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, 1999 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 92880-5471
(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 10,002,084 shares of common stock outstanding as of
November 1, 1999
1
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
September 30, 1999
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the
three and nine-months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
nine-months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 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 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
2
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,825,772 $ 3,806,089
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $415,520
in 1999 and $378,641 in 1998 and promotional allowances
of $2,218,635 in 1999 and $1,608,123 in 1998) 4,421,682 1,827,544
Inventories, net 7,826,073 5,211,077
Prepaid expenses and other current assets 590,069 244,318
------------------ -------------------
15,663,596 11,089,028
PROPERTY AND EQUIPMENT, net 591,169 601,523
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated amortization
of $2,912,362 in 1999 and $2,687,462 in 1998) 10,738,663 10,003,417
Note receivable from director 20,861
Deposits and other assets 643,739 211,903
------------------ -------------------
11,382,402 10,236,181
------------------ -------------------
$ 27,637,167 $ 21,926,732
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,295,852 $ 1,870,253
Accrued liabilities 485,770 403,864
Accrued compensation 313,249 476,001
Current portion of long-term debt 1,167,792 2,072,818
Income taxes payable 122,342 1,269,185
------------------ -------------------
8,385,005 6,092,121
LONG-TERM DEBT, less current portion 766,317 1,334,967
DEFERRED INCOME TAX LIABILITY 756,986 557,461
SHAREHOLDERS' EQUITY:
Common stock - $.005 par value; 30,000,000 shares authorized; 10,002,084 and
9,911,905 shares issued
and outstanding in 1999 and 1998, respectively 50,010 49,560
Additional paid-in capital 11,235,096 11,207,765
Retained earnings 6,443,753 2,684,858
------------------ -------------------
Total shareholders' equity 17,728,859 13,942,183
------------------ -------------------
$ 27,637,167 $ 21,926,732
================== ===================
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTHS AND NINE-MONTHS ENDED SEPTEMBER 30,1999 AND 1998(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- -------------------------------------
1999 1998 1999 1998
----------------- ------------------ ----------------- -----------------
NET SALES $ 20,491,265 $ 16,589,368 $ 54,862,616 $ 41,804,753
COST OF SALES 11,060,928 8,703,684 29,044,061 21,326,455
----------------- ------------------ ----------------- -----------------
GROSS PROFIT 9,430,337 7,885,684 25,818,555 20,478,298
OPERATING EXPENSES:
Selling, general and administrative 7,121,372 5,975,153 19,373,804 15,537,504
Amortization of trademark license and trademarks 76,604 73,800 224,900 221,400
Other expenses 29,719 30,000 59,719
----------------- ------------------ ----------------- -----------------
Total operating expenses 7,197,976 6,078,672 19,628,704 15,818,623
----------------- ------------------ ----------------- -----------------
OPERATING INCOME 2,232,361 1,807,012 6,189,851 4,659,675
NONOPERATING EXPENSE (INCOME)
Interest and financing expense 34,651 82,347 137,763 301,055
Interest income (40,758) (31,707) (90,781) (38,758)
--------------- ---------------- --------------- ---------------
Net nonoperating expense (income) (6,107) 50,640 46,982 262,297
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,238,468 1,756,372 6,142,869 4,397,378
PROVISION FOR INCOME TAXES 901,700 624,000 2,457,000 1,544,123
----------------- ------------------ ----------------- -----------------
NET INCOME $ 1,336,768 $ 1,132,372 $ 3,685,869 $ 2,853,255
================= ================== ================= =================
NET INCOME PER COMMON SHARE:
Basic $ 0.13 $ 0.12 $ 0.37 $ 0.31
================= ================== ================= =================
Diluted $ 0.13 $ 0.11 $ 0.35 $ 0.28
================= ================== ================= =================
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 9,975,976 9,356,804 9,950,566 9,210,360
================= ================== ================= =================
Diluted 10,625,105 10,549,988 10,544,156 10,302,057
================= ================== ================= =================
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,685,869 $ 2,853,255
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of trademark license and trademarks 224,900 221,400
Depreciation and other amortization 139,939 161,759
Compensation expense related to issuance of stock options 73,026 40,577
Deferred income taxes 199,525
Effect on cash of changes in operating assets and liabilities:
Accounts receivable (2,594,138) (962,141)
Inventories (2,614,996) (291,641)
Prepaid expenses and other current assets (345,751) (311,718)
