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, 2002
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.)
1010 Railroad Street
Corona, California 92882
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(909) 739 - 6200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
The registrant had 10,053,003 shares of common stock outstanding as of
October 31, 2002
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
September 30, 2002
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2002
(Unaudited) and December 31, 2001 3
Consolidated Statements of Income for the three and nine-months
ended September 30, 2002 and 2001 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine-months
ended September 30, 2002 and 2001 (Unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Qualitative and Quantitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
Part II. OTHER INFORMATION
Items 1-5. Not Applicable 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
Certifications 19
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 (Unaudited) AND DECEMBER 31, 2001
- --------------------------------------------------------------------------------
September 30, December 31,
2002 2001
------------------ -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,912,236 $ 247,657
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $948,077
in 2002 and $625,270 in 2001 and promotional allowances
of $4,438,494 in 2002 and $2,981,556 in 2001) 5,428,853 4,412,422
Inventories, net 11,893,017 11,956,680
Prepaid expenses and other current assets 1,036,772 974,155
Deferred income tax asset 949,176 949,176
------------------ -----------------
Total current assets 22,220,054 18,540,090
PROPERTY AND EQUIPMENT, net 1,901,501 1,945,146
INTANGIBLE AND OTHER ASSETS:
Trademark licenses and trademarks (net of accumulated amortization
of $68,859 in 2002 and $29,772 in 2001) 17,354,376 17,350,221
Deposits and other assets 458,389 725,825
------------------ -----------------
Total intangible and other assets 17,812,765 18,076,046
------------------ -----------------
$ 41,934,320 $ 38,561,282
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,896,773 $ 3,919,741
Accrued liabilities 663,752 871,841
Accrued compensation 231,711 432,896
Current portion of long-term debt 249,950 337,872
------------------ -----------------
Total current liabilities 7,042,186 5,562,350
LONG-TERM DEBT, less current portion 4,784,354 5,851,105
DEFERRED INCOME TAX LIABILITY 1,814,278 1,814,278
SHAREHOLDERS' EQUITY:
Common stock - $.005 par value; 30,000,000 shares
authorized; 10,259,764 shares issued, 10,053,003 outstanding
in 2002; 10,251,764 shares issued, 10,045,003 outstanding in 2001. 51,299 51,259
Additional paid-in capital 11,934,564 11,926,604
Retained earnings 17,122,184 14,170,231
Common stock in treasury; at cost - 206,761 shares
in 2002 and 2001 respectively (814,545) (814,545)
------------------ -----------------
Total shareholders' equity 28,293,502 25,333,549
------------------ -----------------
$ 41,934,320 $ 38,561,282
================== =================
See accompanying notes to consolidated financial statements.
3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTHS AND NINE-MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
2002 2001 2002 2001
------------------ ----------------- ----------------- -----------------
GROSS SALES $ 34,458,591 $ 28,290,423 $ 89,632,151 $ 76,225,508
LESS: Discounts, allowances and
promotional payments 7,473,335 5,193,660 17,789,713 13,707,170
------------------ ----------------- ----------------- -----------------
NET SALES 26,985,256 23,096,763 71,842,438 62,518,338
COST OF SALES 17,307,405 14,623,137 45,520,669 39,355,740
------------------ ----------------- ----------------- -----------------
GROSS PROFIT 9,677,851 8,473,626 26,321,769 23,162,598
OPERATING EXPENSES:
Selling, general and administrative 7,478,308 6,154,448 21,138,618 17,874,811
Amortization of trademark licenses
and trademarks 13,415 129,824 39,087 379,025
------------------ ----------------- ----------------- -----------------
Total operating expenses 7,491,723 6,284,272 21,177,705 18,253,836
------------------ ----------------- ----------------- -----------------
OPERATING INCOME 2,186,128 2,189,354 5,144,064 4,908,762
NONOPERATING EXPENSE (INCOME)
Interest and financing expense 51,850 92,624 184,177 430,927
Interest income (555) (1,158) (1,379) (8,340)
------------------ ----------------- ----------------- -----------------
Net nonoperating expense 51,295 91,466 182,798 422,587
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,134,833 2,097,888 4,961,266 4,486,175
PROVISION FOR INCOME TAXES 864,608 839,156 2,009,313 1,794,470
------------------ ----------------- ----------------- -----------------
NET INCOME $ 1,270,225 $ 1,258,732 $ 2,951,953 $ 2,691,705
================== ================= ================= =================
NET INCOME PER COMMON SHARE:
Basic $ 0.13 $ 0.13 $ 0.29 $ 0.27
================== ================= ================= =================
Diluted $ 0.12 $ 0.12 $ 0.29 $ 0.26
================== ================= ================= =================
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 10,053,003 10,045,003 10,052,302 10,033,697
================== ================= ================= =================
