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, 1998 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.)
2380 Railroad Street, Suite 101,
Corona, California 91720
(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 9,138,909 shares of common stock
outstanding as of May 1, 1998
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
March 31, 1998
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 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
(Unaudited)
- --------------------------------------------------------------------------------
March 31, December 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash ............................................................ $ 465,919 $ 395,231
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $418,027
in 1998 and $315,629 in 1997 and promotional allowances
of $1,224,414 in 1998 and $1,067,749 in 1997) ................ 2,196,885 1,533,748
Inventories ..................................................... 3,492,822 3,915,983
Prepaid expenses and other current assets ....................... 176,733 214,468
------------ ------------
Total current assets ......................................... 6,332,359 6,059,430
PROPERTY AND EQUIPMENT, net ..................................... 600,471 412,496
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated amortization
of $2,464,678 in 1998 and $2,390,878 in 1997) ................ 10,151,549 10,208,116
Notes receivable from officer and director ...................... 57,363 68,235
Deposits and other assets ....................................... 192,866 185,082
------------ ------------
Total intangible and other assets ............................ 10,401,778 10,461,433
------------ ------------
$ 17,334,608 $ 16,933,359
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 1,755,775 $ 2,195,200
Accrued liabilities ............................................. 317,657 444,807
Accrued compensation ............................................ 251,125 322,114
Current portion of long-term debt ............................... 537,660 520,835
Income taxes payable ............................................ 540,590 81,800
------------ ------------
Total current liabilities .................................... 3,402,807 3,564,756
LONG-TERM DEBT .................................................. 3,264,991 3,407,824
SHAREHOLDERS' EQUITY:
Common stock - $.005 par value; 30,000,000 shares
authorized; 9,130,869 shares issued and outstanding .......... 45,654 45,654
Additional paid-in capital ...................................... 10,858,315 10,858,315
Accumulated deficit ............................................. (170,763) (875,949)
Foreign currency translation adjustment ......................... (66,396) (67,241)
------------ ------------
Total shareholders' equity ................................... 10,666,810 9,960,779
------------ ------------
$ 17,334,608 $ 16,933,359
============ ============
See accompanying notes to the consolidated financial statements
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
- --------------------------------------------------------------------------------
1998 1997
NET SALES ............................................................. $11,264,856 $ 7,119,586
COST OF SALES ......................................................... 5,613,428 4,236,246
----------- -----------
GROSS PROFIT .......................................................... 5,651,428 2,883,340
OPERATING EXPENSES:
Selling, general and administrative ................................... 4,278,486 2,587,765
Amortization of trademark license and trademarks ...................... 73,800 73,500
Other expenses ........................................................ 15,000 74,144
----------- -----------
Total operating expenses ......................................... 4,367,286 2,735,409
----------- -----------
OPERATING INCOME ...................................................... 1,284,142 147,931
NET INTEREST AND FINANCING EXPENSE .................................... 108,833 124,376
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES ................................................. 1,175,309 23,555
PROVISION FOR INCOME TAXES ............................................ 470,123 2,400
----------- -----------
NET INCOME ............................................................ $ 705,186 $ 21,155
=========== ===========
NET INCOME PER COMMON SHARE:
Basic ............................................................ $ 0.08 $ 0.00
=========== ===========
Diluted .......................................................... $ 0.07 $ 0.00
=========== ===========
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic ............................................................ 9,130,869 9,122,868
=========== ===========
Diluted .......................................................... 9,740,264 9,123,005
=========== ===========
See accompanying notes to the consolidated financial statements
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
- --------------------------------------------------------------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 705,186 $ 21,155
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of trademark license and trademarks ............. 73,800 73,500
Depreciation and other amortization .......................... 76,466 52,903
Effect on cash of changes in operating assets and liabilities:
Accounts receivable ........................................ (663,137) (65,154)