Accounts payable 4,425,599 1,056,839
Accrued liabilities 81,906 73,493
Accrued compensation (162,752) 246,261
Income taxes payable (1,146,843) 1,532,790
----------------- -----------------
Net cash provided by operating activities 1,966,284 4,620,874
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (129,585) (357,802)
Increase in trademark license and trademarks (960,146) (87,867)
Decrease in note receivable from director 20,861 29,291
Increase in deposits and other assets (431,836) (13,451)
----------------- -----------------
Net cash used in investing activities (1,500,706) (429,829)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (1,904,926) (378,112)
Increase in long-term debt 431,250
Issuance of common stock 27,781 75,957
----------------- -----------------
Net cash used in financing activities (1,445,895) (302,155)
----------------- -----------------
NET (DECREASE) INCREASE IN CASH (980,317) 3,888,890
CASH, beginning of period 3,806,089 395,231
----------------- -----------------
CASH, end of period $ 2,825,772 $ 4,284,121
================= =================
SUPPLEMENTAL INFORMATION Cash paid during the year for:
Interest $ 152,701 $ 286,447
================= =================
Income taxes $ 3,370,000 $ 2,400
================= =================
NONCASH TRANSACTIONS:
During the nine-month period ended September 30, 1999, the Company issued
67,876 shares of common stock to employees in connection with a net exercise
of options to purchase 92,800 shares of common stock.
5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1999 AND YEAR-ENDED DECEMBER
31, 1998
- ----------------------------------------------------------------------------
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, 1998, 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.
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:
September 30, 1999 December 31, 1998
--------------------- ------------------
Raw materials $2,934,538 $1,815,040
Finished goods 5,054,584 3,664,270
--------------------- ------------------
7,989,122 5,479,310
Less inventory reserves (163,049) (268,233)
--------------------- ------------------
$7,826,073 $5,211,077
===================== ==================
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
General
During the quarter ended September 30, 1999 the Company continued to
make progress towards achieving its goal of expanding both the Hansen's(R) brand
product range and distribution of such products into new markets outside of
California.
During the quarter ended September 30, 1999, the Company introduced two
new lines of children's multi-vitamin juice products in 8.5-ounce aseptic
packages.
During the quarter ended September 30, 1999, net sales increased by
23.5% to $20.5 million over the comparable period in 1998. The increase in net
sales was primarily attributable to sales of the Company's new children's
multi-vitamin juice products as well as the Company's Signature Soda line, which
was introduced in the first quarter of 1999, and increased sales of Hansen's
energy and other functional drinks in 8.2-ounce slim cans. The increase in net
sales was also attributable to sales of two flavors of Hansen's Smoothies in
64-ounce P.E.T. plastic bottles, which package was introduced in the fourth
quarter 1998, increased sales of the Healthy Start(TM) juice line, and to a
lesser extent, increased sales of Smoothies in cans, apple juice lines, and
spring water. The increase in net sales was partially offset by decreased sales
of teas, lemonades and juice cocktails and Smoothies in 13.5-ounce bottles.
Sales of Natural Sodas in cans were level with the comparable quarter of 1998.
The Company is currently in the process of introducing its new line of
premium functional Smoothies in cans and anticipates introducing such products
in bottles at the end of the year.
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-Months Ended September 30, 1999 Compared to
the Three-Months Ended September 30, 1998
Net Sales. For the three-months ended September 30, 1999, net sales
were $20.5 million, an increase of $3.9 million or 23.5% over the $16.6 million
net sales for the three-months ended September 30, 1998. The increase in net
sales was primarily attributable to sales of the Company's new children's
multi-vitamin juice products as well as the Company's Signature Soda line, which
was introduced in the first quarter of 1999, and increased sales of Hansen's
energy and other functional drinks in 8.2-ounce slim cans. The increase in net
sales was also attributable to sales of two flavors of Hansen's Smoothies in
64-ounce P.E.T. plastic bottles, which package was introduced in the fourth
quarter 1998, increased sales of the Healthy Start(TM) juice line, and, to a
lesser extent, increased sales of Smoothies in cans, apple juice lines, and
spring water. The increase in net sales was partially offset by decreased sales
of teas, lemonades and juice cocktails and Smoothies in 13.5-ounce bottles.