Diluted 10,389,920 10,322,676 10,356,586 10,306,091
================== ================= ================= =================
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, 2002 AND 2001 (Unaudited)
- --------------------------------------------------------------------------------
2002 2001
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,951,953 $ 2,691,705
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of trademark license and trademarks 39,087 379,025
Depreciation and other amortization 360,705 322,951
Gain on disposal of fixed assets (11,410)
Effect on cash of changes in operating assets and liabilities:
Accounts receivable (1,016,431) (760,703)
Inventories 63,663 (955,503)
Prepaid expenses and other current assets 59,416 (5,107)
Accounts payable 1,977,032 1,907,233
Accrued liabilities (208,089) 158,869
Accrued compensation (201,185) (15,260)
Income taxes (122,033) (651,487)
----------------- -----------------
Net cash provided by operating activities 3,904,118 3,060,313
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (317,060) (464,443)
Proceeds from sale of fixed assets 22,754
Increase in trademark licenses and trademarks (43,242) (110,100)
Decrease (increase) in deposits and other assets 267,436 (96,451)
----------------- -----------------
Net cash used in investing activities (92,866) (648,240)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (1,154,673) (2,011,023)
Issuance of common stock 8,000 28,621
----------------- -----------------
Net cash used in financing activities (1,146,673) (1,982,402)
----------------- -----------------
NET INCREASE IN CASH 2,664,579 429,671
CASH AND CASH EQUIVALENTS, beginning of the period 247,657 130,665
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of the period $ 2,912,236 $ 560,336
================= ================
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Interest $ 188,818 $ 470,007
================= =================
Income taxes $ 2,131,346 $ 2,445,957
================= =================
NONCASH TRANSACTIONS:
During the nine month period ended September 30, 2001, the Company assumed
long-term debt of $750,000 and accrued liabilities of $196,677 in
connection with the acquisition of the Junior Juice trademark.
See accompanying notes to consolidated financial statements.
5
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, 2001, which is incorporated
by reference, for a summary of significant policies utilized by Hansen Natural
Corporation ("Hansen" or "Company") and its wholly-owned subsidiaries, Hansen
Beverage Company ("HBC") and Hard e Beverage Company ("HEB"). Additionally, the
Company's reporting on Form 10-Q does not include all the information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America. HBC owns all of the issued and outstanding common stock of Blue Sky
Natural Beverage Co. and Hansen Junior Juice Company. The information set forth
in these interim consolidated financial statements for the three- and
nine-months ended September 30, 2002 and 2001 is unaudited and may be subject to
normal year-end adjustments. The information contained in these interim
condensed, consolidated financial statements reflects all adjustments, which
include only normal recurring adjustments, which in the opinion of management
are necessary to make the interim consolidated financial statements not
misleading. Results of operations covered by this report may not necessarily be
indicative of results of operations for the full year.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America necessarily requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from these
estimates.
2. NEW ACCOUNTING PRONOUNCEMENTS
During 2000 and 2001, the Emerging Issues Task Force ("EITF") addressed various
issues related to the income statement classification of certain promotional
payments, including consideration from a vendor to a reseller or another party
that purchases the vendor's products. EITF No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the Vendor's
Products, was issued in November 2001 and codified earlier pronouncements. The
consensus requires certain sales promotions and customer allowances previously
classified as selling, general and administrative expenses to be classified as a
reduction of net sales or as cost of goods sold. The Company adopted EITF No.
01-9 on January 1, 2002. The effect of the change in accounting related to the
adoption of EITF No. 01-9 for the three-months ended September 30, 2002 was to
decrease net sales by $4,835,486, increase cost of goods sold by $112,290 and
decrease selling, general and administrative expenses by $4,947,776. For the
nine-months ended September 30, 2002 net sales decreased by $10,793,500, cost of
goods sold increased by $184,138 and selling, general and administrative
expenses decreased by $10,977,638. For the three-months ended September 30,
2001, $3,083,306 has been classified as a reduction of net sales and $86,126 as
an increase in cost of goods sold and for the nine-months ended September 30,
2001, $8,145,598 has been classified as a reduction of net sales and $261,980 as
6
an increase in cost of goods sold, all of which were previously reported as
selling, general and administrative expense respectively.
