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, 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
July 31, 2002
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
June 30, 2002
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (Unaudited)
and December 31, 2001 3
Consolidated Statements of Income for the three and
six-months ended June 30, 2002 and 2001 (Unaudited) 4
Consolidated Statements of Cash Flows for the
six-months ended June 30, 2002 and 2001 (Unaudited) 5
Notes to Consolidated Financial Statements for the
six-months ended June 30, 2002 (Unaudited) and year
ended December 31, 2001 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 15
Part II. OTHER INFORMATION
Items 1-5. Not Applicable 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
Certification 17
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 (Unaudited) AND DECEMBER 31, 2001
- --------------------------------------------------------------------------------
June 30, December 31,
2002 2001
----------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 160,626 $ 247,657
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $734,069
in 2002 and $625,270 in 2001 and promotional allowances
of $4,086,200 in 2002 and $2,981,556 in 2001) 7,699,875 4,412,422
Inventories, net 11,399,953 11,956,680
Prepaid expenses and other current assets 1,475,985 974,155
Deferred income tax asset 949,176 949,176
----------------- ----------------
Total current assets 21,685,615 18,540,090
PROPERTY AND EQUIPMENT, net 1,915,103 1,945,146
INTANGIBLE AND OTHER ASSETS:
Trademark licenses and trademarks (net of accumulated amortization
of $55,448 in 2002 and $29,772 in 2001) 17,352,212 17,350,221
Deposits and other assets 497,404 725,825
------------------ -----------------
Total intangible and other assets 17,849,616 18,076,046
------------------ -----------------
$ 41,450,334 $ 38,561,282
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,687,509 $ 3,919,741
Accrued liabilities 780,716 871,841
Accrued compensation 194,800 432,896
Current portion of long-term debt 326,676 337,872
------------------ -----------------
Total current liabilities 7,989,701 5,562,350
LONG-TERM DEBT, less current portion 4,623,078 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 15,851,959 14,170,231
Common stock in treasury; at cost - 206,761 shares
in 2002 and 2001 respectively (814,545) (814,545)
------------------ -----------------
Total shareholders' equity 27,023,277 25,333,549
------------------ -----------------
$ 41,450,334 $ 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 SIX-MONTHS ENDED JUNE 30, 2002 AND 2001 (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------- --------------------------------------
2002 2001 2002 2001
------------------ ----------------- ----------------- -----------------
GROSS SALES $ 32,666,950 $ 27,612,923 $ 55,173,560 $ 47,935,085
LESS: Discounts, allowances and
promotional payments (6,402,162) (5,099,462) (10,316,378) (8,513,510)
------------------ ----------------- ----------------- -----------------
NET SALES 26,264,788 22,513,461 44,857,182 39,421,575
COST OF SALES 16,430,951 14,124,735 28,213,264 24,732,603
------------------ ----------------- ----------------- -----------------
GROSS PROFIT 9,833,837 8,388,726 16,643,918 14,688,972
OPERATING EXPENSES:
Selling, general and administrative 7,628,446 6,287,436 13,660,310 11,720,363
Amortization of trademark licenses
and trademarks 12,896 125,969 25,672 249,201
------------------ ----------------- ----------------- -----------------
Total operating expenses 7,641,342 6,413,405 13,685,982 11,969,564
------------------ ----------------- ----------------- -----------------
OPERATING INCOME 2,192,495 1,975,321 2,957,936 2,719,408
NONOPERATING EXPENSE (INCOME)
Interest and financing expense 56,970 135,347 132,327 338,303
Interest income (759) (5,898) (824) (7,182)
------------------ ----------------- ----------------- -----------------
Net nonoperating expense 56,211 129,449 131,503 331,121
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,136,284 1,845,872 2,826,433 2,388,287
PROVISION FOR INCOME TAXES 865,201 738,347 1,144,705 955,314
------------------ ----------------- ----------------- -----------------
NET INCOME $ 1,271,083 $ 1,107,525 $ 1,681,728 $ 1,432,973
================== ================= ================= =================
NET INCOME PER COMMON SHARE:
Basic $ 0.13 $ 0.11 $ 0.17 $ 0.14
================== ================= ================= =================
Diluted $ 0.12 $ 0.11 $ 0.16 $ 0.14
================== ================= ================= =================
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 10,053,003 10,045,003 10,051,948 10,027,479
================== ================= ================= =================
Diluted 10,337,861 10,292,316 10,338,797 10,298,630
================== ================= ================= =================
See accompanying notes to consolidated financial statements.
