cost of goods sold. The Company has conformed its presentation of advertising
and promotional allowances to comply with the provisions of EITF No. 01-9.
General
The increase in gross and net sales for the nine-months ended September 30,
2003 was primarily attributable to increased sales of Monster EnergyTM drinks,
which were introduced in April 2002, increased sales of Natural Sodas in cans
and sales of Hansen's(R)energy Deuce drinks which were introduced in July 2003.
The increase in net sales was also attributable, to a lesser extent, to
increased sales of Junior Juice(R), sales of Hansen's(R) Diet Red Energy, which
was introduced in October 2002 as well as increased sales of Apple Juice, juice
blends and sparkling beverages. The increase in gross and net sales was
partially offset by decreased sales of Hansen's(R) energy drinks and functional
drinks in 8.3-ounce cans, smoothies in cans and bottles, E2O Energy Water,
Energade(R) energy sports drinks and soy smoothies as well as an increase in
discounts, allowances and promotional payments including coupon promotions.
12
Gross profit for the nine-months ended September 30, 2003, as a percentage
of net sales, was 39.4%, which was higher than the 36.6% gross profit percentage
achieved in the nine-months ended September 30, 2002. The increase in gross
profit percentage was primarily due to a change in the Company's product and
customer 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 September 30, 2003 Compared to
the Three-months Ended September 30, 2002
Gross Sales. For the three-months ended September 30, 2003, gross sales
were $42.6 million, an increase of $8.2 million or 23.7% higher than the $34.5
million gross sales for the three-months ended September 30, 2002. The increase
in gross sales during the third quarter of 2003 is primarily attributable to
increased sales of Monster energyTM drinks, which were introduced in April 2002,
increased sales of Natural Sodas in cans and sales of Hansen's(R) Energy Deuce
drinks which were introduced in July 2003. The increase in gross sales was also
attributable, to a lesser extent, to increased sales of Junior Juice(R), sales
of Hansen's(R) Diet Red Energy, which was introduced in October 2002, as well as
increased sales of sparkling beverages, Apple Juice and juice blends. The
increase in gross sales was partially offset by decreased sales of Hansen's(R)
energy and functional drinks in 8.3-ounce cans, smoothies in cans and bottles,
E2O Energy Water, soy smoothies and Energade(R) energy sports drinks.
Net Sales. For the three-months ended September 30, 2003, net sales were
$33.3 million, an increase of $6.3 million or 23.4% higher than the $27.0
million net sales for the three-months ended September 30, 2002. The increase in
net sales for the three-months ended September 30, 2003 was primarily
attributable to increased sales of Monster EnergyTM drinks, which were
introduced in April 2002, increased sales of Natural Sodas in cans and sales of
Hansen's(R) energy Deuce drinks, which were introduced in July 2003. The
increase in net sales was also attributable, to a lesser extent, to sales of
Hansen's(R) Diet Red Energy, which was introduced in October 2002 as well as
increased sales of Junior Juice(R), Apple Juice, juice blends and sparkling
beverages. The increase in net sales was partially offset by decreased sales of
Hansen's(R) energy and functional drinks in 8.3-ounce cans, smoothies in cans
and bottles, E2O Energy Water, Energade(R) energy sports drinks and soy
smoothies as well as an increase in discounts, allowances and promotional
payments including coupon promotions.
Gross Profit. Gross profit was $13.3 million for the three-months ended
September 30, 2003, an increase of $3.6 million or 37.3% higher than the gross
profit for the three-months ended September 30, 2002 of $9.7 million. Gross
profit as a percentage of net sales, increased to 39.9% for the three-months
ended September 30, 2003 from 35.9% for the three-months ended September 30,
2002. The increase in gross profit was primarily attributable to the increase in
gross sales whereas the increase in gross profit as a percentage of net sales
was primarily attributable to a change in the Company's product and customer
mix.
13
Total Operating Expenses. Total operating expenses were $9.8 million for
the three-months ended September 30, 2003, an increase of $2.3 million or 30.3%
higher than total operating expenses of $7.5 million for the three-months ended
September 30, 2002. Total operating expenses as a percentage of net sales
increased to 29.3% for the three-months ended September 30, 2003 as compared to
27.8% for the three-months ended September 30, 2002. The increase in total
operating expenses was primarily attributable to increased selling, general and
administrative expenses.