Effective January 1, 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets. This statement discontinued the amortization of goodwill and
indefinite-lived intangible assets, subject to periodic impairment testing. Upon
adoption of SFAS No. 142, the Company evaluated the useful lives of its various
trademark licenses and trademarks and concluded that certain of the trademark
licenses and trademarks have indefinite lives. Unamortized trademark licenses
and trademarks ceased to be amortized effective January 1, 2002 and will be
subject to periodic impairment analysis. The effect of the change in accounting
during the nine-months ended September 30, 2002 was to increase net income by
$209,073, or $0.02 per basic and diluted share.
For the nine-months ended September 30,
2002 2001
----------------- ------------------
Net income, as reported $2,951,953 $2,691,705
Add back: Amortization of trademark licenses and
trademarks (net of tax effect) - 219,918
----------------- ------------------
Adjusted net income $2,951,953 $2,911,623
================= ==================
Net income per common share - basic, as reported $ 0.29 $ 0.27
Amortization of trademark licenses and trademarks (net of
tax effect) - 0.02
----------------- ------------------
Adjusted net income per common share - basic $ 0.29 $ 0.29
================= ==================
Net income per common share - diluted, as reported $ 0.29 $ 0.26
Amortization of trademark licenses and trademarks (net of
tax effect) - 0.02
----------------- ------------------
Adjusted net income per common share - diluted $ 0.29 $ 0.28
================= ==================
On January 1, 2002, the trademark licenses and trademarks were tested for
impairment in accordance with the provisions of SFAS No. 142. Fair values were
estimated based on the Company's best estimate of the expected present value of
future cash flows. No amounts were impaired at that time. In addition, the
remaining useful lives of trademark licenses and trademarks being amortized were
reviewed and deemed to be appropriate. The following provides additional
information concerning the Company's trademark licenses and trademarks as of
September 30, 2002:
Amortizing trademark licenses and trademarks $ 1,137,835
Accumulated amortization (68,859)
---------------
1,068,976
Non-amortizing trademark licenses and trademarks 16,285,400
---------------
$ 17,354,376
===============
All amortizing trademark licenses and trademarks have been assigned an estimated
finite useful life, and are amortized on a straight-line basis over the number
7
of years that approximate their respective useful lives ranging from 1 to 40
years. The straight-line method of amortization allocates the cost of the
trademark licenses and trademarks to earnings in proportion to the amount of
economic benefits obtained by the Company in that report period. Total
amortization expense during the nine-month period ended September 30, 2002 was
$39,087. As of September 30, 2002, future estimated amortization expense related
to amortizing trademark licenses and trademarks through the year ended December
31, 2007 is:
2002 - Remainder $ 13,736
2003 41,384
2004 38,159
2005 38,159
2006 38,045
2007 32,799
Effective January 1, 2002, the Company also adopted the provisions of SFAS No.
141, Business Combinations, and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, respectively. The initial adoption of these
Statements did not have a material impact on the Condensed Consolidated
Statements of Income.
The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 143,
Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after September 15, 2002. The Company is currently in the process of evaluating
the impact of this Statement on its financial condition and results of
operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses financial accounting and reporting
for costs associated with exit or disposal activities and supersedes EITF No.
94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring.)
The Company will adopt the provisions of SFAS No. 146 for exit or disposal
activities that are initiated after December 31, 2002.
3. INVENTORIES
Inventories consist of the following at:
September 30,
2002 December 31,
(Unaudited) 2001
------------------- ------------------
Raw materials $ 4,972,394 $ 4,742,102
Finished goods 7,567,062 7,615,345
------------------- ------------------
12,539,456 12,357,447
Less inventory reserves (646,439) (400,767)
------------------- ------------------
$ 11,893,017 $ 11,956,680
=================== ==================
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
historical consolidated financial statements and notes thereto.
Critical Accounting Policies
The following summarize the most significant accounting and reporting
policies and practices of the Company.
Trademark License and Trademarks - Trademark license represents the
Company's exclusive world-wide right to use the Hansen's(R) trademark in
connection with the manufacture, sale and distribution of carbonated beverages
and waters, shelf stable fruit juices and drinks containing fruit juices on a
royalty free basis and other non-carbonated beverages and water and non-beverage
products in consideration of royalty payments. In September 1999, HBC entered
into an Assignment and Agreement with the Fresh Juice Company of California,
Inc. ("FJC"), pursuant to which HBC acquired exclusive ownership of the
Hansen's(R) trademark and trade names and its obligation to pay royalties on
certain product lines fell away. The Company also owns in its own right, a
number of other trademarks in the United States as well as in a number of
countries around the world. The Company also owns the Blue Sky(R) trademark,
which was acquired in September 2000, and the Junior Juice(R) trademark, which
was acquired in May 2001. The Company amortizes its trademark license and
trademarks over 40 years. Upon adoption of SFAS No. 142 (Note 2), the Company
ceased the amortization of its various trademark license and trademarks that
have indefinite lives. Unamortized trademark license and trademarks will be
subjected to periodic impairment analysis. All amortizing trademark licenses and
trademarks are being amortized on a straight-line basis over their expected
useful lives ranging from 1 to 40 years (Note 2).
