SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 MAY 1, 1996
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
MARCH 31, 1996
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
three months ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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)
- -------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
ASSETS
CURRENT ASSETS:
Cash $ $ 87,916
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $298,001
in 1996 and $422,831 in 1995 and promotional allowances
of $919,341 in 1996 and $782,034 in 1995) 1,883,579 1,729,155
Inventories 2,904,013 3,120,519
Prepaid expenses and other current assets 364,732 487,507
----------- -----------
Total current assets 5,152,324 5,425,097
PLANT AND EQUIPMENT, net 753,277 784,884
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated
amortization of $1,818,309 in 1996 and $1,692,885 in 1995) 10,674,279 10,794,052
Notes receivable from officers 70,335 73,883
Deposits and other assets 466,655 443,503
----------- -----------
Total intangible and other assets 11,211,269 11,311,438
----------- -----------
$17,116,870 $17,521,419
=========== ===========
See accompanying notes to consolidated financial statements.
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank checks outstanding, less cash on deposit $ 360,323 $
Short-term borrowings 1,011,169 1,474,335
Accounts payable 3,025,499 3,382,765
Accrued liabilities 233,732 155,959
Current portion of long-term debt 31,394 30,782
----------- -----------
Total current liabilities 4,662,117 5,043,841
LONG-TERM DEBT (net of unamortized premium
of $30,407 in 1996 and $17,875 in 1995) 4,018,422 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 (2,464,760) (2,483,266)
Foreign currency translation adjustment 8,122 36,212
----------- -----------
Total shareholders' equity 8,436,331 8,445,915
----------- -----------
$17,116,870 $17,521,419
=========== ===========
See accompanying notes to consolidated financial statements.
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
1996 1995
---------- ----------
NET SALES $7,370,581 $5,433,697
COST OF SALES 4,607,953 3,256,761
---------- ----------
GROSS PROFIT 2,762,628 2,176,936
OPERATING EXPENSES:
Selling, general and administrative 2,489,904 2,290,591
Amortization of trademark license and trademarks 125,424 124,158
Other expenses 74,291 126,374
---------- ----------
Total operating expenses 2,689,619 2,541,123
---------- ----------
OPERATING INCOME (LOSS) 73,009 (364,187)
NONOPERATING EXPENSE (INCOME):
Interest and financing expense 165,759 100,723
Interest income (4,366) (8,349)
Other income (Note 2) (106,890)
---------- ----------
Net nonoperating expense 54,503 92,374
---------- ----------
NET INCOME (LOSS) $ 18,506 $ (456,561)
========== ==========
NET INCOME (LOSS) PER COMMON SHARE $ 0.002 $ (0.050)
========== ==========
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS 9,122,868 9,122,868
========== ==========
See accompanying notes to consolidated financial statements.
5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
1996 1995
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 18,506 $ (456,561)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Amortization of trademark license and trademarks 125,424 124,158
Depreciation and other amortization 59,409 57,867
Loss on sale of equipment 5,618
Effect on cash of changes in operating assets
and liabilities:
Accounts receivable (154,424) (120,811)
Inventories 216,506 459,433
Prepaid expenses and other current assets 122,775 130,974
Accounts payable (357,266) (822,712)
Accrued liabilities and deferred income taxes 77,773 144,353
--------- ----------
Net cash provided by (used in) operating activities 114,321 (483,299)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (43,346) (13,402)
Proceeds from sale of plant and equipment 22,458
Increase in trademark license (5,651) (41,214)
Decrease in notes receivable from officers 3,548 5,784
Increase in deposits and other assets (23,152) (61,514)
--------- ----------
Net cash used in investing activities (46,143) (110,346)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term borrowings (463,166)
Principal payments on long-term debt (25,161)
--------- ----------
Net cash used in financing activities (488,327)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (28,090) (2,338)
--------- ----------
NET DECREASE IN CASH (448,239) (595,983)
CASH, beginning of period 87,916 1,091,037
--------- ----------
(BANK CHECKS OUTSTANDING, LESS CASH
ON DEPOSIT) CASH, end of period (360,323) 495,054
========= ==========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 116,988 $ 62,499
========= ==========
See accompanying notes to consolidated financial statements.