4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Unaudited)
- --------------------------------------------------------------------------------
2002 2001
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,681,728 $ 1,432,973
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of trademark licenses and trademarks 25,672 249,201
Depreciation and other amortization 237,609 207,136
Gain on disposal of fixed assets (11,410)
Effect on cash of changes in operating assets and liabilities:
Accounts receivable (3,287,453) (1,217,967)
Inventories 556,727 958,453
Prepaid expenses and other current assets (215,189) 18,112
Accounts payable 2,767,768 2,875,565
Accrued liabilities (91,125) 88,976
Accrued compensation (238,096) (105,260)
Income taxes (286,641) (540,753)
----------------- -----------------
Net cash provided by operating activities 1,151,000 3,955,026
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (207,566) (290,743)
Proceeds from sale of fixed assets 22,752
Increase in trademark license and trademarks (27,663) (98,402)
Decrease (increase) in deposits and other assets 228,421 (76,847)
----------------- -----------------
Net cash used in investing activities (6,808) (443,240)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (1,239,223) (3,267,336)
Issuance of common stock 8,000 28,621
----------------- -----------------
Net cash used in financing activities (1,231,223) (3,238,715)
----------------- -----------------
NET (DECREASE) INCREASE IN CASH (87,031) 273,071
CASH AND CASH EQUIVALENTS, beginning of the period 247,657 130,665
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of the period $ 160,626 $ 403,736
================= =================
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Interest $ 137,246 $ 373,557
================= =================
Income taxes $ 1,431,346 $ 1,496,067
================= =================
NONCASH TRANSACTIONS:
During the six month period ended June 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 FOR THE SIX-MONTHS ENDED
JUNE 30, 2002 (Unaudited) AND YEAR ENDED DECEMBER 31, 2001
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 six-months
ended June 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.
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 June 30, 2002 was to
decrease net sales by $3,767,989, increase cost of goods sold by $19,251 and
decrease selling, general and administrative expenses by $3,787,240. For the
six-months ended June 30, 2002 net sales decreased by $5,958,014, cost of goods
sold increased by $71,848 and selling, general and administrative expenses
decreased by $6,029,862. For the three-months ended June 30, 2001, $3,291,007
has been classified as a reduction of net sales and $86,457 as an increase in
cost of goods sold and for the six-months ended June 30, 2001, $5,062,292 has
been classified as a reduction of net sales and $175,854 as an increase in cost
of goods sold, all of which were previously reported as selling, general and
administrative expense respectively.
Effective July 1, 2001, 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
6
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 six-months ended June 30, 2002 was to increase net income by
$134,253, or $0.01 per basic and diluted share.
For the six-months ended
June 30,
2002 2001
------------ ------------
Net income, as reported $1,681,728 $1,432,973
Add back: Amortization of trademark licenses
and trademarks (net of tax effect) - 146,578
------------ ------------
Adjusted net income $1,681,728 $1,579,551
============ ============
Net income per common share - basic, as reported $ 0.17 $ 0.14
Amortization of trademark licenses and
trademarks (net of tax effect) - 0.01
------------- ------------
Adjusted net income per common share - basic $ 0.17 $ 0.15
============= ============
Net income per common share - diluted, as reported $ 0.16 $ 0.14
Amortization of trademark licenses and
trademarks (net of tax effect) - 0.01
------------- ------------
Adjusted net income per common share - diluted $ 0.16 $ 0.15
============= ============
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
June 30, 2002:
Amortizing trademark licenses and trademarks $ 1,125,180
Accumulated amortization (55,444)
--------------
1,069,736
Non-amortizing trademark licenses and trademarks 16,282,476
--------------
$ 17,352,212
==============
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
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 six-month period ended June 30, 2002 was
7
$25,672. As of June 30, 2002, future estimated amortization expense related to
amortizing trademark licenses and trademarks through the year ended December 31,
2007 is:
2002 - Remainder $ 25,975
2003 41,147
2004 37,922
2005 37,922
2006 37,826
2007 32,791
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 June 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:
June 30,
2002 December 31,
(Unaudited) 2001
-------------- --------------
Raw materials $ 4,907,943 $ 4,742,102
Finished goods 7,138,449 7,615,345
-------------- --------------
12,046,392 12,357,447
Less inventory reserves (646,439) (400,767)
-------------- --------------
$ 11,399,953 $ 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.
General
The increase in gross sales during the second quarter of 2002 was primarily
attributable to sales of E2O Energy WaterTM, which was introduced in June 2001,
EnergadeTM energy sports drink, which was introduced in July 2001, soy smoothies
which were introduced in December 2001 and the Company's new MonsterTM energy
drink which was introduced in April 2002. The Company also benefited from an
increase in sales of Natural Sodas in cans, energy drinks in 8.3-ounce cans,
apple juice and children's multi-vitamin drinks including Junior Juice products.
The increase in sales was partially offset by decreased sales of smoothies,
Signature Sodas, Hard e and teas, lemonades and juice cocktails.
Gross profit for the three-months ended June 30, 2002, as a percentage of
net sales, was 37.4%, which was marginally higher than the 37.3% in the
three-months ended June 30, 2001. Gross profit for the six-months ended June 30,
2002, as a percentage of net sales, decreased to 37.1% from 37.3% as compared to
the six-months ended June 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 June 30, 2002 Compared to the
Three-months Ended June 30, 2001
Gross Sales. For the three-months ended June 30, 2002, gross sales were
$32.7 million, an increase of $5.1 million or 18.3% higher than the $27.6
million gross sales for the three-months ended June 30, 2001. The increase in
gross sales during the second quarter of 2002 was primarily attributable to
sales of E2O Energy WaterTM, which was introduced in June 2001, EnergadeTM
energy sports drink, which was introduced in July 2001, soy smoothies which were
introduced in December 2001 and the Company's new MonsterTM energy drink which
was introduced in April 2002. The Company also benefited from an increase in
sales of Natural Sodas in cans, energy drinks in 8.3-ounce cans, apple juice and
children's multi-vitamin drinks including Junior Juice products. The increase in
sales was partially offset by decreased sales of smoothies, Signature Sodas,
Hard e and teas, lemonades and juice cocktails.