Long-Lived Assets - The Company accounts for the impairment and disposition
of long-lived assets in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. In accordance with SFAS No. 121,
long-lived assets to be held are reviewed for events or changes in circumstances
that indicate that their carrying value may not be recoverable. The Company
periodically reviews the carrying value of long-lived assets to determine
whether or not impairment to such value has occurred. As of September 30, 2002,
management does not believe that the Company's long-lived assets have been
impaired. If the carrying value of the long-lived asset is considered impaired,
an impairment charge is recorded for the amount by which the carrying value of
the long-lived asset exceeds its fair value.
Advertising and Promotional Allowances - The Company accounts for
advertising production costs by expensing such production costs the first time
the related advertising takes place. In addition, the Company supports its
customers with promotional allowances, a portion of which is utilized for
marketing and indirect advertising by them. In certain instances, portion of the
promotional allowances payable to customers based on the levels of sales to such
customers, promotion requirements or expected use of the allowances, are
estimated by the Company. If the level of sales, promotion requirements or use
of the allowances are different from such estimates, the promotional allowances
could, to the extent based on estimates, be affected.
9
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 143,
Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after September 15, 2002. The Company is currently in the process of evaluating
the impact of this Statement on its financial condition and results of
operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses financial accounting and reporting
for costs associated with exit or disposal activities and supersedes EITF No.
94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring.)
The Company will adopt the provisions of SFAS No. 146 for exit or disposal
activities that are initiated after December 31, 2002.
General
The increase in gross sales during the third quarter of 2002 was primarily
attributable to sales of the Company's MonsterTM energy drink, which was
introduced in April 2002 as well as increased sales of Natural Sodas in cans,
Apple Juice, E2O Energy WaterTM, which was introduced in June 2001, Smoothies in
cans, Energade(R) energy sports drinks, which were introduced in July 2001,
energy drinks in 8.3-ounce cans and Children's Multi-Vitamin juice drinks. The
Company also benefited from sales of the Company's new Soy Smoothie line. The
increase in gross sales was partially offset by decreased sales of Junior Juice,
Signature Sodas, Healthy Start, teas, lemonades and juice cocktails and Hard e.
Gross profit for the three-months ended September 30, 2002, as a percentage
of net sales, was 35.9%, which was lower than the 36.7% achieved in the
three-months ended September 30, 2001. Gross profit for the nine-months ended
September 30, 2002, as a percentage of net sales, decreased to 36.6% from 37.0%
in the nine-months ended September 30, 2001. The change in gross profit was
primarily due to a change in the Company's product and customer mix.
The Company continues to incur expenditures in connection with the
development and introduction of new products and flavors.
Results of Operations for the Three-months Ended September 30, 2002 Compared to
the Three-months Ended September 30, 2001
Gross Sales. For the three-months ended September 30, 2002, gross sales
were $34.5 million, an increase of $6.2 million or 21.8% higher than the $28.3
million gross sales for the three-months ended September 30, 2001. The increase
in gross sales during the third quarter of 2002 was primarily attributable to
sales of the Company's MonsterTM energy drink, which was introduced in April
2002 as well as increased sales of Natural Sodas in cans, Apple Juice, E2O
Energy WaterTM, which was introduced in June 2001, Smoothies in cans,
Energade(R) energy sports drinks, which were introduced in July 2001, energy
drinks in 8.3-ounce cans and Children's Multi-Vitamin juice drinks. The Company
also benefited from sales of the Company's new Soy Smoothie line. The increase
in gross sales was partially offset by decreased sales of Junior Juice,
Signature Sodas, Healthy Start, teas, lemonades and juice cocktails and Hard e.
10
Net Sales. For the three-months ended September 30, 2002, net sales were
$27.0 million, an increase of $3.9 million or 16.8% higher than the $23.1
million net sales for the three-months ended September 30, 2001. The increase in
net sales was primarily attributable to the increase in gross sales of $6.2
million which was partially offset by increased discounts, allowances and
promotional payments and coupon promotions.