6
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Reference is made to the Notes to Consolidated Financial Statements, in
the Company's Form 10-K for the year ended December 31, 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 and
Hansen Beverage Company (Services) 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. 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 a lawsuit and consequently the Company fully reserved
against this asset. Following a judgment from 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 is to receive a total of $616,000 plus interest, of which
$480,000 of this amount was received at the end of April 1996. The
balance of $136,000 is due to be paid on August 1, 1996. As of December
31, 1995, the Company had reserved an amount of $270,000 against the
note. In light of the proceeds collected subsequent to year end, the
Company reduced the reserve with respect to the note to $136,000 as of
March 31, 1996 and recorded $107,000 in other income in the first
quarter of 1996, which represents the decrease in the reserve less
$27,000 for attorney's fees incurred in connection with the settlement.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
GENERAL
Management believes that during the first quarter of 1996, the Company
continued to make progress towards achieving its ultimate goal of
geographically expanding the Hansen's-Registered Mark- brand, both nationally
and internationally. However, profitability during the period continued to
be adversely affected by the costs and expenditures incurred by the Company
in connection with its expansion strategy, including costs relating to:
(1) the operation and development of the Company's international
activities; and
(2) the development of the Company's route distribution system in
Southern California.
The net loss attributable to the expansion activities described above
amounted to approximately $111,000 in the aggregate during the three-month
period ended March 31, 1996 as compared to a net loss from these activities
of approximately $208,000 in the aggregate during the three-month period
ended March 31, 1995.
Profitability during the period was also adversely affected by the costs
and expenditures incurred by the Company in connection with the development
and introduction of new products and flavors.
During the first quarter of 1996, the expansion of distribution of the
Company's products into new markets within the United States 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 three-month
period ended March 31, 1995.
Net sales and profitability during the period were adversely affected by
lower sales and gross profits from soda and iced teas, lemonades and juice
cocktails but were positively affected by sales of the Company's new
Hansen's-Registered Mark- Fruit Juice Smoothies.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1996
COMPARED TO THE THREE-MONTH PERIOD ENDED MARCH 31, 1995
NET SALES. For the three-month period ended March 31, 1996, net sales
were approximately $7.4 million, an increase of $2.0 million or 35.6% over
the $5.4 million net sales for the three-month period ended March 31, 1995.
The increase in net sales was primarily attributable to increased sales of
Hansen's-Registered Mark- fruit juice Smoothies, which were introduced at the
end of the first quarter of 1995 and increased sales of Hansen's-Registered
Mark- apple juice. The increase in net sales was partially offset by a
decrease in net sales of soda and iced teas, lemonades and juice cocktails.
Net sales of soda for the three-month period ended March 31, 1996 were 22.7%
lower than for the three-month period ended March 31, 1995. Net sales of iced
teas, lemonades and juice cocktails for the three-month period ended March
31, 1996 were 12.2% lower than for the three-month period ended March 31,
1995. During the quarter, the Company sought to improve gross margins by
gradual price increases and lower expenditures for promotions. Due to
aggressive retail pricing and promotions of mainstream sodas, it became
necessary for the Company to reduce the retail prices of its soda products to
remain competitive and improve sales volumes.
GROSS PROFIT. Gross profit was $2.8 million for the three-month period
ended March 31, 1996, an increase of $586,000 or 26.9% over the $2.2 million
gross profit for the three-month period ended March 31, 1995. Gross profit
as a percentage of net sales decreased to 37.5% for the three-month period
ended March 31, 1996 from 40.1% for the three-month period ended March 31,
1995. The increase in gross
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
profit was primarily attributable to higher net sales. However, the decrease
in gross profit as a percentage of net sales was primarily attributable to
the higher cost of apple juice concentrate and a change in the product mix
resulting from increased sales of the Company's lower margin non-carbonated
and Smoothie product lines and lower margin international sales.