Selling, general and administrative expenses were $9.7 million for the
three-months ended September 30, 2003, an increase of $2.3 million or 30.3%
higher than selling, general and administrative expenses of $7.5 million for the
three-months ended September 30, 2002. The increase in selling expenses was
primarily attributable to an increase in distribution expenses and expenditures
for promotions and endorsements and trade development activities including
cooperative arrangements with distributors, sponsorships, merchandise displays,
product samples and in-store demonstrations. The increase in selling expenses
was partially offset by decreased expenditures for promotional allowances
classified as selling expenses and point of sale materials. The increase in
general and administrative expenses was primarily attributable to increased
payroll expenses primarily for sales, marketing and administrative activities,
fees relating to legal and accounting services, and travel and insurance costs.
Operating Income. Operating income was $3.5 million for the three-months
ended September 30, 2003, an increase of $1.3 million or 61.4% higher than
operating income of $2.2 million for the three-months ended September 30, 2002.
Operating income as a percentage of net sales increased to 10.6% for
the three-months ended September 30, 2003 from 8.1% for the three-months ended
September 30, 2002. The increase in operating income and operating income as a
percentage of net sales was attributable to a higher increase in gross profit
and gross profit as a percentage of net sales achieved in the three-months ended
September 30, 2003 than the increase in operating expenses and operating
expenses as a percentage of net sales for the three-months ended September 30,
2003.
Net Nonoperating Expense. Net nonoperating expense was $9,000 for the
three-months ended September 30, 2003, a decrease of $42,000 from net
non-operating expense of $51,000 for the three-months ended September 30, 2002.
The decrease in net non-operating expense was primarily attributable to
decreased interest expense incurred on the Company's borrowings, which was
primarily attributable to the decrease in outstanding loan balances as well as
lower interest rates payable on the Company's borrowings.
Provision for Income Taxes. Provision for income taxes for the three-months
ended September 30, 2003 was $1.4 million as compared to provision for income
taxes of $865,000 for the comparable period in 2002. The effective tax rate for
the three-months ended September 30, 2003 was 40.5% which was comparable to the
effective tax rate for the three-months ended September 30, 2002. The $561,000
increase in provision for income taxes was primarily attributable to the
increase in income before provision for income taxes.
Net Income. Net income was $2.1 million for the three-months ended
September 30, 2003, an increase of $824,000 or 64.8% over net income of $1.3
million for the three-months ended September 30, 2002. The increase in net
income was attributable to the increase in gross profit of $3.6 million and
decrease in nonoperating expense of $42,000 which was partially offset by the
increase in operating expenses of $2.3 million and an increase in provision for
income taxes of $561,000.
14
Results of Operations for the Nine-months Ended September 30, 2003 Compared to
the Nine-months Ended September 30, 2002
Gross Sales. For the nine-months ended September 30, 2003, gross sales were
$105.4 million, an increase of $15.7 million or 17.6% higher than the $89.6
million gross sales for the nine-months ended September 30, 2002. The increase
in gross sales during the first nine months of 2003 is primarily attributable to
increased sales of Monster EnergyTM drinks, which were introduced in April 2002,
increased sales of Natural Sodas in cans and Junior Juice(R), sales of
Hansen's(R) Diet Red energy, which was introduced in October 2002, and sales of
Hansen's(R) energy Deuce drinks, which were introduced in July 2003. The
increase in gross sales was also attributable, to a lesser extent, to increased
sales of Apple Juice, juice blends and sparkling beverages. The increase in
gross sales was partially offset by decreased sales of Hansen's(R) energy and
functional drinks in 8.3-ounce cans, E2O Energy Water, smoothies in cans and
bottles and Energade(R) energy sports drinks.
Net Sales. For the nine-months ended September 30, 2003, net sales were
$83.8 million, an increase of $11.9 million or 16.6% higher than the $71.8
million net sales for the nine-months ended September 30, 2002. The increase in
net sales was primarily attributable to sales of Monster EnergyTM drinks, which
were introduced in April 2002, increased sales of Natural Sodas in cans and
Junior Juice(R), sales of Hansen's(R) Diet Red Energy, which was introduced in
October 2002, and sales of Hansen's(R)Energy Deuce drinks, which was introduced
in July 2003. The increase in net sales was also attributable, to a lesser
extent, to increased sales of Apple Juice, juice blends and sparkling beverages.
The increase in net sales was partially offset by decreased sales of Hansen's(R)
energy and functional drinks in 8.3-ounce cans, E2O Energy Water, Energade(R)
energy sports drinks, smoothies in cans and bottles and soy smoothies as well as
an increase in discounts, allowances and promotional payments including coupon
promotions.