Gross Profit. Gross profit was $9.7 million for the three-months ended
September 30, 2002, an increase of $1.2 million or 14.2% higher than the gross
profit for the three-months ended September 30, 2001 of $8.5 million. Gross
profit as a percentage of net sales, decreased to 35.9% for the three-months
ended September 30, 2002 from 36.7% for the three-months ended September 30,
2001. The increase in gross profit was primarily attributable to the increase in
gross sales whereas the decrease in gross profit as a percentage of net sales
was primarily attributable to a change in the Company's product and customer
mix.
Total Operating Expenses. Total operating expenses were $7.5 million for
the three-months ended September 30, 2002, an increase of $1.2 million or 19.2%
higher than total operating expenses of $6.3 million for the three-months ended
September 30, 2001. Total operating expenses as a percentage of net sales
increased to 27.8% for the three-months ended September 30, 2002 as compared to
27.2% for the three-months ended September 30, 2001. The increase in total
operating expenses was primarily attributable to increased selling, general and
administrative expenses which was partially offset by decreased amortization of
trademark licenses and trademarks due to the adoption of SFAS No. 142 in the
first quarter of 2002 (Note 2 of financial statements). In 2002, the Company
adopted SFAS No. 142 which eliminated amortization on indefinite-lived
intangible assets. Amortization of trademark licenses and trademarks for the
three-months ended September 30, 2002 was $13,000, a decrease of $116,000 from
amortization of $130,000 for the three-months ended September 30, 2001.
Selling, general and administrative expenses were $7.5 million for the
three-months ended September 30, 2002, an increase of $1.3 million or 21.5%
higher than selling, general and administrative expenses of $6.2 million for the
three-months ended September 30, 2001. The increase in selling expenses was
primarily attributable to an increase in distribution and expenditures for
in-store demonstrations as well as point-of-sale materials. The increase in
selling expenses was partially offset primarily by a decrease in advertising
expense and expenditures for merchandise displays and premium items. The
increase in general and administrative expenses was primarily attributable to
increased payroll expenses primarily for sales, marketing and administrative
activities, charitable promotional activities and travel expense.
Operating Income. Operating income was $2.2 million for the three-months
ended September 30, 2002, which was comparable to the operating income for the
three-months ended September 30, 2001. Operating income as a percentage of net
sales decreased to 8.1% for the three-months ended September 30, 2002 from 9.5%
for the three-months ended September 30, 2001. The decrease in operating income
as a percentage of net sales was attributable to lower gross profit as a
percentage of net sales as well as higher selling, general and administrative
expenses as a percentage of net sales.
Net Nonoperating Expense. Net nonoperating expense was $51,000 for the
three-months ended September 30, 2002, a decrease of $40,000 from net
non-operating expense of $91,000 for the three-months ended September 30, 2001.
The decrease in net non-operating expense was primarily attributable to
decreased interest expense incurred on the Company's borrowings, which was
11
primarily attributable to the decrease in outstanding loan balances and lower
interest rates on the Company's borrowings.
Provision for Income Taxes. Provision for income taxes for the three-months
ended September 30, 2002 was $865,000 as compared to provision for income taxes
of $839,000 for the comparable period in 2001. The effective tax rate for the
three-months ended September 30, 2002 was 40.5% which was slightly higher than
the 40.0% effective tax rate for the three-months ended September 30, 2001. The
$26,000 increase in provision for income taxes was primarily attributable to the
increase in income before provision for income taxes as well as an increase in
the effective tax rate.
Net Income. Net income was $1.3 million for the three-months ended
September 30, 2002, a slight increase of $11,000 over net income for the
three-months ended September 30, 2001. The increase in net income was
attributable to the increase in gross profit of $1.2 million and decrease in
nonoperating expense of $40,000 which was partially offset by the increase in
operating expenses of $1.2 million.
Results of Operations For the Nine-months Ended September 30, 2002 Compared to
the Nine-months Ended September 30, 2001
Gross Sales. For the nine-months ended September 30, 2002, gross sales were
$89.6 million, an increase of $13.4 million or 17.6% over the $76.2 million
gross sales for the nine-months ended September 30, 2001. The increase in gross
sales was primarily attributable to sales of the Company's MonsterTM energy
drink which was introduced in April 2002, as well as increased sales of E2O
Energy WaterTM which was introduced in June 2001, Energade(R) energy sports
drinks which were introduced in July 2001, Natural Sodas in cans, Apple Juice,
energy drinks in 8.3-ounce cans and Children's Multi-Vitamin juice drinks. The
Company also benefited from sales of the Company's new Soy Smoothie line. The
increase in gross sales was partially offset by decreased sales of Smoothies in
cans and glass bottles, Signature Sodas, Hard e, Healthy Start and teas,
lemonades and juice cocktails.
