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 JUNE 30, 1997 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 HAS 9,122,868 SHARES OF COMMON STOCK
OUTSTANDING AS OF AUGUST 1, 1997
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
June 30, 1997
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Items 1-5. Not Applicable 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
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June 30, December 31,
1997 1996
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 288,064 $ 186,931
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $236,543
in 1997 and $234,749 in 1996 and promotional allowances
of $1,062,001 in 1997 and $926,045 in 1996) 2,023,713 944,227
Inventories 3,149,496 3,111,124
Prepaid expenses 652,303 331,869
------------ ------------
Total current assets 6,113,576 4,574,151
PLANT AND EQUIPMENT, net 631,075 602,272
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated
amortization of $2,236,640 in 1997 and $2,089,640 in 1996) 10,356,895 10,459,144
Notes receivable from officers 71,322 70,153
Deposits and other assets 459,850 403,353
------------ ------------
Total intangible and other assets 10,888,067 10,932,650
------------ ------------
$ 17,632,718 $ 16,109,073
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)(CONTINUED)
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June 30, December 31,
1997 1996
------------ ------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 899,457 $ 893,429
Accounts payable 3,076,912 2,139,050
Accrued liabilities 247,801 200,602
Current portion of long-term debt (net of unamortized premium
of $49,786 in 1997 and 48,541 in 1996) 512,584 4,048,541
------------ ------------
Total current liabilities 4,736,754 7,281,622
LONG-TERM DEBT 3,551,128
SHAREHOLDERS' EQUITY:
Common stock - $.005 par value; 30,000,000
Shares authorized; 9,122,868 shares issued
and outstanding in 1997 and 1996 45,614 45,614
Additional paid-in capital 10,847,355 10,847,355
Accumulated deficit (1,542,381) (2,126,100)
Foreign currency translation adjustment (5,752) 60,582
------------ ------------
Total shareholders' equity 9,344,836 8,827,451
------------ ------------
$ 17,632,718 $ 16,109,073
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
NET SALES $ 11,496,228 $ 10,399,155 $ 18,615,814 $ 17,769,736
COST OF SALES 6,791,491 6,252,600 11,027,737 10,860,553
------------- ------------- ------------- -------------
GROSS PROFIT 4,704,737 4,146,555 7,588,077 6,909,183
OPERATING EXPENSES:
Selling, general and administrative 3,809,192 3,514,143 6,396,957 6,001,647
Amortization of trademark license and
trademarks 73,500 124,705 147,000 250,129
Other expenses 72,991 74,291 147,135 148,582
------------- ------------- ------------- -------------
Total operating expenses 3,955,683 3,713,139 6,691,092 6,400,358
------------- ------------- ------------- -------------
OPERATING INCOME 749,054 433,416 896,985 508,825
NONOPERATING EXPENSE (INCOME):
Net interest and financing expense 148,691 157,845 273,066 319,238
Other income (125,793) (232,683)
------------- ------------- ------------- -------------
Net nonoperating expense 148,691 32,052 273,066 86,555
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAX
PROVISION 600,363 401,364 623,919 422,270
INCOME TAX PROVISION 37,800 40,200 2,400
------------- ------------- ------------- -------------
NET INCOME $ 562,563 $ 401,364 $ 583,719 $ 419,870
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME PER COMMON SHARE:
Primary $ 0.06 $ 0.04 $ 0.06 $ 0.05
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted $ 0.06 $ 0.04 $ 0.06 $ 0.04
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Primary 9,214,962 9,406,004 9,195,639 9,185,944
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted 9,219,049 9,726,478 9,219,049 9,726,478
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements.
5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited)
- ------------------------------------------------------------------------------
1997 1996
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 583,719 $ 419,870
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of trademark license and trademarks 147,000 250,129
Depreciation and other amortization 124,034 94,783
Loss on sale of equipment 4,730
Effect on cash of changes in operating assets
and liabilities:
Accounts receivable (1,079,485) (772,243)
Inventories (38,372) (169,925)
Prepaid expenses (320,434) 162,988
Accounts payable 937,861 361,583
Accrued liabilities 47,199 199,490
----------- ----------
Net cash provided by operating activities 401,522 551,405
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (151,952) (67,497)
Proceeds from sale of plant and equipment 360 68,302
Increase in trademark license (44,750) (23,846)
(Increase) decrease in notes receivable from officers (1,169) 764
Increase in deposits and other assets (56,497) (56,717)
----------- ----------
Net cash used in investing activities (254,008) (78,994)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings 6,028 (438,591)
Increase in long-term debt 14,546
Principal payments on long-term debt (621) (34,717)
----------- ----------
Net cash provided by (used in) financing
activities 19,953 (473,308)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (66,334) (18,055)
----------- ----------
NET INCREASE (DECREASE) IN CASH 101,133 (18,952)
CASH, beginning of period 186,931 87,916
----------- ----------
CASH, end of period $ 288,064 $ 68,964
----------- ----------
----------- ----------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 225,505 $ 224,867
----------- ----------
----------- ----------
Cash paid during the period for taxes $ 2,400 $ 2,400
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
6
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, 1996, 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. ("CVI"), and its
indirect subsidiary, Hansen Beverage Company (UK) Limited ("HBC (UK)").