Inventories ................................................ 423,161 349,282
Prepaid expenses and other current assets .................. 37,735 (79,271)
Accounts payable ........................................... (439,425) (123,659)
Accrued liabilities ........................................ (127,150) (47,552)
Accrued compensation ....................................... (70,989)
Income taxes payable ....................................... 458,790
--------- ---------
Net cash provided by operating activities ................ 474,437 181,204
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .............................. (264,441) (40,299)
Increase in trademark license and trademarks .................... (17,233) (10,218)
Decrease (increase) in notes receivable from officer and director 10,872 (1,518)
Increase in deposits and other assets ........................... (7,784) (10,396)
--------- ---------
Net cash used in investing activities .................... (278,586) (62,431)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term borrowings ............................... (234,736)
Principal payments on long-term debt ............................ (126,008)
--------- ---------
Net cash used in financing activities .................... (126,008) (234,736)
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................... 845 (13,416)
--------- ---------
NET INCREASE (DECREASE) IN CASH ................................. 70,688 (129,379)
CASH, beginning of period ....................................... 395,231 186,931
========= =========
CASH, end of period ............................................. $ 465,919 $ 57,552
========= =========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest ..................................................... $ 96,544 $ 114,735
========= =========
Income taxes ................................................. $ 2,400 $ 2,400
========= =========
See accompanying notes to the consolidated financial statements.
5
HANSEN NATURAL CORPORATION
NOTES TO 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, 1997, 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 CVI Ventures, Inc.,
and its indirect subsidiary, Hansen Beverage Company (UK) Limited,
which is in the course of being deregistered. The information set forth
in these interim financial statements is unaudited and may be 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. INVENTORIES
Inventories consist of the following at:
March 31, December 31,
1998 1997
---------------- ----------------
Raw materials $ 916,899 $ 388,877
Finished goods 2,575,923 3,527,106
================ ================
$ 3,492,822 $3,915,983
================ ================
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ------------------------------------------------------------------------------
General
During the three months ended March 31, 1998, the Company continued to
make progress towards achieving its goal of geographically expanding the
Hansen's(R) brand as well as expanding the Hansen's(R) brand product range.
During the three months ended March 31, 1998, the expansion of distribution of
certain of the Company's products into markets outside of California continued
to make good progress. In April 1997, the Company introduced its lightly
carbonated functional energy drink in an 8.2-ounce slim can. Repeat sales of
this product have been encouraging. During the first quarter of 1998, the
Company extended its "functional" beverage product line by introducing three
additional functional drinks in 8.2-ounce slim cans, a ginger flavored d-stress
drink, an orange flavored anti-ox drink and a guarana flavored stamina drink.
The Company intends to introduce additional functional drinks and a new line of
premium functional Smoothies later in 1998. In addition, the Company intends to
introduce a new line of premium natural sodas and premium functional iced teas
in proprietary glass bottles later in 1998 or in 1999.
Net sales and profitability were positively affected by increased sales
of all of the Company's products and, in particular, the Company's new
functional drinks in 8.2-ounce slim cans. The increase in net sales of Smoothie
products was primarily due to increased sales to club stores and retail stores.
The increase in net sales of soda, iced teas, lemonades and juice cocktails was
primarily due to increased sales to club stores. The increase in net sales of
apple juice was primarily attributable to aggressive pricing and promotions
undertaken by the Company. Management believes that the redesign of the apple
juice label late in 1997 may also have contributed towards such increase.
Attention is drawn to the fact that during the comparable period in
1997, the Company did not have any sales of its lightly carbonated functional
energy drinks in 8.2-ounce slim cans, such drinks having been introduced in
April 1997. Moreover, the majority of the sales of functional drinks in
8.2-ounce slim cans during the three months ended March 31, 1998 were
attributable to opening orders from distributors for the three new functional
drinks prior to their launching such products in their respective territories.
Consequently, the sales of the three new functional drinks during the three
months ended March 31, 1998 may not be indicative of the sales that will be
achieved in subsequent periods.
The Company continues to incur expenditures in connection with the
development and introduction of new products and flavors.