Sales of Natural Sodas in cans were level with the comparable quarter of 1998.
Gross Profit. Gross profit was $9.4 million for the three-months ended
September 30, 1999, an increase of $1.5 million or 19.6% over the $7.9 million
gross profit for the three-months ended September 30, 1998. Gross profit as a
percentage of net sales decreased to 46.0% for the three-months ended September
30, 1999 from 47.5% for the three-months ended September 30, 1998. The increase
in gross profit was primarily attributable to increased net sales. The decrease
in gross profit as a percentage of net sales was primarily attributable to lower
margins achieved as a result of a change in the Company's product mix.
Total Operating Expenses. Total operating expenses were $7.2 million
for the three-months ended September 30, 1999, an increase of $1.1 million or
18.4% over total operating expenses of $6.1 million for the three-months ended
September 30, 1998. Total operating expenses as a percentage of net sales
decreased to 35.1% for the three-months ended September 30, 1999 from 36.6% for
the three-months ended September 30, 1998. The increase in total operating
expenses was primarily attributable to increased selling, general and
administrative expenses. The decrease in total operating expenses as a
percentage of net sales was primarily attributable to the increase in net sales
and the comparatively smaller increase in selling, general and administrative
expenses from the comparable period in 1998 and a decrease in other expenses.
Selling, general and administrative expenses were $7.1 million for the
three-months ended September 30, 1999, an increase of $1.1 million or 19.2% over
selling, general and administrative expenses of $6.0 million for the
three-months ended September 30, 1998. Selling, general and administrative
expenses as a percentage of net sales decreased to 34.8% for the three-months
ended September 30, 1999 from 36.0% for the three-months ended September 30,
1998. The increase in selling expenses was primarily attributable to increases
in distribution (freight) expenses, advertising, promotional expenditures,
particularly coupons, point of sale materials, samples and merchandise displays.
The increase in selling expenses was partially offset by a decrease in
promotional allowances, slotting expenses, and a slight decrease in in-store
demonstrations. The increase in general and administrative expenses was
primarily attributable to increased payroll and other costs in connection with
the Company's expansion activities into additional states and operating
activities to support the increase in net sales.
8
Amortization expense was $76,600 for the three-months ended September
30, 1999 and $73,800 for the three-months ended September 30, 1998.
There were no other expenses for the three-months ended September 30,
1999 as compared to $30,000 for the three-months ended September 30, 1998.
Operating Income. Operating income was $2,232,000 for the three-months
ended September 30, 1999, an increase of $425,000 or 23.5% over operating income
of $1,807,000 for the three- months ended September 30, 1998. Operating income
as a percentage of net sales was 10.9% for the three-months ended September 30,
1999, which was about the same as in the comparable period in 1998. The increase
in operating income was attributable to the $1.5 million increase in gross
profit which was partially offset by the increase of $1.1 million in operating
expenses.
Net Nonoperating Expense (Income). Net nonoperating income was $6,000
for the three-months ended September 30, 1999, as compared to net nonoperating
expense of $51,000 for the three-months ended September 30, 1998. Interest
income was $41,000 for the three-months ended September 30, 1999, as compared to
interest income of $32,000 during the comparable period in 1998. The increase in
interest income is attributable to an increase in cash invested in interest
bearing securities. Interest and financing expense was $35,000 for the
three-months ended September 30, 1999 as compared to $82,000 for the comparable
period in 1998. The decrease in interest and financing expense was attributable
to the fact that the principal amounts outstanding on the Company's term loan
were lower in 1999 than during the comparable period in 1998.