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. LONG-TERM DEBT
On June 30, 1997, HBC entered into a definitive agreement (the "Loan
Agreement") with a bank (the "Bank") pursuant to which the Bank agreed to
provide credit facilities to HBC consisting of a revolving line of credit
(the "Revolver") of up to $3,000,000 in aggregate at any time outstanding
and a term loan of up to $4,000,000 (the "Term Loan") or such lesser amount
as may be necessary to retire the note payable to ERLY Industries, Inc.
("ERLY") due July 27, 1997 (the "ERLY Note"). The Term Loan will
mature 60 months after the date of funding of the Term Loan. The credit
facilities are secured by all of the assets of the Company and its
subsidiaries, including, but not limited to, accounts receivable,
inventory, machinery and equipment, as well as all trademarks, trademark
licenses, formulas and recipes and other intellectual property. The credit
facilities are also guaranteed by the Company, CVI and HBC (UK).
The initial proceeds received under the Revolver were used to refinance the
outstanding balance due on HBC's previous line of credit. The Revolver
will expire on May 1, 1998. The Company anticipates that the Revolver will
be renewed on the expiration date, but there can be no assurance it will,
in fact, be renewed, or if renewed, that the terms of such renewal will not
be disadvantageous to HBC and its business.
On July 24, 1997, the Bank, by written letter (the "Commitment Letter"),
confirmed its commitment to fund the Term Loan pursuant to HBC's
instructions at any time up to August 31, 1997. On July 28, 1997, HBC
tendered payment to ERLY under the ERLY Note, offsetting damages claimed by
HBC in its lawsuit against ERLY. In that lawsuit, the trial court has ruled
that ERLY breached certain of its obligations to HBC under the ERLY Note
and the only issue remaining for determination is the amount of HBC's
damages. ERLY has not responded to that tender.
In light of the conclusion of the Loan Agreement, the receipt of the
Commitment Letter referred above, and management's intent to utilize the
Term Loan to satisfy the ERLY Note, the Company reclassified a portion of
the amount due under the ERLY Note from "current portion of long-term debt"
to "long-term debt". The amount reclassified is equal to the long-
7
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
term portion of the Term Loan, based upon the assumption that $4,000,000
will be paid to satisfy the ERLY Note.
3. EARNINGS PER SHARE
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share", which is
effective for financial statements for both interim and annual periods
ending after December 15, 1997. Early adoption of the statement is not
permitted. The Company has applied this statement to the results for the
first and second quarters of 1997 and determined that the adoption of this
statement would not have had a material impact on the earnings per share
calculations for these periods.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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General
During the six months ended June 30, 1997, the expansion of
distribution of certain of the Company's products into markets outside of
California continued to contribute positively to the profitability of the
Company. However, both the Company's operations in the United Kingdom and
route distribution system in Southern California continued to incur losses,
albeit at a lower rate than were incurred from these activities during the
comparable six-month period ended June 30, 1996. During the period the
Company completed the discontinuation of the operation of its route
distribution system.
During late April 1997, the Company introduced a lightly carbonated
Energy drink in an 8-ounce slim can and intends to introduce additional
flavors and other types of beverages to complement its existing product lines
consistent with the overall image of the Hansen's-Registered Trademark-
brand, during 1997.
The Company continues to incur expenditures in connection with the
development and introduction of new products and flavors.
During the second quarter management re-evaluated the Company's
warehousing, distribution and repacking arrangements. Management concluded
that, in consequence of the expansion of the Company's business and increased
volumes, it would be cost efficient for the Company to rent its own warehouse
facility and to appoint an independent contractor to manage the warehouse
facility, as well as the distribution and repacking of the Company's
products. Management also determined that it would be cost efficient and
beneficial for the Company's corporate offices to be relocated to such
facility.
