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, 1996 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.)
2401 EAST KATELLA AVENUE, SUITE 650
ANAHEIM, CALIFORNIA 92806
(Address of principal executive offices) (Zip code)
(714) 634-4200
(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 9,122,868 SHARES OF COMMON STOCK
OUTSTANDING AS OF NOVEMBER 1, 1996
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1996
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the three
and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 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 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
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SEPTEMBER 30, DECEMBER 31,
1996 1995
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash $ 193,440 $ 87,916
Accounts receivable (net of allowance for doubtful accounts,
sales returns and cash discounts of $286,106 in 1996 and
$422,831 in 1995 and promotional allowances of $1,099,958
in 1996 and $782,034 in 1995) 1,082,330 1,729,155
Inventories 3,622,633 3,120,519
Prepaid expenses 252,012 487,507
---------------- ---------------
Total current assets 5,150,415 5,425,097
PLANT AND EQUIPMENT, net 670,570 784,884
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated amortization
of $2,016,214 in 1996 and $1,692,885 in 1995) (Note 3) 10,513,354 10,794,052
Notes receivable from officers 74,635 73,883
Deposits and other assets 506,157 443,503
---------------- ---------------
Total intangible and other assets 11,094,146 11,311,438
---------------- ---------------
$ 16,915,131 $ 17,521,419
---------------- ---------------
---------------- ---------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 475,546 $ 1,474,335
Accounts payable 3,021,572 3,382,765
Accrued liabilities 366,142 155,959
Current portion of long-term debt (including unamortized
premium of $47,939 in 1996) 4,055,543 30,782
---------------- ---------------
Total current liabilities 7,918,803 5,043,841
LONG-TERM DEBT (including unamortized premium
of $17,875 in 1995) 4,031,663
SHAREHOLDERS' EQUITY:
Common stock - $.005 par value; 30,000,000 shares authorized;
9,122,868 shares issued and outstanding in 1996 and 1995 45,614 45,614
Additional paid-in capital 10,847,355 10,847,355
Accumulated deficit (1,952,061) (2,483,266)
Foreign currency translation adjustment 55,420 36,212
---------------- ---------------
Total shareholders' equity 8,996,328 8,445,915
---------------- ---------------
$ 16,915,131 $ 17,521,419
---------------- ---------------
---------------- ---------------
See accompanying notes to consolidated financial statements.
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ -----------
NET SALES $ 10,805,021 $ 12,110,011 $ 28,574,757 $ 27,103,417
COST OF SALES 6,507,371 7,912,631 17,367,924 17,095,394
------------ ------------ ------------ ------------
GROSS PROFIT 4,297,650 4,197,380 11,206,833 10,008,023
OPERATING EXPENSES:
Selling, general and administrative 3,895,636 4,005,282 9,899,684 9,779,457
Amortization of trademark license and trademarks 73,200 124,500 323,329 372,942
Other expenses 74,292 101,577 222,873 355,125
------------ ------------ ------------ ------------
Total operating expenses 4,043,128 4,231,359 10,445,886 10,507,524
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 254,522 (33,979) 760,947 (499,501)
NONOPERATING EXPENSE (INCOME):
Interest and financing expense 142,304 114,960 467,426 295,454
Interest income (1,518) (2,306) (7,402) (15,844)
Other income (Note 4) (232,683)
------------ ------------ ------------ ------------
Net nonoperating expense 140,786 112,654 227,341 279,610
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 113,736 (146,633) 533,606 (779,111)
PROVISION FOR INCOME TAXES 2,400 1,754 2,400 1,754
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 111,336 $ (148,387) $ 531,206 $ (780,865)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE $ 0.012 $ (0.016) $ 0.057 $ (0.086)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NUMBER OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS USED
IN PER SHARE COMPUTATIONS 9,522,188 9,122,868 9,400,050 9,122,868
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
See accompanying notes to consolidated financial statements.