TOTAL OPERATING EXPENSES. Total operating expenses were $2.7 million
for the three-month period ended March 31, 1996, an increase of $149,000 or
5.8% over total operating expenses of $2.5 million for the three-month period
ended March 31, 1995. Total operating expenses as a percentage of net sales
decreased to 36.5% for the three-month period ended March 31, 1996 compared
to total operating expenses as a percentage of net sales of 46.8% for the
three-month period ended March 31, 1995. The net increase in total operating
expenses was primarily attributable to increased selling, general and
administrative expenses which was partially offset by a decrease in other
expenses. The decrease in total operating expenses as a percentage of net
sales was primarily attributable to the significant increase in net sales and
the comparatively smaller increase in operating expenses from the comparable
period in 1995.
Selling, general and administrative expenses were $2.5 million for the
three-month period ended March 31, 1996, an increase of $199,000 or 8.7% over
selling, general and administrative expenses of $2.3 million for the
three-month period ended March 31, 1995. The increase in such expenses was
primarily attributable to higher selling expenses incurred to support the
increase in net sales, and partially attributable to higher freight costs
incurred by the Company to deliver its Smoothie products to stores outside of
California, increased promotional allowances for the Company's Smoothie
products and sampling programs to stimulate trial and awareness of the
Company's Smoothie and other products. In addition, general and
administrative expenses were slightly higher primarily due to increased
expenses in connection with the development of and support for new products.
Other expenses were $74,000 for the three-month period ended March 31,
1996, a decrease of $52,000 or 41.2% below other expenses of $126,000 for the
three-month period ended March 31, 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 $73,000 for the
three-month period ended March 31, 1996 compared to operating loss of
$364,000 for the three-month period ended March 31, 1995. The $437,000
increase in operating income was attributable to a $586,000 increase in gross
profit which was partially offset by a $149,000 increase in operating
expenses.
NET NONOPERATING EXPENSE. Net nonoperating expense was $54,000 for the
three-month period ended March 31, 1996 which was $38,000 lower than net
nonoperating expense of $92,000 for the three-month period ended March 31,
1995. Net nonoperating expense for the three-month periods ended March 31,
1996 and 1995, respectively, consists of interest and financing expense and
interest income. In 1996, net nonoperating expense also includes other
income. Interest and financing expense for the three-month period ended
March 31, 1996 was $166,000 compared to $101,000 for the three-month period
ended March 31, 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
three-month period ended March 31, 1996 was $4,000 compared to $8,000 for the
three-month period ended March 31, 1995. This decrease was attributable to
less cash available for investment. In 1996, other income of $107,000
represents the net recovery under the Hawaiian Water Partners note described
below.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
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 is secured by the proceeds, if any,
of a lawsuit. The collectibility of this note was dependent upon the outcome
of a 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 is to receive a
total of $616,000 plus interest, of which $480,000 of this amount was
received at the end of April 1996. The balance of $136,000 is due to be paid
on August 1, 1996. As of December 31, 1995, the Company had reserved an
amount of $270,000 against the note. In light of the proceeds collected
subsequent to year end, the Company reduced the reserve with respect to the
note to $136,000 as of March 31, 1996 and recorded $107,000 in other income
in the first quarter of 1996, which represents the decrease in the reserve
less $27,000 for attorney's fees incurred in connection with the settlement.
NET INCOME (LOSS). Net income was $19,000 for the three-month period
ended March 31, 1996 compared to a net loss of $456,000 for the three-month
period ended March 31, 1995. The $475,000 increase in net income for this
period consists of an increase in operating income of $437,000 and a decrease
in net nonoperating expense of $38,000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had working capital of $490,207
compared to $381,256 as of December 31, 1995.