Gross Profit. Gross profit was $33.0 million for the nine-months ended
September 30, 2003, an increase of $6.7 million or 25.5% higher than the gross
profit for the nine-months ended September 30, 2002 of $26.3 million. Gross
profit as a percentage of net sales, increased to 39.4% for the nine-months
ended September 30, 2003 from 36.6% for the nine-months ended September 30,
2002. The increase in gross profit was primarily attributable to the increase in
gross sales whereas the increase in gross profit as a percentage of net sales
was primarily attributable to a change in the Company's product and customer
mix.
Total Operating Expenses. Total operating expenses were $25.1 million for
the nine-months ended September 30, 2003, an increase of $3.9 million or 18.4%
higher than total operating expenses of $21.2 million for the nine-months ended
September 30, 2002. Total operating expenses as a percentage of net sales
increased to 29.9% for the nine-months ended September 30, 2003 from 29.5% for
the nine-months ended September 30, 2002. The increase in total operating
expenses was primarily attributable to increased selling, general and
administrative expenses.
Selling, general and administrative expenses were $25.0 million for the
nine-months ended September 30, 2003, an increase of $3.9 million or 18.4%
higher than selling, general and administrative expenses of $21.1 million for
the nine-months ended September 30, 2002. The increase in selling expenses was
primarily attributable to an increase in distribution expenses, trade
development activities including cooperative arrangements with our distributors,
expenditures for sponsorships, promotions and endorsements, advertising,
commissions, premiums and merchandise displays which was partially offset by
decreased expenditures for graphic design and point of sale materials. The
increase in general and administrative expenses was primarily attributable to
increased payroll expenses primarily for sales, marketing and administrative
activities, travel, fees for legal and accounting services and insurance
premiums.
15
Operating Income. Operating income was $8.0 million for the nine-months
ended September 30, 2003, an increase of $2.8 million or 54.8% higher than
operating income of $5.1 million for the nine-months ended September 30, 2002.
Operating income as a percentage of net sales increased to 9.5% for the
nine-months ended September 30, 2003 from 7.2% for the nine-months ended
September 30, 2002. The increase in operating income and operating income as a
percentage of net sales was attributable to a higher increase in gross profit
and gross profit as a percentage of net sales achieved in the nine-months ended
September 30, 2003 than the increase in operating expenses and operating
expenses as a percentage of net sales for the nine-months ended September
30,2003
Net Nonoperating Expense. Net nonoperating expense was $57,000 for the
nine-months ended September 30, 2003, a decrease of $126,000 from net
non-operating expense of $183,000 for the nine-months ended September 30, 2002.
The decrease in net non-operating expense was primarily attributable to
decreased interest expense incurred on the Company's borrowings, which was
primarily attributable to the decrease in outstanding loan balances as well as
lower interest rates payable on the Company's borrowings.
Provision for Income Taxes. Provision for income taxes for the nine-months
ended September 30, 2003 was $3.2 million as compared to provision for income
taxes of $2.0 million for the comparable period in 2002. The effective tax rate
for the nine-months ended September 30, 2003 was 40.5% which was comparable to
the effective tax rate for the nine-months ended September 30, 2002. The $1.2
million increase in provision for income taxes was primarily attributable to the
increase in income before provision for income taxes.
Net Income. Net income was $4.7 million for the nine-months ended September
30, 2003, an increase of $1.8 million or 59.4% over net income of $3.0 million
for the nine-months ended September 30, 2002. The increase in net income was
attributable to the increase in gross profit of $6.7 million and decrease in
nonoperating expense of $126,000 which was partially offset by the increase in
operating expenses of $3.9 million and an increase in provision for income taxes
of $1.2 million.
Liquidity and Capital Resources
As at September 30, 2003, the Company had working capital of $15.6 million,
as compared to working capital of $15.0 million as at December 31, 2002. The
increase in working capital is primarily attributable to net income earned after
adjustment for certain noncash expenses, primarily depreciation and other
amortization, proceeds received from the issuance of common stock, and decreases
in deposits and other assets. Such increase was partially offset by acquisition
of property and equipment, additions to trademark license and trademarks and
repayment by the Company of a portion of the Company's long term debt.