In consequence, on April 25, 1997, the Company agreed to lease
approximately 66,700 square feet of warehouse space in Corona, California for
use as the Company's corporate offices and the primary national warehouse,
distribution and repacking center for the Company's products, for a term of
eighty-nine (89) months commencing on the later of August 1, 1997 or the date
on which the facility is ready for occupancy.
Concurrently, the Company agreed to sublease approximately 10,000
square feet of the space to an independent contractor for two (2) years,
subject to early termination upon sixty (60) days prior written notice. It
is anticipated that the Company will ultimately need to utilize this space to
accommodate the expansion of its business.
In terms of a separate agreement, that independent contractor agreed
to manage the warehouse facility and the distribution and repacking of the
Company's products therefrom. In addition, the independent contractor will
utilize its sublet space to repack products for other customers whose
products are not directly competitive with the Company's products. As a
result, it will not be necessary for the Company to employ additional
personnel to manage the warehouse facility and the distribution of its
products.
Under the terms of the lease, the landlord has agreed to pay for the
construction of office facilities and certain other improvements. It is
anticipated that the Company will move its warehouse, distribution and
repacking operations to the Corona, California site from a temporary site
leased from the same landlord, in September 1997 and will move its corporate
offices in January 1998.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1997 COMPARED TO
THE THREE-MONTH PERIOD ENDED JUNE 30, 1996
NET SALES. For the three-month period ended June 30, 1997, net
sales were approximately $11.5 million, an increase of $1.1 million or 10.5%
over the $10.4 million net sales for the three-month period ended June 30,
1996. The increase in net sales was attributable to increased sales of
Hansens's-Registered Trademark- fruit juice Smoothies, increased sales of
Hansens's-Registered Trademark- apple juice and sales of Hansens's-Registered
Trademark- Energy drink, which was introduced during the second quarter of
1997. The increase in net sales was partially offset by a decrease in net
sales of soda and the discontinuance of distribution of Equator-Registered
Trademark- products in certain markets. Sales of iced teas, lemonades and
juice cocktails were about the same as in the comparable period in 1996.
GROSS PROFIT. Gross profit was $4.7 million for the three-month
period ended June 30, 1997, an increase of $558,000 or 13.5% over the $4.1
million gross profit for the three-month period ended June 30, 1996. Gross
profit as a percentage of net sales increased to 40.9% for the three-month
period ended June 30, 1997 from 39.9% for the three-month period ended June
30, 1996. The increase in gross profit was primarily attributable to
increased net sales and higher margins achieved. 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 $4.0
million for the three-month period ended June 30, 1997, an increase of
$242,000 or 6.5% over total operating expenses of $3.7 million for the
three-month period ended June 30, 1996. However, total operating expenses as
a percentage of net sales decreased to 34.4% for the three-month period ended
June 30, 1997 from 35.7% for the three-month period ended June 30, 1996. The
increase in total operating expenses was primarily attributable to increased
selling, general and administrative expenses which was partially offset by a
decrease in amortization of trademark license and trademarks. 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 1996.
Selling, general and administrative expenses were $3.8 million for
the three-month period ended June 30, 1997, an increase of $295,000 or 8.4%
over selling, general and administrative expenses of $3.5 million for the
three-month period ended June 30, 1996. However, selling, general and
administrative expenses as a percentage of net sales decreased to 33.1% for
the three-month period ended June 30, 1997 from 33.8% for the three-month
period ended June 30, 1996. The increase in selling expenses was primarily
attributable to increases in distribution, advertising and other promotional
expenditures, and costs of promotional materials. The increase in general
and administrative expenses was primarily attributable to increased
professional and legal fees incurred in connection with the Company's claim
against ERLY, increased costs in connection with the development of and
support for new products and increased payroll costs in connection with the
Company's expansion activities into additional states.
Amortization of trademark license and trademarks was approximately
$74,000 for the three- month period ended June 30, 1997, a decrease of
$51,000 from the $125,000 for the three-month period ended June 30, 1996.
This decrease is attributable to the change in the amortization period from
25 years to 40 years as more fully described in Note 1 in the Company's Form
10-K for the year ended December 31, 1996.
OPERATING INCOME. Operating income was $749,000 for the three-month
period ended June 30, 1997 compared to operating income of $433,000 for the
three-month period ended June 30, 1996. The
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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$316,000 increase in operating income was attributable to a $558,000 increase
in gross profit which was partially offset by an increase of $242,000 in
operating expenses.