7
Results of Operations For The Three-month period ended March 31, 1998 Compared
to The Three-month period ended March 31, 1997
Net Sales. For the three months ended March 31, 1998, net sales were
approximately $11.3 million, an increase of $4.1 million or 58.2% over the $7.1
million net sales for the three months ended March 31, 1997. The increase in net
sales was primarily attributable to sales of the Company's new functional energy
drink which was introduced during April 1997, sales of the Company's other
functional drinks which were introduced during the first quarter of 1998 and an
increase in net sales of the Company's remaining product lines.
Gross Profit. Gross profit was $5.7 million for the three months ended
March 31, 1998, an increase of $2.8 million or 96.0% over the $2.9 million gross
profit for the three months ended March 31, 1997. The increase in gross profit
was primarily attributable to the increase in net sales and, to a lesser extent,
to cost reductions achieved for certain raw materials and packaging. Gross
profit as a percentage of net sales increased to 50.2% for the three months
ended March 31, 1998 from 40.5% for the three months ended March 31, 1997. The
increase in 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 $4.4 million
for the three months ended March 31, 1998, an increase of $1.6 million or 59.7%
higher than total operating expenses of $2.7 million for the three months ended
March 31, 1997. The increase in total operating expenses was primarily
attributable to increases in selling, general and administrative expenses, which
were partially offset by a decrease in other expenses. Total operating expenses
as a percentage of net sales increased to 38.8% for the three months ended March
31, 1998 from 38.4% for the three months ended March 31, 1997. The increase in
total operating expenses as a percentage of net sales was primarily attributable
to an increase in selling, general and administrative expenses, which were
partially offset by a decrease in amortization of trademark license and
trademarks, and other expenses.
Selling, general and administrative expenses were approximately $4.3
million for the three months ended March 31, 1998, an increase of $1.7 million
or 65.3% higher than $2.6 million for the three months ended March 31, 1997.
Selling, general and administrative expenses as a percentage of net sales
increased to 38.0% for the three months ended March 31, 1998 compared to 36.3%
for the three months ended March 31, 1997. The increase in selling expenses was
primarily attributable to increases in distribution costs, promotional
allowances and costs of promotional materials primarily to support the expansion
of distribution and sales of the Company's functional product line and Smoothie
products in bottles. The increase in general and administrative expenses was
primarily attributable to increased payroll and other costs incurred in
connection with the Company's expansion activities into additional states.
Other expenses were approximately $15,000 for the three months ended
March 31, 1998 compared to $74,000 for the three months ended March 31, 1997.
The decrease in other expenses was primarily attributable to the expiration of
certain consulting agreements entered into in connection with the acquisition of
the Hansen business. The decrease was partially offset by a new consulting
agreement entered into with the former president of HBC in June 1997.
8
Operating Income. Operating income was $1.3 million for the three
months ended March 31, 1998 compared to operating income of $148,000 for the
three months ended March 31, 1997. The increase in operating income is primarily
attributable to the increase in gross profit, which was partially offset, by an
increase in total operating expenses.
Net Interest and Financing Expense. Net interest and financing
expense for the three months ended March 31, 1998 was $109,000 compared to
$124,000 for the three months ended March 31, 1997. The decrease in interest and
financing expense was attributable to the fact that during the three months
ended March 31, 1998, no amounts were outstanding under the Company's revolving
line of credit and lower principal amounts were outstanding on the Company's
term loan during the three months ended March 31, 1998 than during the
comparable period in 1997.
Net Income. Net income was $705,000 for the three months ended March
31, 1998 compared to net income of $21,000 for the three months ended March 31,
1997. The $684,000 increase in net income is attributable to an increase in
operating income of $1.1 million and a decrease in total nonoperating expenses
of $15,000, but was partially offset by an increase in the provision for income
taxes of $468,000.
Liquidity and Capital Resources
As of March 31, 1998, the Company had working capital of $2,930,000
compared to working capital of $2,495,000 as of December 31, 1997. Net cash
provided by operating activities increased to $474,000 for the three months
ended March 31, 1998 as compared to $181,000 for the comparable period in 1997.