16
Net cash provided by operating activities was $4.9 million for the
nine-months ended September 30, 2003 as compared to net cash provided by
operating activities of $3.9 million in the comparable period in 2002. For the
nine-months ended September 30, 2003, cash provided by operating activities was
attributable to net income earned after adjustments for the effect of certain
expenses, primarily depreciation and other amortization, as well as increases in
accounts payable, accrued liabilities and accrued compensation and a decrease in
prepaid income taxes and prepaid expenses and other current assets which was
partially offset by an increase in accounts receivable and inventory.
Net cash used in investing activities was to $1.7 million for the
nine-months ended September 30, 2003 as compared to net cash used in investing
activities of $93,000 for the comparable period in 2002. For the nine-months
ended September 30, 2003, cash used in investing activities was primarily
attributable to acquisitions of property and equipment and additions to
trademark license and trademarks, a decrease in deposits and other assets and
proceeds from the sale of property and equipment. Management, from time to time,
considers the acquisition of capital equipment, particularly, specific items of
production equipment required to produce certain of our products, storage racks,
merchandise display racks, vans and promotional vehicles, coolers and other
promotional equipment and businesses compatible with the image of the
Hansen's(R) brand, as well as the introduction of new product lines.
Net cash used in financing activities was $2.8 million for the nine-months
ended September 30, 2003 as compared to net cash used in financing activities of
$1.1 million for the comparable period in 2002. For the nine-months ended
September 30, 2003, cash used in financing activities was primarily attributable
to principal payments of long-term debt which was partially offset by proceeds
received from the issuance of common stock.
In 1997, HBC obtained a credit facility from Comerica Bank-California
("Comerica"), consisting of a revolving line of credit of up to $3.0 million in
aggregate at any time outstanding and a term loan of $4.0 million. The
utilization of the revolving line of credit by HBC was dependent upon certain
levels of eligible accounts receivable and inventory from time to time. Such
revolving line of credit and term loan was secured by substantially all of HBC's
assets, including accounts receivable, inventory, trademarks, trademark licenses
and certain equipment. That facility was subsequently modified from time to
time, and on September 19, 2000, HBC entered into modification agreement with
Comerica which amended certain provisions under the above facility in order to
finance the acquisition of the Blue Sky business, repay 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 in full force and effect through September 2005. Interest on
borrowings under the line of credit is based on the 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
HBC from time to time. At September 30, 2003, HBC had no balances outstanding
under the credit facility and borrowing capacity available to the Company from
Comerica under the credit facility was $7,800,000.
The terms of the Company's line of credit contain certain financial
covenants including certain financial ratios, annual net income requirements and
annual limitations on capital expenditures. The line of credit contains
provisions under which applicable interest rates will be adjusted in increments
based on the achievement of certain financial ratios. The Company was in
compliance with its financial ratios and annual net income requirements and
obtained a waiver from Comerica with regards to its capital expenditure
limitations at September 30, 2003.
17
If any event of default shall occur for any reason, whether voluntary or
involuntary, Comerica may declare all or any portions outstanding under the line
of credit immediately due and payable, exercise rights and remedies available to
secured parties under the Uniform Commercial Code, institute legal proceedings
to foreclose upon the lien and security interest granted or for the sale of any
or all collateral.
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 the common stock of the Company, as well as any purchases of capital
assets or equipment during the current year.
Sales
The table set forth below discloses selected quarterly data regarding sales
for the first nine-months of the past two years. Data from any one or more
quarters or periods is not necessarily indicative of annual results or
continuing trends.
Sales of beverages are expressed in unit case volume. A "unit case" means a
unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24
eight-ounce servings) or concentrate sold that will yield 192 U.S. fluid ounces
of finished beverage. Unit case volume of the Company means number of unit cases
(or unit case equivalents) of beverages directly or indirectly sold by the
Company. Sales of food bars and cereals are expressed in actual cases. A case of
food bars and cereals is defined as follows:
* A fruit and grain bar and functional nutrition bar case equals ninety
1.76-ounce bars.
* A natural cereal case equals ten 13-ounce boxes measured by volume.
* An active nutrition bar case equals thirty-two 1.4-ounce bars.
The Company's quarterly results of operations reflect seasonal trends that
are primarily the result of increased demand in the warmer months of the year.
It has been our experience that beverage sales tend to be lower during the first
and fourth quarters of each fiscal year. Because the primary historical market
for Hansen's products is California, which has a year-long temperate climate,
the effect of seasonal fluctuations on quarterly results may have been
mitigated; however, such fluctuations may be more pronounced as the distribution
of Hansen's products expands outside of California. The Company has not had
sufficient experience with its food bars, cereal products and Hard e malt-based
products and consequently has no knowledge of the trends which may occur with
such products. Quarterly fluctuations may also be affected by other factors
including the introduction of new products, the opening of new markets where
temperature fluctuations are more pronounced, the addition of new bottlers and
distributors, changes in the mix of the sales of its finished products, soda
concentrates and food products and increased advertising and promotional
expenses.