Net Sales. For the nine-months ended September 30, 2002, net sales were
$71.8 million, an increase of $9.3 million or 14.9% higher than net sales of
$62.5 million for the nine-months ended September 30, 2001. The increase in net
sales was primarily related to the increase in gross sales which was partially
offset by increased discounts, allowances and promotional payments and coupon
promotions. However, expenditures for slotting fees were lower.
Gross Profit. Gross profit was $26.3 million for the nine-months ended
September 30, 2002, an increase of $3.1 million or 13.6% over the $23.2 million
gross profit for the nine-months ended September 30, 2001. Gross profit as a
percentage of net sales decreased to 36.6% for the nine-months ended September
30, 2002 from 37.0% for the nine-months ended September 30, 2001. The increase
in gross profit was primarily attributable to increased net sales. The decrease
in gross profit as a percentage of net sales was primarily attributable to
slightly lower margins achieved as a result of a change in the Company's product
and customer mix.
Total Operating Expenses. Total operating expenses were $21.2 million for
the nine-months ended September 30, 2002, an increase of $2.9 million or 16.0%
over total operating expenses of $18.3 million for the nine-months ended
September 30, 2001. Total operating expenses as a percentage of net sales
12
increased to 29.5% for the nine-months ended September 30, 2002 from 29.2% for
the nine-months ended September 30, 2001. The increase in total operating
expenses and operating expenses as a percentage of net sales was primarily
attributable to increased selling, general and administrative expenses which was
partially offset by decreased amortization of trademark licenses and trademarks
due to the adoption of SFAS No. 142 in the first quarter of 2002 (Note 2 of
financial statements). In 2002, the Company adopted SFAS No. 142 which
eliminated amortization on indefinite-lived intangible assets. Amortization of
trademark licenses and trademarks for the nine-months ended September 30, 2002
was $39,000, a decrease of $340,000 from amortization of $379,000 for the
nine-months ended September 30, 2001.
Selling, general and administrative expenses were $21.1 million for the
nine-months ended September 30, 2002, an increase of $3.3 million or 18.3% over
selling, general and administrative expenses of $17.9 million for the
nine-months ended September 30, 2001. Selling, general and administrative
expenses as a percentage of net sales increased to 29.4% for the nine-months
ended September 30, 2002 as compared to 28.6% for the nine-months ended
September 30, 2001. The increase in selling expenses and selling expenses as a
percentage of net sales was primarily attributable to an increase in
distribution, advertising and graphic design expense and expenditures for point
of sale materials and in-store demonstrations. The increase in selling expenses
was partially offset by decreased expenditures for premiums. The increase in
general and administrative expenses was primarily attributable to increased
payroll expenses primarily for sales, marketing and administrative activities,
charitable promotional activities, bad debt, travel and other operating
expenses.
Operating Income. Operating income was $5.1 million for the nine-months
ended September 30, 2002, an increase of $235,000 or 4.8% higher than operating
income of $4.9 million for the nine-months ended September 30, 2001. Operating
income as a percentage of net sales decreased to 7.2% for the nine-months ended
September 30, 2002 from 7.9% in the comparable period in 2001. The increase in
operating income was primarily attributable to the increase in gross profit and
the decrease in amortization of trademark licenses and trademarks which was
partially offset by the increase in selling, general and administrative
expenses. The decrease in operating income as a percentage of net sales was
primarily due to an increase in selling, general and administrative expenses as
a percentage of net sales and a decrease in gross profit as a percentage of net
sales.
Net Nonoperating Expense. Net nonoperating expense was $183,000 for the
nine-months ended September 30, 2002, a decrease of $240,000 from net
nonoperating expense of $423,000 for the nine-months ended September 30, 2001.
The decrease in net nonoperating expense was primarily attributable to decreased
interest expense incurred on the Company's borrowings, which was primarily
attributable to the decrease in outstanding loan balances and lower interest
rates on the Company's borrowings for the nine-months ended September 30, 2002
as compared to the nine-months ended September 30, 2001.
Provision for Income Taxes. Provision for income taxes was $2.0 million for
the nine-months ended September 30, 2002, an increase of $215,000 over the
provision for income taxes of $1.8 million for the comparable period in 2001.
The effective tax rate for the nine-months ended September 30, 2002 was 40.5%
which was slightly higher than the 40.0% effective tax rate for the nine-months
ended September 30, 2001. The increase in provision for income taxes was
attributable to the increase in income before provision for income taxes.