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. As of March 31, 1996, $1,011,169 was outstanding under
the line of credit. The line of credit terminates and all amounts owing
thereunder become due on August 31, 1996 unless renewed. The line of credit
is subject to automatic renewal on an annual basis unless terminated by
either party. Management expects the line of credit to be renewed, although
there can be no assurance that this will occur.
During the second half of 1995 and the first quarter of 1996, the
Company utilized a portion of its line of credit, together with its own
funds, 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 funds. The Company's other use of funds in the future will be the
repayment of principal and interest on the line of credit and the Company's
long-term debt, as well as obligations under certain consulting agreements
entered into in connection with the acquisition of the Hansen Business.
Management believes that cash available from operations, current cash
resources and its line of credit will be sufficient for its working capital
needs over the next twelve months.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
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 Mark- 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.
SALES
The following table sets forth selected quarterly data regarding sales
for the past four years. Data from any one or more quarters are not
necessarily indicative of annual results or continuing trends.
Sales are expressed in actual cases and case equivalents. A case
equivalent is equal to the amount of soda concentrate sold that will yield
twenty-four 12-ounce (354 ml) cans measured by volume. Actual cases of soda
equal twenty-four 12-ounce (354 ml) cans or 11-ounce (325 ml) bottles or
twelve 23-ounce (680 ml) bottles measured by volume. A case of apple juice
equals twelve 32-ounce bottles, six 64-ounce bottles, eight 64-ounce bottles,
four 128-ounce bottles or the equivalent volume. A case of non-carbonated
iced teas, lemonades and juice cocktails equals twenty-four 16-ounce (473 ml)
bottles measured by volume. A case of still water equals twenty-four
0.5-liter, twelve 1.0-liter, and twelve 1.5-liter plastic bottles measured by
volume. A case of Equator-TM- equals twenty-four 16-ounce or twelve 24-ounce
cans or twelve 20-ounce bottles. A case of fruit juice Smoothies equals
twenty-four 11.5-ounce (354 ml) cans or twenty-four 16-ounce (473 ml) or
13.5-ounce (400 ml) bottles measured by volume.
The Company's quarterly results of operations reflect seasonal trends
that are primarily the result of increased demand in the warmer months of the
year. It has been Hansen's experience that beverage sales tend to be lower
during the first and fourth quarters of each fiscal year. Because the
primary historical market for Hansen's products is California, which has a
year-long temperate climate, the effect of seasonal fluctuations on quarterly
results may have been mitigated; however, such fluctuations may be more
pronounced as the distribution of Hansen's products expands outside of
California. Quarterly fluctuations may also be affected by other factors
including the introduction of new products, the opening of new markets where
temperature fluctuations are more pronounced, the addition of new bottlers or
distributors, changes in the mix of products sold and changes in advertising
and promotional expenditure.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
For the quarter ended March 31,
-------------------------------
1993 1994 1995 1996
---- ---- ---- ----
(Case and case equivalent sales in thousands)
Soda 663 753 645 514
Apple juice 87 110 29 44
Iced teas, lemonades
and juice cocktails - 85 95 81
Still water - 5 15 11
Equator-TM- - - 47 5
Smoothies - - 2 284
Other 3
---- ---- ---- ----
Totals 750 953 833 942
==== ==== ==== ====
INFLATION
The Company does not believe that inflation had a significant impact on
the Company's results of operations for the periods presented.
12
PART II - OTHER INFORMATION
Items 1 - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HANSEN NATURAL CORPORATION
Registrant
Date: May 10, 1996
By: RODNEY C. SACKS
---------------------------
Rodney C. Sacks
Chairman of the Board
and Chief Executive Officer;
Principal Financial Officer
13
5
3-MOS
DEC-31-1995
JAN-01-1996
MAR-31-1996
0
0
3,100,921
1,217,342
2,904,013
5,152,324
1,080,504
327,227
17,116,870
4,662,117
0
0
0
45,614
8,390,717
17,116,870
7,370,581
7,374,947
4,607,953
2,689,619
(106,890)
0
165,759
18,506
0
18,506
0
0
0
18,506
.002
.002