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited)
- --------------------------------------------------------------------------------
1996 1995
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 531,206 $ (780,865)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Amortization of trademark license and trademarks 323,329 372,942
Depreciation and other amortization 143,167 182,383
Loss on sale of equipment 4,613
Effect on cash of changes in operating assets
and liabilities:
Accounts receivable 646,825 (1,088,552)
Inventories (502,114) (1,126,968)
Prepaid expenses 235,495 (185,787)
Accounts payable (361,193) 1,897,446
Accrued liabilities 210,183 40,358
-------------- ------------
Net cash provided by (used in) operating activities 1,231,511 (689,043)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (74,068) (222,420)
Proceeds from sale of plant and equipment 70,665
Increase in trademark license (42,631) (63,505)
(Increase) decrease in notes receivable from officers (752) 19,213
Increase in deposits and other assets (62,654) (137,573)
-------------- ------------
Net cash used in investing activities (109,440) (404,285)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term borrowings (998,789) 647,922
Increase in long-term debt 17,439
Principal payments on long-term debt (36,966)
-------------- ------------
Net cash (used in) provided by financing activities (1,035,755) 665,361
EFFECT OF EXCHANGE RATE CHANGES ON CASH 19,208 (120,500)
-------------- ------------
NET INCREASE (DECREASE) IN CASH 105,524 (548,467)
CASH, beginning of period 87,916 1,091,037
-------------- ------------
CASH, end of period $ 193,440 $ 542,570
-------------- ------------
-------------- ------------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 340,617 $ 209,096
-------------- ------------
-------------- ------------
Cash paid during the period for taxes $ 2,400 $ -
-------------- ------------
-------------- ------------
See accompanying notes to consolidated financial statements.
5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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, 1995, 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 and CVI Ventures, Inc., and its two indirect
subsidiaries, Hansen Beverage Company (UK) Limited. 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. RECLASSIFICATIONS
With effect from the third quarter of 1996, certain distribution costs have
been included under and as part of selling, general and administrative
expenses instead of being included under and as part of cost of sales.
Consequently, the 1995 comparable financial statements have been restated
to conform to the 1996 presentation.
3. CHANGE IN ACCOUNTING ESTIMATE
The estimated life of the Company's trademark license and trademarks has
been changed from 25 years to 40 years in the light of, among other things,
the increases in annual revenues of Hansen-Registered Trademark- brand
beverages over the past few years and to bring it more into line with the
estimated life of trademarks of other consumer branded beverages. The
effect of such change in accounting estimate is a reduction in amortization
of trademark license and trademarks of $51,900 for both the third quarter
and year-to-date 1996. The effect of such change in accounting estimate is
an increase in net income of $.005 per share on a fully diluted basis for
the three and nine months ended September 30, 1996. The Company has
not restated its results for the first and second quarters of 1996 or for
comparable prior periods to reflect amortization over 40 years.
Accordingly, the results for the three and nine-month periods ended
September 30, 1996 are not directly comparable to the results for the
three and nine-month periods ended September 30, 1995 to the extent of
the reduction in amortization of trademark license and trademarks of
$51,900 in 1996.
4. OTHER INCOME
In connection with the acquisition of the Hansen business, the Company was
assigned a promissory note made by Hawaiian Water Partners in the original
principal amount of $310,027 plus interest thereon and certain additional
principal amounts. The note was secured by the proceeds, if any, of a
lawsuit. The collectibility of this note was dependent upon the outcome of
that lawsuit and consequently the Company fully reserved against this
asset. Following a judgment in the lawsuit, a settlement was reached among
the plaintiff, defendant and competing claimants to the proceeds from the
lawsuit. Under the terms of the settlement, the Company was to receive a
total of $616,000 plus interest. $480,000 of this amount was received at
the end of April 1996. The balance of $136,000 was paid in August 1996.