Provision for Income Taxes. Provision for income taxes was $902,000,
for the three-months ended September 30, 1999, an increase of $278,000 over the
provision for income taxes of $624,000 for the comparable period in 1998. The
effective tax rate for the three-months ended September 30, 1999 was 40.3% as
compared to 35.5% for the comparable period in 1998. The increase in provision
for income taxes was attributable to the increase in income before provision for
income taxes and the increase in the effective tax rate for the three-months
ended September 30, 1999. Certain net operating loss carryforwards resulted in a
lower effective tax in 1998. Such net operating loss carryforwards were not
available in 1999.
Net Income. Net income was $1,336,000 for the three-months ended
September 30, 1999, compared to net income of $1,132,000 for the three-months
ended September 30, 1998. The $204,000 increase in net income consists of an
increase in operating income of $425,000 and a decrease of $57,000 in net
interest and financing expense which was partially offset by a $278,000 increase
in provision for income taxes.
9
Results of Operations for the Nine-months Ended September 30, 1999 Compared to
The Nine-months Ended September 30, 1998
Net Sales. For the nine-months ended September 30, 1999, net sales were
approximately $54.9 million, an increase of $13.1 million or 31.2% over the
$41.8 million net sales for the nine-months ended September 30, 1998. The
increase in net sales was primarily attributable to sales of the Company's new
Signature Soda line, which was introduced in the first quarter of 1999, sales of
Healthy Start(TM) juice line, which was introduced during the second quarter of
1998, sales of two flavors of Smoothies in 64-ounce P.E.T. plastic bottles,
which package was introduced in the fourth quarter of 1998, increased sales of
the Hansen's energy and other functional drinks in 8.2-ounce slim cans, sales of
the Company's new children's multi-vitamin juice products, which were introduced
during the third quarter of 1999, increased sales of Smoothies in cans and apple
juice product lines, and, to a lesser extent, sales of the Company's new Gold
Standard Premium functional tea line which was introduced in the second quarter
of 1999. The increase in net sales was partially offset by decreased sales of
Smoothies in 13.5-ounce bottles, and teas, lemonades and juice cocktails.
Gross Profit. Gross profit was $25.8 million for the nine-months ended
September 30, 1999, an increase of $5.3 million or 26.1% over the $20.5 million
gross profit for the nine-months ended September 30, 1998. Gross profit as a
percentage of net sales decreased to 47.1% for the nine-months ended September
30, 1999 from 49.0% for the nine-months ended September 30, 1998. The increase
in gross profit was primarily attributable to increased net sales. The decrease
in gross profit as a percentage of net sales was primarily attributable to lower
margins achieved as a result of a change in the Company's product mix.
Total Operating Expenses. Total operating expenses were $19.6 million
for the nine-months ended September 30, 1999, an increase of $3.8 million or
24.1% over total operating expenses of $15.8 million for the nine-months ended
September 30, 1998. Total operating expenses as a percentage of net sales
decreased to 35.8% for the nine-months ended September 30, 1999 from 37.8% for
the nine-months ended September 30, 1998. The increase in total operating
expenses was primarily attributable to increased selling, general and
administrative expenses. The decrease in total operating expenses as a
percentage of net sales was primarily attributable to the increase in net sales
and the comparatively smaller increase in selling, general and administrative
expenses from the comparable period in 1998.
Selling, general and administrative expenses were $19.4 million for the
nine-months ended September 30, 1999, an increase of $3.8 million or 24.7% over
selling, general and administrative expenses of $15.5 million for the
nine-months ended September 30, 1998. Selling, general and administrative
expenses as a percentage of net sales decreased to 35.3% for the nine-months
ended September 30, 1999 from 37.2% for the comparable period in 1998. The
increase in selling expenses was primarily attributable to increases in
distribution (freight) expenses, advertising, promotional allowances and
expenditures, particularly in-store demonstrations and coupons, sampling, and
point of sale materials. The increase in selling expenses was partially offset
by a decrease in expenditures incurred for slotting and merchandise displays.
The increase in general and administrative expenses was primarily attributable
to increased payroll and other costs in connection with the Company's expansion
activities into additional states and operating activities to support the
increase in net sales.
10
Amortization expense was $225,000 for the nine-months ended September
30, 1999 and $221,400 for the nine-months ended September 30, 1998.