NET NONOPERATING EXPENSE. Net nonoperating expense was $149,000 for
the three-month period ended June 30, 1997, which was $117,000 higher than
net nonoperating expense of $32,000 for the three-month period ended June 30,
1996. Net nonoperating expense for the three-month period ended June 30, 1997
consists of net interest and financing expense. Net nonoperating expense for
the three-month period ended June 30, 1996 consists of net interest and
financing expense and other income. Interest and financing expense for the
three-month period ended June 30, 1997 was $149,000 compared to $158,000 for
the three-month period ended June 30, 1996. The decrease in net interest and
financing expense was attributable to the decrease in the amortization of
certain capitalized financing costs incurred in connection with the securing
of the Company's existing revolving line of credit in August 1995, which were
fully amortized in the third quarter of 1996, and lower average short-term
borrowings during the three-month period ended June 30, 1997 than during the
comparable three-month period in 1996. Other income for 1996 consisted of
$126,000 of income from the recovery under the Hawaiian Water Partners note
described in Note 3 in the Company's Form 10-K for the year ended December
31, 1996.
NET INCOME. Net income was $562,000 for the three-month period
ended June 30, 1997 compared to net income of $401,000 for the three-month
period ended June 30, 1996. The $161,000 increase in net income for this
period consists of an increase in operating income of $316,000 which was
partially offset by an increase of $117,000 in net nonoperating expense and a
provision for income taxes of $38,000.
RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 COMPARED TO
THE SIX-MONTH PERIOD ENDED JUNE 30, 1996
NET SALES. For the six-month period ended June 30, 1997, net sales
were approximately $18.6 million, an increase of $846,000 or 4.8% over the
$17.8 million net sales for the six-month period ended June 30, 1996. The
increase in net sales was attributable to increased sales of
Hansens's-Registered Trademark-fruit juice Smoothies, increased sales of
Hansens's-Registered Trademark- apple juice and sales of Hansens's-Registered
Trademark- Energy drink, which was introduced during the second quarter of
1997. The increase in net sales was partially offset by a decrease in net
sales of soda, iced teas, lemonades and juice cocktails and the
discontinuance of distribution of Equator-Registered Trademark- products in
certain markets.
GROSS PROFIT. Gross profit was $7.6 million for the six-month
period ended June 30, 1997, an increase of $679,000 or 9.8% over the $6.9
million gross profit for the six-month period ended June 30, 1996. Gross
profit as a percentage of net sales increased to 40.8% for the six-month
period ended June 30, 1997 from 38.9% for the six-month period ended June 30,
1996. The increase in gross profit was primarily attributable to increased
net sales and higher margins achieved. 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 $6.7
million for the six-month period ended June 30, 1997, an increase of $291,000
or 4.5% over total operating expenses of $6.4 million for the six-month
period ended June 30, 1996. However, total operating expenses as a
percentage of net sales decreased to 35.9% for the six-month period ended
June 30, 1997 from 36.0% for the six-month period ended June 30, 1996. The
increase in total operating expenses was primarily attributable to increased
selling, general and administrative expenses which was partially offset by
decreases in amortization of trademark license and trademarks. 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 1996.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Selling, general and administrative expenses were $6.4 million for
the six-month period ended June 30, 1997, an increase of $395,000 or 6.6%
over selling, general and administrative expenses of $6.0 million for the
six-month period ended June 30, 1996. Selling, general and administrative
expenses as a percentage of net sales increased to 34.4% for the six-month
period ended June 30, 1997 from 33.8% for the six-month period ended June 30,
1996. The increase in selling expenses was primarily attributable to
increases in distribution, advertising and other promotional expenditures and
costs of promotional materials. The increase in general and administrative
expenses was primarily attributable to increased professional and legal fees
incurred in connection with the Company's claim against ERLY, increased costs
in connection with the development of and support for new products and
increased payroll costs in connection with the Company's expansion activities
into additional states.
Amortization of trademark license and trademarks was approximately
$147,000 for the six-month period ended June 30, 1997, a decrease of $103,000
from the $250,000 for the six-month period ended June 30, 1996. This
decrease is attributable to the change in the amortization period from 25
years to 40 years as more fully described in Note 1 in the Company's Form
10-K for the year ended December 31, 1996.