As of December 31, 1995, the Company had a reserve of $270,000 against the
note. As a result of the proceeds collected subsequent to December 31,
1995, such reserve was eliminated. The Company recorded other income of
$107,000 and $126,000 in the first and second quarters of 1996,
respectively, net of $37,000 of attorney's fees incurred in connection with
the settlement, which constituted the full extent of recovery under this
note.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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GENERAL
Management believes that during the nine months ended September 30, 1996,
the Company continued to make progress towards achieving its ultimate goal of
geographically expanding the Hansen's-Registered Trademark- brand, both
nationally and internationally.
During the nine months ended September 30, 1996, the expansion of
distribution of the Company's products into markets outside of California
contributed positively to the profitability of the Company as compared to the
net loss that was incurred by the Company from such activities during the nine
months ended September 30, 1995.
During the nine months ended September 30, 1996, the Company's operations
in the United Kingdom and route distribution system in Southern California
incurred a net loss of approximately $143,000 in the aggregate as compared to a
net loss from these activities of approximately $368,000 in the aggregate during
the nine months ended September 30, 1995.
Net sales and profitability during the nine-months ended September 30,
1996 were positively affected by sales of the Company's new
Hansen's-Registered Trademark- Fruit Juice Smoothies. Such gains were,
however, partially offset by lower sales and gross profits from soda, apple
juice and iced teas, lemonades and juice cocktails.
The Company continues to incur expenditures in connection with the
development and introduction of new products and flavors.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1995
NET SALES. For the three-month period ended September 30, 1996, net
sales were approximately $10.8 million, a decrease of $1.3 million or 10.8%
from the $12.1 million net sales for the three-month period ended September
30, 1995. The decrease in net sales was primarily attributable to decreased
sales of Hansen's-Registered Trademark- Fruit Juice Smoothies in cans and
decreased sales of sodas, and iced teas, lemonades and juice cocktails. This
decrease was partially offset by sales of Hansen's-Registered Tradmark- Fruit
Juice Smoothies in bottles, which were introduced during the first quarter of
1996. The decrease in net sales of Smoothies in cans was primarily
attributable to decreased sales to club stores and, to a lesser extent,
decreased sales to specialty chain stores. The decrease in sales to clubs
stores was primarily attributable to a large initial order for Smoothie cans
from a national club store chain during the third quarter of 1995. The
decrease in net sales of soda was primarily attributable to decreased sales
to club stores, specialty chain stores and distributors due to aggressive
retail pricing and promotions of mainstream sodas. The decrease in net sales
of iced teas, lemonades and juice cocktails was primarily attributable to
lower sales to club stores, retail and specialty chain stores and
distributors outside of California. The decrease in sales of iced teas,
lemonades and juice cocktails to these customers is attributable in the main
to aggressive competition from other brands, the decision by certain club
stores and specialty chain stores to limit the variety of these types of
Hansen products carried by them, the loss of distribution in certain
California chain stores and the loss of
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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distributors outside California. Net sales of apple juice for the
three-month period ended September 30, 1996 were approximately the same as
for the three-month period ended September 30, 1995.
GROSS PROFIT. Gross profit was $4.3 million for the three-month period
ended September 30, 1996, an increase of $100,000 or 2.4% over the $4.2 million
gross profit for the three-month period ended September 30, 1995. Gross profit
as a percentage of net sales increased to 39.8% for the three-month period ended
September 30, 1996 from 34.7% for the three-month period ended September 30,
1995. The increase in gross profit and gross profit as a percentage of net
sales was primarily attributable to higher average net sales prices and
decreases in the cost of aluminum cans and other raw materials, which was
partially offset by increased copacking costs for sodas due to a change in the
production facility utilized by the Company late in the second quarter of 1996.
TOTAL OPERATING EXPENSES. Total operating expenses were $4.0 million for
the three-month period ended September 30, 1996, a decrease of $188,000 or 4.4%
below total operating expenses of $4.2 million for the three-month period ended
September 30, 1995. However, total operating expenses as a percentage of net
sales increased to 37.4% for the three-month period ended September 30, 1996
from 34.9% for the three-month period ended September 30, 1995. The decrease in
total operating expenses was primarily attributable to decreased selling,
general and administrative expenses, amortization of trademark license and
trademarks and other expenses. The increase in total operating expenses as a
percentage of net sales was primarily attributable to the fact that selling,
general and administrative expenses decreased by a lesser percentage than the
decrease in net sales.