Other expenses were $30,000 for the nine-months ended September 30, 1999 and
$60,000 for the nine-months ended September 30, 1998.
Operating Income. Operating income was $6,190,000 for the nine-months
ended September 30, 1999, an increase of $1,530,000 or 32.8% over operating
income of $4,660,000 for the nine-months ended September 30, 1998. Operating
income as a percentage of net sales increased to 11.3% for the nine-months ended
September 30, 1999 from 11.1% in the comparable period in 1998. The increase in
operating income was attributable to a $5.3 million increase in gross profit
which was partially offset by an increase of $3.8 million in operating expenses.
Net Nonoperating Expense (Income). Net nonoperating expense was $47,000
for the nine-months ended September 30, 1999, a decrease of $215,000 from net
nonoperating expense of $262,000 for the nine-months ended September 30, 1998.
Interest and financing expense was $138,000 for the nine-months ended September
30, 1999 as compared to $301,000 for the comparable period in 1998. The decrease
in interest and financing expense was attributable to a reduction in financing
fees that were fully amortized in 1998 and to the fact that the principal
amounts outstanding on the Company's term loan were lower in 1999 than during
the comparable period in 1998. Interest income was $91,000 for the nine-months
ended September 30, 1999, as compared to interest income of $39,000 during the
comparable period in 1998. The increase in interest income is attributable to an
increase in cash invested in interest bearing securities.
Provision for Income Taxes. Provision for income taxes was $2,457,000
for the nine-months ended September 30, 1999, an increase of $913,000 over the
provision for income taxes of $1,544,000 for the comparable period in 1998. The
effective tax rate for the nine-months ended September 30, 1999 was 40.0% as
compared to 35.1% for the comparable period in 1998. The increase in provision
for income taxes was attributable to the increase in income before provision for
income taxes and the increase in the effective tax rate for the nine-months
ended September 30, 1999. Certain net operating loss carryforwards resulted in a
lower effective tax in 1998. Such net operating loss carryforwards were not
available in 1999.
Net Income. Net income was $3,686,000 for the nine-months ended
September 30, 1999 compared to net income of $2,853,000 for the nine-months
ended September 30, 1998. The $833,000 increase in net income consists of an
increase in operating income of $1,530,000 and a decrease of $215,000 in net
interest and financing expenses which was partially offset by a $913,000
increase in provision for income taxes.
11
Liquidity and Capital Resources
As of September 30, 1999, the Company had working capital of $7,279,000
compared to working capital of $4,997,000 as of December 31, 1998. The increase
in working capital was primarily attributable to net income earned after
adjustments for certain noncash expenses, primarily amortization of trademark
license and trademarks, depreciation and other amortization, and deferred income
taxes. The increase in working capital was partially offset by repayments made
in reduction of HBC's term loan, increases in trademark licenses and trademarks,
increases in deposits and other assets, and acquisitions of property and
equipment.
Net cash provided by operating activities decreased to $1,966,000 for
the nine-months ended September 30, 1999 as compared to net cash provided by
operating activities of $4,621,000 for the comparable period in 1998. The
decrease in net cash provided by operating activities was primarily attributable
to increases in inventories and accounts receivable to support the increase in
net sales and a decrease in income taxes payable, which were partially offset by
an increase in accounts payable.
Net cash used in investing activities was $1,501,000 for the
nine-months ended September 30, 1999 as compared to net cash used in investing
activities of $430,000 for the comparable period in 1998. Net cash used in
investing activities was primarily attributable to an increase in trademark
license and trademarks, an increase in deposits and other assets, and purchases
of property and equipment. Increase in trademark license and trademarks includes
$775,000 in respect of the cost of acquisition of the exclusive ownership of the
Hansen's trademark and trade names which were previously held in trust for the
benefit of HBC and The Fruit Juice Company of California, Inc. Deposits and
other assets include certain graphic design expenses which are amortized over a
number of years.
Net cash used in financing activities was $1,446,000 for the
nine-months ended September 30, 1999 as compared to net cash used in financing
activities of $302,000 for the comparable period in 1998. The increase in net
cash used in financing activities was primarily attributable to principal
payments made in reduction of HBC's term loan partially offset by portion of the
cost of acquisition of the exclusive ownership of the Hansen's trademark and
trade names, as described above.