The increase in working capital and net cash provided by operating activities
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, during the quarter ended March 31, 1998.
Management believes that cash generated from operations and its cash
resources and amounts available under the revolving line of credit, will be
sufficient to meet its operating cash 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.
Net cash used in investing activities increased to $279,000 for the
three months ended March 31, 1998 as compared to $62,000 for the comparable
period in 1997. The increase in net cash used in investing activities was
primarily attributable to purchases of property and equipment to support the
Company's expansion and development plans. Although the Company has no current
plans to incur any material capital expenditures, management, from time to time,
considers the acquisition of capital equipment, particularly coolers and vans,
and businesses compatible with the image of the Hansen's(R) brand as well as the
introduction of new product lines. The Company may require additional capital
resources in the event of any such transaction, depending upon the cash
requirements relating thereto. Any such transaction will also be subject to the
terms and restrictions of HBC's credit facilities.
9
Net cash used in financing activities decreased to $126,000 for the
three months ended March 31, 1998 as compared to $235,000 during the comparable
period in 1997. The decrease in net cash used in financing activities was
primarily attributable to the fact that during the three-month period ended
March 31, 1998, no amounts were borrowed by the Company under its revolving line
of credit. Such decrease in net cash used in financing activities was partially
offset by principal payments made during the three months ended March 31, 1998
on the term loan. As of March 31, 1998, the sum of $3,791,665 was outstanding
under the term loan.
The revolving line of credit is renewable on July 1, 1998. The Company
anticipates that such line will be renewed by this date; however, there can be
no assurance that it will, in fact, be renewed or, if renewed, that the terms of
such renewal will not be disadvantageous to HBC and its business.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries or be modified in some fashion to
distinguish 21st century dates from 20th century dates. This problem could force
computers to either shut down or provide incorrect data. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. The Company has
examined its internal computer systems and contacted its software providers to
determine whether the Company's software applications are compliant with the
Year 2000. While the Company believes that its internal systems are fully Year
2000 compliant, the Company intends to continue to review its internal systems
for any problems as well as monitor its key customers and suppliers for any
impact that the Year 2000 may have on their information systems which in turn
could impact the Company. While it is difficult to quantify the total cost to
the Company of the Year 2000 compliance activities, the Company does not expect
the cost to be material.
Forward Looking Statements
Certain statements made in this Report, including certain statements
made in this Management's Discussion and Analysis, contain "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E 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.
10
Management cautions that these statements are qualified by their terms
and/or important factors, many of which are outside of the control of the
Company, that could cause actual results and events to differ materially from
the statements made herein, including, but not limited to, the following:
changes in consumer preferences, changes in demand that are weather related,
particularly in areas outside of California, competitive pricing pressures,
changes in the price of the raw materials for the Company's beverage products,
the marketing efforts of the distributors of the Company's products, most of
which distribute products that are competitive with the products of the Company,
and the introduction of new products, as well as unilateral decisions that may
be made by grocery chain stores, specialty chain stores and club stores to
discontinue carrying all or any of the Company's products that they are carrying
at any time. Management further notes that the Company's plans and results
may be affected by the terms of the Company's credit facilities and the
actions of its creditors.
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 13, 1998 /s/ RODNEY C. SACKS
Rodney C. Sacks
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1998 /s/ HILTON H. SCHLOSBERG
Hilton H. Schlosberg
Vice Chairman of the Board,
President, Chief Operating
Officer, Chief Financial
Officer and Secretary
(Principal Financial and
Accounting Officer)
12
EXHIBIT INDEX
Exhibit 10 (bbb) Stock Option Agreement dated as of January 30, 1998
between Hansen Natural Corporation and Rodney C. Sacks
Exhibit 10 (ccc) Stock Option Agreement dated as of January 30, 1998
between Hansen Natural Corporation and Hilton H. Schlosberg
Exhibit 27 Financial Data Schedule