Selling, general and administrative expenses were $3.9 million for the
three-month period ended September 30, 1996, a decrease of $110,000 or 2.7%
below selling, general and administrative expenses of $4.0 million for the
three-month period ended September 30, 1995. Selling, general and
administrative expenses as a percentage of net sales increased to 36.1% for the
three-month period ended September 30, 1996 from 33.1% for the three-month
period ended September 30, 1995. The increase in selling, general and
administrative expenses as a percentage of net sales was primarily attributable
to lower net sales and higher selling expenses. Selling expenses were higher
due to higher promotional, distribution and warehouse expenses for the soda and
Smoothie product lines, but such increase was partially offset by lower general
and administrative expenses.
Amortization of trademark license and trademarks was $73,000 for the three-
month period ended September 30, 1996, a decrease of $51,000 or 41.2% below
amortization of trademark license and trademarks of $124,000 for the three-month
period ended September 30, 1995. This decrease is attributable to the extension
of the estimated life thereof from 25 years to 40 years, as more fully described
in Note 3 to the financial statements.
Other expenses were $74,000 for the three-month period ended September 30,
1996, a decrease of $27,000 or 26.9% below other expenses of $102,000 for the
three-month period ended September 30, 1995. This decrease was primarily
attributable to the expiration of certain consulting agreements which were
entered into in connection with the purchase of the Hansen Business and the
merger between the Company, CVI Ventures, Inc. and Continental Ventures, Inc.
OPERATING INCOME (LOSS). Operating income was $254,000 for the three-month
period ended September 30, 1996 compared to an operating loss of $34,000 for the
three-month period ended September 30, 1995. The $288,000 increase in operating
income was attributable to an increase in gross profit of approximately $100,000
and a decrease in operating expenses of approximately $188,000.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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NET NONOPERATING EXPENSE. Net nonoperating expense of $141,000 for the
three-month period ended September 30, 1996 was $28,000 higher than for the
three-month period ended September 30, 1995. Net nonoperating expense consists
of interest and financing expense and interest income. Interest and financing
expense for the three-month period ended September 30, 1996 was $142,000
compared to $115,000 for the three-month period ended September 30, 1995. The
increase in interest and financing expense was attributable to expenses incurred
in connection with a line of credit that was obtained by the Company during the
third quarter of 1995 and additional interest expense in connection with that
line. Interest income was $2,000 for the three-month periods ended September
30, 1996 and 1995.
NET INCOME (LOSS). Net income was $111,000 for the three-month period
ended September 30, 1996 compared to a net loss of $148,000 for the three-month
period ended September 30, 1995. The $259,000 increase in net income for this
period consists of an increase in operating income of $288,000, which was
partially offset by an increase of $28,000 in net nonoperating expense and an
increase in the provision for income taxes of $1,000.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995
NET SALES. For the nine-month period ended September 30, 1996, net
sales were approximately $28.6 million, an increase of $1.5 million or 5.4%
over the $27.1 million net sales for the nine-month period ended September
30, 1995. The increase in net sales was primarily attributable to increased
sales of Hansen's-Registered Trademark- Fruit Juice Smoothies in cans, and
sales of Hansen's-Registered Trademark- Fruit Juice Smoothies in bottles
which were introduced during the first quarter of 1996. The increase in net
sales of Hansen's-Registered Trademark- Fruit Juice Smoothies was partially
offset by a decrease in net sales of soda, apple juice and iced teas,
lemonades and juice cocktails. The increase in net sales of Smoothies in cans
was primarily attributable to the fact that these products were introduced at
the end of the first quarter of 1995, but were sold for the full nine-month
period in 1996, increased sales to club stores, retail and specialty chain
stores, mass merchandisers and new distributors who were appointed during
1996. The decrease in net sales of soda was primarily attributable to
decreased sales to club and retail stores and distributors due to aggressive
retail pricing and promotions of mainstream sodas. The decrease in net sales
of apple juice, which primarily occurred in the second quarter of 1996, was
primarily attributable to operational issues on the part of customers in
connection with the transition by the Company from glass bottles to plastic
containers to meet changing consumer preferences. The decrease in net sales
of iced teas, lemonades and juice cocktails was primarily attributable to
lower sales to retail and specialty chain stores and distributors outside
California. The decrease in sales to these customers is attributable in the
main to aggressive competition from other brands, the decision by certain
club stores and specialty chain stores to limit the variety of these types of
Hansen products carried by them, the loss of distribution in certain
California chain stores and the loss of distributors outside California.