Nine-months ended September 30,
2003 2002
--------------- -------------
Unit Case Volume / Case Sales (in Thousands) 15,796 13,720
Net Revenues $ 83,787 $ 71,842
18
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 2002 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:
* Company's ability to generate sufficient cash flows to support capital
expansion plans and general operating activities;
* Changes in consumer preferences;
* Changes in demand that are weather related, particular in areas outside of
California;
* 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;
* The introduction of new products;
* 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 and/or labeled, including the contents thereof, 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
Federal Trade Commission and/or certain state regulatory agencies;
* 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;
* 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;
* The Company's ability to penetrate new markets;
* The marketing efforts of distributors of the Company's products, most of
which distribute products that are competitive with the products of the
Company;
19
* 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;
* The terms and/or availability of the Company's credit facilities and the
actions of its creditors;
* The effectiveness of the Company's advertising, marketing and promotional
programs;
* The Company's ability to make suitable arrangements for the co-packing of
any of its products including, but not limited to, its energy and
functional drinks in 8.3-ounce slim cans and 16-ounce cans, smoothies in
11.5-ounce cans, E2O Energy Water, Energade, Monster energy drinks, soy
smoothies, sparkling orangeades and lemonades in glass bottles, sparkling
apple cider in 1.5-liter magnum glass bottles 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.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed, are
fluctuations in commodity prices, affecting the cost of raw materials, and
changes in interest rates on the Company's long term debt. The Company is
subject to market risk with respect to the cost of commodities because its
ability to recover increased costs through higher pricing may be limited by the
competitive environment in which it operates.
At September 30, 2003, the majority of the Company's debt consisted of
variable rate debt. The amount of variable rate debt fluctuates during the year
based on the Company's cash requirements. If average interest rates were to
increase one percent for the nine-months ended September 30, 2003, the net
impact on the Company's pre-tax earnings would have been insignificant.
ITEM 4. CONTROL AND PROCEDURES
As of September 30, 2003, the Company, including the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange Act
of 1934.)
20
Based upon the evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in ensuring that information required to be disclosed in the reports
the Company files and submits under the Exchange Act are recorded, processed,
summarized and reported as and when required. There were no significant changes
in the Company's internal controls subsequent to September 30, 2003, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various claims, complaints and other
legal actions that have arisen in the normal course of business
from time to time. The Company believes the outcome of these
pending legal proceedings, in the aggregate, will not have a
material adverse effect on the operations or financial position
of the Company.
Items 2 - 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 and 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 14, 2003 /s/ RODNEY C. SACKS
----------------------------------
Rodney C. Sacks
Chairman of the Board of Directors
and Chief Executive Officer
Date: November 14, 2003 /s/ HILTON H. SCHLOSBERG
----------------------------------
Hilton H. Schlosberg
Vice Chairman of the Board of
Directors, President and Chief
Financial Officer
22
CERTIFICATIONS PURSUANT TO
RULE 13a-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rodney Sacks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hansen Natural
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we
have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c. disclosed in this quarterly report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls over financial reporting.
Date: November 14, 2003 /s/ RODNEY C. SACKS
------------------------
Rodney C. Sacks
Chairman of the Board of
Dircetors and Chief
Executive Officer
23
I, Hilton Schlosberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hansen Natural
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we
have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c. disclosed in this quarterly report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls over financial reporting.
Date: November 14, 2003 /s/ HILTON H. SCHLOSBERG
-----------------------
Hilton H. Schlosberg
Vice Chairman of the
Board of Directors,
President and Chief
Financial Officer
24
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hansen Natural Corporation (the
"Company") on Form 10-Q for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, Rodney C. Sacks, Chairman of the Board of Directors and Chief
Executive Officer of the Company, and Hilton H. Schlosberg, Vice Chairman of the
Board of Directors, President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: November 14, 2003 /s/ RODNEY C. SACKS
-------------------------
Rodney C. Sacks
Chairman of the Board of
Directors and Chief
Executive Officer
Date: November 14, 2003 /s/ HILTON H. SCHLOSBERG
-------------------------
Hilton H. Schlosberg
Vice Chairman of the
Board of Directors,
President and Chief
Financial Officer
25