Net Income. Net income was $3.0 million for the nine-months ended September
30, 2002 compared to net income of $2.7 million for the nine-months ended
13
September 30, 2001. The $260,000 increase in net income is attributable to an
increase in operating income of $235,000 and a decrease in nonoperating expense
of $240,000 which was partially offset by a $215,000 increase in provision for
income taxes.
Liquidity and Capital Resources
As of September 30, 2002, the Company had working capital of $15.2 million,
as compared to working capital of $13.0 million as of December 31, 2001. The
increase in working capital is primarily attributable to net income earned after
adjustment for certain noncash expenses, primarily depreciation and other
amortization, an increase in deposits and other assets and receipts from the
issuance of common stock which was partially offset by the repayment by the
Company of a portion of the Company's long-term debt and the acquisition of
property and equipment and trademarks.
Net cash provided by operating activities was $3.9 million for the
nine-months ended September 30, 2002 as compared to net cash provided by
operating activities of $3.1 million in the comparable period in 2001. For the
nine-months ended September 30, 2002, cash provided by operating activities was
attributable to net income plus amortization of trademark license and
trademarks, depreciation and other amortization, as well as increases in
accounts payable and a decrease in inventories and prepaid expenses and other
current assets. For the nine-months ended September 30, 2002, cash used in
operating activities was attributable to an increase in accounts receivable,
prepaid income taxes and decreases in accrued compensation and accrued
liabilities.
Net cash used in investing activities decreased to $93,000 for the
nine-months ended September 30, 2002 as compared to net cash used in investing
activities of $648,000 for the comparable period in 2001. The decrease in cash
used in investing activities was primarily attributable to decreased
acquisitions of property and equipment and trademarks as well as cash provided
by deposits and other assets. Management, from time to time, considers the
acquisition of capital equipment, particularly manufacturing equipment and
coolers, merchandise display racks, storage racks, vans and promotional
vehicles, and businesses compatible with the image of the Hansen's(R) brand, as
well as the development and introduction of new product lines. The Company may
require additional capital resources for or as a result of any such activities
or transactions, depending upon the cash requirements relating thereto. Any such
activities or transactions will also be subject to the terms and restrictions of
HBC's credit facilities.
Net cash used in financing activities decreased to $1.1 million for the
nine-months ended September 30, 2002 as compared to net cash used in financing
activities of $2.0 million for the comparable period in 2001. The decrease in
net cash used in financing activities as compared to the prior year was
primarily attributable to decreased principal payments of long-term debt.
HBC's revolving line of credit was renewed by its bank until September
2005. The rate of interest payable by the Company on advances under the line of
credit is based on the bank's base (prime) rate plus an additional percentage of
up to 0.5%, or the LIBOR rate plus an additional percentage of up to 2.5%,
depending upon certain financial ratios of the Company from time to time. As of
September 30, 2002, approximately $4.1 million was outstanding under the
revolving line of credit at an effective interest rate of 4.0%.
The credit facility contains financial covenants, which require the Company
to maintain certain financial ratios and achieve certain levels of annual
14
income. The facility also contains certain non-financial covenants. As of
September 30, 2002, the Company was in compliance with all covenants.
Management believes that cash available from operations, including cash
resources and the revolving line of credit, will be sufficient for its working
capital needs, including purchase commitments for raw materials, payments of tax
liabilities, debt servicing, expansion and development needs, purchases of
shares of common stock of the Company, as well as any purchases of capital
assets or equipment over the current year.
Forward Looking Statements
The Private Security Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or oral
forward looking statements, including statements contained in this report and
other filings with the Securities and Exchange Commission and in reports to
shareholders and announcements. Certain statements made in this report,
including certain statements made in management's discussion and analysis, may
constitute forward looking statements (within the meaning of Section 27.A of the
Securities Act 1933 as amended and Section 21.E of the Securities Exchange Act
of 1934, as amended) regarding the expectations of management with respect to
revenues, profitability, adequacy of funds from operations and the Company's
existing credit facility, among other things. All statements which address
operating performance, events or developments that management expects or
anticipates will or may occur in the future including statements related to new
products, volume growth, revenues, profitability, adequacy of funds from
operations, and/or the Company's existing credit facility, earnings per share
growth, statements expressing general optimism about future operating results
and non-historical Year 2002 information, are forward looking statements within
the meaning of the Act.