Such decrease was partially offset by increased sales of juice cocktails to
club stores in California.
GROSS PROFIT. Gross profit was $11.2 million for the nine-month period
ended September 30, 1996, an increase of $1.2 million or 12.0% over the $10.0
million gross profit for the nine-month period ended September 30, 1995. Gross
profit as a percentage of net sales increased to 39.2% for the nine-
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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month period ended September 30, 1996 from 36.9% for the nine-month period
ended September 30, 1995. The increase in gross profit and gross profit as a
percentage of net sales was primarily attributable to higher average net
sales prices and decreases in the cost of aluminum cans and other raw
materials, which was partially offset by increased copacking costs for sodas
due to a change in the production facility utilized by the Company late in
the second quarter of 1996.
TOTAL OPERATING EXPENSES. Total operating expenses were $10.4 million for
the nine-month period ended September 30, 1996, a decrease of $62,000 or 0.6%
below total operating expenses of $10.5 million for the nine-month period ended
September 30, 1995. Total operating expenses as a percentage of net sales
decreased to 36.6% for the nine-month period ended September 30, 1996 from 38.8%
for the nine-month period ended September 30, 1995. The decrease in total
operating expenses was primarily attributable to a decrease in amortization of
trademark license and trademarks and other expenses which was partially offset
by 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 operating
expenses from the comparable period in 1995.
Selling, general and administrative expenses were $9.9 million for the
nine-month period ended September 30, 1996, an increase of $120,000 or 1.2% over
selling, general and administrative expenses of $9.8 million for the nine-month
period ended September 30, 1995. However, selling, general and administrative
expenses as a percentage of net sales decreased to 34.6% for the nine-month
period ended September 30, 1996 from 36.1% for the nine-month period ended
September 30, 1995. The increase in selling, general and administrative
expenses was primarily attributable to higher promotional, distribution and
warehouse expenses for the soda and Smoothie product lines. This increase was
partially offset by lower advertising and other marketing expenses as well as
lower general and administrative expenses. The decrease in selling, general and
administrative expenses as a percentage of net sales was primarily attributable
to the fact that selling, general and administrative expenses increased by a
lesser percentage than the increase in net sales.
Amortization of trademark license and trademarks was $323,000 for the nine-
month period ended September 30, 1996, a decrease of $50,000 or 13.3% below
amortization of trademark license and trademarks of $373,000 for the nine-month
period ended September 30, 1995. This decrease is attributable to the extension
of the estimated life thereof from 25 years to 40 years, in the third quarter of
1996, as more fully described in Note 3 to the financial statements.
Other expenses were $223,000 for the nine-month period ended September 30,
1996, a decrease of $132,000 or 37.2% below other expenses of $355,000 for the
nine-month period ended September 30, 1995. This decrease was primarily
attributable to the expiration of certain consulting agreements which were
entered into in connection with the purchase of the Hansen Business and the
merger between the Company, CVI Ventures, Inc. and Continental Ventures, Inc.