As of September 30, 1999, $1,499,000 was outstanding under the term
loan, as compared to $3,400,000 outstanding on December 31, 1998. Effective June
14, 1999, the Company's bank reduced the annual interest rate on the term loan
from the bank's base rate ("prime") plus 1 1/2% to prime plus 1/2%.
HBC's revolving line of credit has been renewed by its bank until May
1, 2000. The effective borrowing rate under the revolving line of credit is
prime plus 1/4%. HBC anticipates that the revolving line of credit will be
renewed when it expires on May 1, 2000; 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.
12
The acquisition of increased inventories and increases in accounts
receivable, acquisition of property and equipment, increases in trademark
licenses and trademarks, repayment of the Company's long-term debt, repurchase
of the Company's common stock, as well as HBC's acquisition and development
plans are, and for the foreseeable future are, expected to remain HBC's
principle recurring use of cash and working capital funds. 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, merchandise displays, vans and promotional vehicles, trademarks, and
businesses compatible with the image of the Hansen's(R) brand as well as the
development and introduction of new product lines. The Company may require
additional capital resources 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.
Management believes that cash generated from operations and the
Company's cash resources and amounts available under HBC's 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.
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 twenty-first century dates from twentieth century dates. This
problem could force computers to either shut-down or provide incorrect data.
Incomplete or untimely resolution of Year 2000 issues by the Company, by
critically important suppliers, co-packers or customers of the Company could
have a material adverse impact on the Company's business, operations or
financial condition in the future.
The Company's Year 2000 compliance efforts are ongoing and its overall
plan, as well as the consideration of contingency plans, will continue to
evolve, as new information becomes available. While the Company anticipates no
major interruption of its business activities, this will be dependent in part,
upon the ability of third parties to be Year 2000 compliant. Although the
Company has implemented the actions described below to address third party
issues, it has no direct ability to influence compliance actions by such third
parties or to verify their representations that they are Year 2000 compliant.
The Company's most significant potential risk is the temporary inability of
certain key suppliers to supply raw materials and/or key co-packers to pack some
of the Company's products in certain locations and/or certain of the Company's
major customers to order and pay on a timely basis, should their systems not be
Year 2000 compliant by January 1, 2000.
The Company is in the process of investigating its information
technology ("IT") systems as well as its non-information technology ("NIT")
systems. Based upon such investigation, the Company believes that the majority
of its IT and NIT systems are Year 2000 compliant. However, certain systems such
as the communication and voice mail system still require remediation. To date,
the expenses incurred by the Company in order to become Year 2000 compliant,
including computer software costs, have been approximately $100,000 and the
13
current estimated cost to complete remediation is expected not to exceed
$20,000. Such costs, other than software, have been and will continue to be
expensed as incurred. Remediation and testing activities are well underway with
approximately 95% of the Company's systems already compliant. The Company
estimates that it will complete the required remediation, including testing of
all its IT and NIT systems, and be fully compliant, by the end of 1999.
An assessment of Year 2000 compliance issues by third parties with whom
the Company has relationships, such as critically important suppliers,
co-packers, customers, banking institutions, payroll processors and others is
ongoing. The Company has inquired and continues to inquire of such third parties
as to their readiness with respect to Year 2000 compliance issues and has to
date received indications from certain of them that their systems are compliant
or in the process of remediation. The Company will continue to monitor these
third parties to determine the possible impact of their non-compliance or
otherwise on the business of the Company and the actions the Company can take,
if any, in the event of non-compliance by any of these third parties. The
Company believes there are multiple vendors of many of the goods and services it
receives from its suppliers and thus Year 2000 compliance issue risks with
respect to any particular supplier is mitigated by this factor. However, certain
flavors and ingredients used by the Company are unique to certain suppliers and
the Company does not have and may not be able to secure alternative suppliers
therefor or alternatively, alternative suppliers that are able to supply flavors
or ingredients of the same or similar quality and/or with the same and similar
taste. The Company also is dependent on customers for sales and for cashflow.