Management cautions that these statements are qualified by their terms
and/or important factors, many of which are outside the control of the Company
that could cause actual results and events to differ materially from the
statements made including, but not limited to, the following:
o Company's ability to generate sufficient cash flows to support capital
expansion plans and general operating activities;
o Changes in consumer preferences;
o Changes in demand that are weather related, particular in areas outside of
California;
o Competitive products and pricing pressures and the Company's ability to
gain or maintain share of sales in the marketplace as a result of actions
by competitors;
o The introduction of new products;
o Laws and regulations, and/or any changes therein, including changes in
accounting standards, taxation requirements (including tax rate changes,
new tax laws and revised tax law interpretations) and environmental laws as
well as the Federal Food Drug and Cosmetic Act, the Dietary Supplement
Health and Education Act, and regulations made thereunder or in connection
therewith, especially those that may affect the way in which the Company's
products are marketed and/or labeled, including the contents thereof, as
well as laws and regulations or rules made or enforced by the Food and Drug
Administration and/or the Bureau of Alcohol, Tobacco and Firearms and/or
Federal Trade Commission and/or certain state regulatory agencies;
o Changes in the cost and availability of raw materials and the ability to
maintain favorable supply arrangements and relationships and procure timely
and/or adequate production of all or any of the Company's products;
15
o The Company's ability to achieve earnings forecasts, which may be based on
projected volumes and sales of many product types and/or new products,
certain of which are more profitable than others. There can be no assurance
that the Company will achieve projected levels or mixes of product sales;
o The Company's ability to penetrate new markets;
o The marketing efforts of distributors of the Company's products, most of
which distribute products that are competitive with the products of the
Company;
o Unilateral decisions by distributors, grocery chains, specialty chain
stores, club stores and other customers to discontinue carrying all or any
of the Company's products that they are carrying at any time;
o The terms and/or availability of the Company's credit facilities and the
actions of its creditors;
o The effectiveness of the Company's advertising, marketing and promotional
programs;
o Adverse weather conditions, which could reduce demand for the Company's
products;
o The Company's ability to make suitable arrangements for the co-packing of
any of its products.
The foregoing list of important factors is not exhaustive.
Inflation
The Company does not believe that inflation has a significant impact on the
Company's results of operations for the periods presented.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed, are
fluctuations in commodity prices, affecting the cost of raw materials, and
changes in interest rates on the Company's long term debt. The Company is
subject to market risk with respect to the cost of commodities because its
ability to recover increased costs through higher pricing may be limited by the
competitive environment in which it operates.
At September 30, 2002, the majority of the Company's debt consisted of
variable rate debt. The amount of variable rate debt fluctuates during the year
based on the Company's cash requirements. If average interest rates were to
increase one percent for the nine-months ended September 30, 2002, the net
impact on the Company's pre-tax earnings would have been approximately $23,000.
ITEM 4. CONTROL AND PROCEDURES
As of September 30, 2002, the Company, including the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange Act
of 1934.)
Based upon the evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in ensuring that information required to be disclosed in the reports
16
the Company files and submits under the Exchange Act are recorded, processed,
summarized and reported as and when required. There were no significant changes
in the Company's internal controls subsequent to September 30, 2002, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
17
PART II - OTHER INFORMATION
Items 1 - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities and 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 14, 2002 /s/ RODNEY C. SACKS
-------------------
Rodney C. Sacks
Chairman of the Board of Directors
and Chief Executive Officer
Date: November 14, 2002 /s/ HILTON H. SCHLOSBERG
------------------------
Hilton H. Schlosberg
Vice Chairman of the Board of Directors,
President and Chief Financial Officer
18
CERTIFICATIONS PURSUANT TO
RULE 13a-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rodney Sacks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hansen Natural
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors and material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls of in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ RODNEY C. SACKS
-------------------
Rodney C. Sacks
Chairman of the Board of Directors
and Chief Executive Officer
19
I, Hilton Schlosberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hansen Natural
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors and material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls of in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ HILTON H. SCHLOSBERG
------------------------
Hilton H. Schlosberg
Vice Chairman of the Board of Directors,
President and Chief Financial Officer
20
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hansen Natural Corporation (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, Rodney C. Sacks, Chairman of the Board of Directors and Chief
Executive Officer of the Company, and Hilton H. Schlosberg, Vice Chairman of the
Board of Directors, President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: November 14, 2002 /s/ RODNEY C. SACKS
-------------------
Rodney C. Sacks
Chairman of the Board of Directors
and Chief Executive Officer
Date: November 14, 2002 /s/ HILTON H. SCHLOSBERG
------------------------
Hilton H. Schlosberg
Vice Chairman of the Board of Directors,
President and Chief Financial Officer
21