OPERATING INCOME (LOSS). Operating income was $761,000 for the nine-month
period ended September 30, 1996 compared to an operating loss of $499,000 for
the nine-month period ended September 30, 1995. The $1.3 million increase in
operating income was attributable to a $1.2 million increase in gross profit and
a decrease of $62,000 in operating expenses.
NET NONOPERATING EXPENSE. Net nonoperating expense of $227,000 for the
nine-month period ended September 30, 1996 was $52,000 lower than for the nine-
month period ended September 30, 1995. Net nonoperating expense consists of
interest and financing expense, interest and other income. Interest
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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and financing expense for the nine-month period ended September 30, 1996 was
$467,000 compared to $295,000 for the nine-month period ended September 30,
1995. The increase in interest and financing expense was attributable to
expenses incurred in connection with a line of credit that was obtained by
the Company during the third quarter of 1995 and additional interest expense
in connection with that line. Interest income for the nine-month period
ended September 30, 1996 was $7,000 compared to $16,000 for the nine-month
period ended September 30, 1995. In 1996, other income of $233,000
represents the net recovery under the Hawaiian Water Partners note described
in Note 4 to the Company's financial statements for the period ended
September 30, 1996.
NET INCOME (LOSS). Net income was $531,000 for the nine-month period ended
September 30, 1996 compared to a net loss of $781,000 for the nine-month period
ended September 30, 1995. The $1.3 million increase in net income for this
period consists of an increase in operating income of $1.3 million and a
decrease of $52,000 in net nonoperating expense.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had a working capital deficit of
$2,768,388 compared to working capital of $381,256 as of December 31, 1995. The
decrease in working capital was primarily attributable to the reclassification
of the $4,000,000 note payable to ERLY Industries and due on July 27, 1997, from
long-term debt to current portion of long-term debt. This note is secured by
the Company's principal trademark license but such security is subordinated to
the revolving line of credit described below. Management is currently
investigating various alternatives for the refinancing of this debt including
the securing of a new term loan and/or other financing arrangements. Management
believes that these endeavors will be completed prior to the maturity date of
the note. However, there can be no assurance that such financing will be
available or, if available, will be on terms acceptable to the Company.
During the third quarter of 1995, the Company obtained a revolving line of
credit of up to $3 million in aggregate at any time outstanding. The
utilization of this line of credit by the Company is dependant upon certain
levels of eligible accounts receivable and inventory from time to time. The
line of credit is secured by substantially all of the Company's assets,
including accounts receivable, inventory, trademarks, trademark licenses and
certain equipment. On August 31, 1996, the line of credit was renewed for a
period of one year. The line of credit is subject to automatic renewal on the
maturity date for an additional year unless terminated by either party. As of
September 30, 1996, $475,546 was outstanding under the line of credit.
During 1996, the Company utilized a portion of its line of credit, together
with its own funds and the net recovery under the Hawaiian Water Partners note,
for working capital and to finance its expansion and development plans.
Purchases of inventory and support of accounts receivable, as well as the
Company's expansion and development plans, have been, and for the foreseeable
future, are expected to remain the Company's principal recurring use of working
capital funds.
The Company's other use of funds in the future will be the repayment of
principal and interest on the ERLY note and the line of credit, as well as
obligations under certain consulting agreements entered into in connection with
the acquisition of the Hansen Business, which consulting agreements terminate on
July 27, 1997.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Although the Company has no current plans to incur any material capital
expenditures, management, from time to time, considers the acquisition of
capital equipment, businesses compatible with the image of the
Hansen's-Registered Trademark- brand and 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.
INFLATION
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
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PART II - OTHER INFORMATION
Items 1 - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K - 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 11, 1996
By: RODNEY C. SACKS
-------------------
Rodney C. Sacks
Chairman of the Board
and Chief Executive Officer;
Principal Financial Officer
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INDEX TO EXHIBITS
The following designated exhibits, as indicated below, are either
filed herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities Exchange Act of
1934 as indicated by footnote.
Exhibit No. Document Description Page
- ----------- --------------------- ----
Exhibit 27 Financial Data Schedule 15
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