OPERATING INCOME. Operating income was $897,000 for the six-month
period ended June 30, 1997 compared to operating income of $509,000 for the
six-month period ended June 30, 1996. The $388,000 increase in operating
income was attributable to a $679,000 increase in gross profit which was
partially offset by an increase of $291,000 in operating expenses.
NET NONOPERATING EXPENSE. Net nonoperating expense was $273,000 for
the six-month period ended June 30, 1997, which was $186,000 higher than net
nonoperating expense of $87,000 for the six-month period ended June 30, 1996.
Net nonoperating expense for the six months ended June 30, 1997 consists of
net interest and financing expense. Net nonoperating expense for the six
months ended June 30, 1996 consists of interest and financing expense and
other income. Net interest and financing expense for the six-month period
ended June 30, 1997 was $273,000 compared to $319,000 for the six-month
period ended June 30, 1996. The decrease in net interest and financing
expense was attributable to the decrease in the amortization of certain
capitalized financing costs incurred in connection with the securing of the
Company's existing revolving line of credit in August 1995, which were fully
amortized in the third quarter of 1996, and lower average short-term
borrowings during the six-month period ended June 30, 1997 than during the
comparable six-month period in 1996. Other income for 1996 consisted of
$233,000 of income from the recovery under the Hawaiian Water Partners note
described in Note 3 in the Company's Form 10-K for the year ended December
31, 1996.
NET INCOME. Net income was $584,000 for the six-month period ended
June 30, 1997 compared to net income of $420,000 for the six-month period
ended June 30, 1996. The $164,000 increase in net income for this period
consists of an increase in operating income of $388,000 which was partially
offset by an increase of $186,000 in net nonoperating expense and a provision
for income taxes of $38,000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had working capital of $1,376,822
compared to a working capital deficit of $2,707,471 as of December 31, 1996.
The increase in working capital was primarily attributable to the
reclassification of the amount due under the ERLY Note from current portion
of long-term debt to long-term debt, as explained above in Note 2 to the
Company's unaudited financial statements for the period ended June 30, 1997,
and partially attributable to net income earned, after
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
adjustments for certain noncash expenses, primarily amortization of trademark
license and trademarks, depreciation and other amortization, during the
six-month period ended June 30, 1997.
As explained in Note 2 to the Company's unaudited financial
statements for the period ended June 30, 1997, HBC obtained a revolving line
of credit of up to $3 million in aggregate at any time outstanding. The line
of credit is secured by substantially all of HBC's assets, including accounts
receivable, inventory, trademarks, trademark licenses and certain equipment.
The initial use of proceeds under this line of credit was to refinance HBC's
previous line of credit. The line of credit is subject to renewal on the
maturity date. As of June 30, 1997, $890,414 was outstanding under this line
of credit.
During the first and second quarters of 1997, HBC utilized a portion
of the then existing line of credit, together with its own funds, for working
capital and to finance its expansion and development plans. Purchases of
inventory and financing of accounts receivable, as well as HBC's expansion
and development plans, have been, and for the foreseeable future, are
expected to remain, HBC's principal recurring use of working capital funds.
Also, as explained in Note 2, HBC obtained a commitment for a Term
Loan, the proceeds of which will be used for the repayment of principal on
the ERLY Note.
In the event that funding of the Term Loan does not occur by August
31, 1997, and the bank does not extend its commitment to fund the same
thereafter, it will be necessary for management to secure alternative
financing to enable HBC to meet its obligations under the ERLY Note. There
can be no assurance that any replacement financing, if required, can be
completed prior to the due date for payment of the ERLY Note or, if
completed, that the terms of any such financing will not be disadvantageous
to HBC and its business.
The obligations of HBC under certain consulting agreements entered
into in connection with the acquisition of the Hansen Business terminated on
July 27, 1997.
Management believes that cash available from operations, current
cash resources and the Revolver, will be sufficient for its working capital
needs, including its purchase commitments for raw materials, through June 30,
1998.
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.
Any such transaction will also be subject to the terms and restrictions of
HBC's credit facility.
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, refinancing of the ERLY Note, adequacy of funds from
operations and the Company's existing credit facility, among other things.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
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, 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 and the court's final adjudication of damages in
the ERLY litigation.
INFLATION
The Company does not believe that inflation has 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. Non Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant of 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: August 8, 1997
By: RODNEY 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 hereto fore 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
- ----------- --------------------
Exhibit 10(uu) Standard Industrial Lease Agreement
Exhibit 10(vv) Sublease Agreement
Exhibit 27 Financial Data Schedule
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