Interruptions in customers' operations due to Year 2000 issues could result in
decreased revenue, increased inventory and cash flow reductions.
Contingency plans for Year 2000 related interruptions will be developed
during 1999 where necessary and possible and will include, but not be limited
to, the development of emergency back-up and recovery procedures, remediation of
existing systems parallel with the installation of new systems, replacing
electronic applications with manual processes, identification and securing of
alternative suppliers and increasing raw material and finished goods inventory
levels and alternative sales strategies. All plans are expected to be completed
by the end of 1999.
The Company's plans, which continue to evolve, including estimated
costs and dates for completion of Year 2000 remediation, are based in important
part on numerous assumptions about future events. Certain of these assumptions,
involving key matters such as the availability of certain resources, third party
remediation plans and other factors, involve inherent uncertainties or are not
within the Company's control. Given the numerous and significant uncertainties
involved, there can be no assurance that these estimates will be achieved and
therefore, actual results could differ materially. Specific factors that might
cause material differences include, but are not limited to, the ability to
identify and correct all relevant computer codes and imbedded chips,
unanticipated difficulties or delays in the implementation of project plans and
the ability of third parties to remediate their respective systems.
14
European Monetary Union
Within Europe, The European Economic and Monetary Union (the "EMU")
introduced a new currency, the euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
On January 1, 1999, the participating countries adopted the euro as
their local currency, initially available for currency trading on currency
exchanges and noncash transactions such as banking. The existing local
currencies, or legacy currencies, will remain legal tender through January 1,
2002. Beginning on January 1, 2002, euro-denominated bills and coins will be
used for cash transactions. For a period of up to six-months from this date,
both legacy currencies and the euro will be legal tender. On or before July 1,
2002, the participating countries will withdraw all legacy currencies and
exclusively use the euro.
The Company's transactions are recorded in U.S. Dollars and the Company
does not currently anticipate future transactions being recorded in the euro.
Based on the lack of transactions recorded in the euro, the Company does not
believe that the euro will have a material effect on the financial position,
results of operations or cash flows of the Company. In addition, the Company has
not incurred and does not expect to incur any significant costs from the
continued implementation of the euro, including any currency risk, which could
materially affect the Company's business, financial condition or results of
operations.
The Company has not experienced any significant operational disruptions
to date and does not currently expect the continued implementation of the euro
to cause any significant operational disruptions.
15
Forward Looking Statements
The Private Security Litigation Reform Act of 1995 (the "Act") provides
a safe harbor for forward looking statements made by or on behalf of the
Company. The Company and it's representatives may from time to time make written
or oral forward looking statements, including statements contained in this
report and other filings with the Securities and Exchange Commission and in
reports to shareholders and announcements. Certain statements made in this
report, including certain statements made in management's discussion and
analysis, may constitute forward looking statements (within the meaning of
Section 27.A of the Securities Act 1933 as amended and Section 21.E of the
Securities Exchange Act of 1934, as amended) regarding the expectations of
management with respect to revenues, profitability, adequacy of funds from
operations and the Company's existing credit facility, among other things. All
statements which address operating performance, events or developments that
management expects or anticipates will or may occur in the future including
statements related to new products, volume growth, revenues, profitability,
adequacy of funds from operations, and/or the Company's existing credit
facility, earnings per share growth, statements expressing general optimism
about future operating results and non-historical Year 2000 information, are
forward looking statements within the meaning of the Act.
Management cautions that these statements are qualified by their terms and/or
important factors, many of which are outside the control of the Company that
could cause actual results and events to differ materially from the statements
made including, but not limited to, the following:
o Company's ability to generate sufficient cash flows to support capital
expansion plans and general operating activities; o Changes in consumer
preferences; o Changes in demand that are weather related, particular in areas
outside of California; o Competitive products and pricing pressures and the
Company's ability to gain or maintain share of sales in the marketplace as a
result of actions by competitors; o The introduction of new products; o Laws and
regulations, and/or any changes therein, including changes in accounting
standards, taxation requirements (including tax rate changes, new tax laws and
revised tax law interpretations) and environmental laws as well as the Federal
Food Drug and Cosmetic Act, the Dietary Supplement Health and Education Act, and
regulations made thereunder or in connection therewith, especially those that
may affect the way in which the Company's products are marketed as well as laws
and regulations or rules made or enforced by the Food and Drug Administration; o
Changes in the cost and availability of raw materials and the ability to
maintain favorable supply arrangements and relationships and procure timely
and/or adequate production of all or any of the Company's products; o The
Company's ability to achieve earnings forecasts, which may be based on projected
volumes and sales of many product types and/or new products, certain of which
are more profitable than others. There can be no assurance that the Company will
achieve projected levels or mixes of product sales; o The Company's ability to
penetrate new markets;
16
o The marketing efforts of distributors of the Company's
products, most of which distribute products that are competitive with the
products of the Company; o Unilateral decisions by distributors, grocery chains,
specialty chain stores, club stores and other customers to discontinue carrying
all or any of the Company's products that they are carrying at any time; o The
terms and/or availability of the Company's credit facilities and the actions of
it's creditors; o The effectiveness of the Company's advertising, marketing and
promotional programs; o Adverse weather conditions, which could reduce demand
for the Company's products; o The Company's customers', co-packers' and
suppliers' ability to replace, modify or upgrade computer programs in ways that
adequately address Year 2000 issues; and o The Company's project plans, which
continue to evolve, including estimated costs and dates for completion of Year
2000 remediation, are based in important part on numerous assumptions about
future events. Certain of these assumptions, involving key matters such as the
availability of certain resources, third party remediation plans and other
factors, involve inherent uncertainties or are not within the Company's control.
Given the numerous and significant uncertainties involved, there can be no
assurance that these estimates will be achieved and actual results could differ
materially. Specific factors that might cause material differences include, but
are not limited to, the inability to identify and correct all relevant computer
codes and imbedded chips, unanticipated difficulties or delays in the
implementation of project plans and the ability of third parties to remediate
their respective systems.
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.
17
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: November 12, 1999
/s/ Rodney C. Sacks
Chairman of the Board
and Chief Executive Officer
Date: November 12, 1999
/s/ Hilton H. Schlosberg
Vice Chairman of the Board,
President, Chief Operating
Officer, Chief Financial
Officer and Secretary
18
EXHIBIT INDEX
Exhibit 10 (lll) Assignment and Agreement dated as of September 22, 1999 by The
Fresh Juice Company of California, Inc. and Hansen Beverage Company.
Exhibit 10 (mmm) Settlement Agreement dated as of September 1999 by and between
and among Rodney C. Sacks, as sole Trustee of The Hansen's Trust and Hansen
Beverage Company The Fresh Juice Company of California, Inc.
Exhibit 10 (nnn) Trademark Assignment dated as of September 24, 1999 by and
between The Fresh Juice Company of California, Inc. (Assignor) and Rodney
C. Sacks as sole Trustee of The Hansen's Trust (Assignee).
Exhibit 10 (ooo) Settlement Agreement dated as of September 3, 1999 by and
between The Fresh Juice Company of California, Inc., The Fresh Smoothie
Company, LLC, Barry Lublin, Hansen's Juice Creations, LLC, Harvey Laderman
and Hansen Beverage Company and Rodney C. Sacks, as Trustee of The Hansen's
Trust.
Exhibit 10 (ppp) Royalty Agreement dated as of April 26, 1996 by and between
Hansen's Juices, Inc. and Hansen's Juice Creations, Limited Liability
Company.
Exhibit 10 (qqq) Royalty Agreement dated as of April 26, 1996 by and between
Gary Hansen, Anthony Kane and Burton S. Rosky, as trustees of Hansen's
Trust and Hansen's Juice Creations, a limited liability company.
Exhibit 10 (rrr) Letter Agreement dated May 14, 1996.
Exhibit 10 (sss) Amendment to Royalty Agreement as of May 9, 1997 by and
between The Fresh Juice Company of California and Hansen's Juice Creations,
Limited Liability Company.
Exhibit 10 (ttt) Assignment of License Agreements dated as of February 1999 by
Hansen's Juice Creations, LLC (Assignor) to Fresh Smoothie, LLC (Assignee)