Net Sales. For the three-months ended June 30, 2002, net sales were $26.3
million, an increase of $3.8 million or 16.7% higher than the $22.5 million net
sales for the three-months ended June 30, 2001. The increase in net sales was
primarily attributable to the increase in gross sales of $5.1 million which was
partially offset by increased discounts, allowances and promotional payments and
coupon promotions. However, expenditures for slotting fees were lower.
9
Gross Profit. Gross profit was $9.8 million for the three-months ended June
30, 2002, an increase of $1.4 million or 17.2% higher than the gross profit for
the three-months ended June 30, 2001 of $8.4 million. Gross profit as a
percentage of net sales, increased to 37.4% for the three-months ended June 30,
2002 from 37.3% for the three-months ended June 30, 2001 and increased from
36.6% for the quarter ended March 31, 2002. The increase in gross profit and
gross profit as a percentage of net sales was primarily attributable to an
increase in net sales and a change in the Company's product and customer mix.
Total Operating Expenses. Total operating expenses were $7.6 million for
the three-months ended June 30, 2002, an increase of $1.2 million or 19.1%
higher than total operating expenses of $6.4 million for the three-months ended
June 30, 2001. Total operating expenses as a percentage of net sales increased
to 29.1% for the three-months ended June 30, 2002 as compared to 28.5% for the
three-months ended June 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
June 30, 2002 was $13,000, a decrease of $113,000 from amortization of $126,000
for the three-months ended June 30, 2001.
Selling, general and administrative expenses were $7.6 million for the
three-months ended June 30, 2002, an increase of $1.3 million or 21.3% higher
than selling, general and administrative expenses of $6.3 million for the
three-months ended June 30, 2001. The increase in selling expenses was primarily
attributable to an increase in spending for discounts, allowances and
promotional payments as well as increased distribution and graphic design
expense and increased expenditures for merchandise displays and point-of-sale
materials. The increase in selling expenses was partially offset primarily by a
decrease in expenditures for in-store demonstrations. The increase in general
and administrative expenses was primarily attributable to increased payroll
expenses primarily for sales, sales support and administrative activities,
insurance and bad debts although payroll expenses decreased as a percentage of
net sales.
Operating Income. Operating income was $2.2 million for the three-months
ended June 30, 2002, an increase of $217,000 or 11.0% higher than operating
income of $2.0 million for the three-months ended June 30, 2001. Operating
income as a percentage of net sales decreased to 8.3% for the three-months ended
June 30, 2002 from 8.8% for the three-months ended June 30, 2001. The increase
in operating income was attributable to the increase in gross profit which was
partially offset by the increase in operating expenses whereas the decrease in
operating income as a percentage of net sales was attributable to higher
operating expenses as a percentage of net sales as compared to last year.
Net Nonoperating Expense. Net nonoperating expense was $56,000 for the
three-months ended June 30, 2002, a decrease of $73,000 over net non-operating
expense of $129,000 for the three-months ended June 30, 2001. The decrease in
net non-operating 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.
10
Provision for Income Taxes. Provision for income taxes for the three-months
ended June 30, 2002 was $865,000 as compared to provision for income taxes of
$738,000 for the comparable period in 2001. The $127,000 increase in provision
for income taxes was primarily attributable to the increase in operating income
and a decrease in non-operating expense.
Net Income. Net income was $1.3 million for the three-months ended June 30,
2002, an increase of $164,000 or 14.8% higher than net income of $1.1 million
for the three-months ended June 30, 2001. The increase in net income was
attributable to the increase in gross profit of $1.4 million and decrease in
nonoperating expense of $73,000 which was partially offset by the increase in
operating expenses of $1.2 million.
Results of Operations For the Six-months Ended June 30, 2002 Compared to the
Six-months Ended June 30, 2001
Gross Sales. For the six-months ended June 30, 2002, gross sales were $55.2
million, an increase of $7.2 million or 15.1% over the $47.9 million gross sales
for the six-months ended June 30, 2001. The increase in gross sales was
primarily attributable to gross sales of EnergadeTM energy sports drink, which
was introduced in July 2001, E2O Energy WaterTM, which was introduced in June
2001 and Junior Juice 100% juices, which business was acquired in May 2001. The
increase in gross sales was also attributable to an increase in gross sales of
Natural Sodas in cans, apple juice and children's multi-vitamin juice drinks.
The increase was attributable to a lesser extent to sales of soy smoothies,
which were introduced in December 2001, MonsterTM energy drink, which was
introduced in April 2002 and increased sales of energy drinks in 8.3-ounce cans.
The increase in gross sales was partially offset by primarily decreased sales of
smoothies, Signature Sodas and Hard e.
Net Sales. For the six-months ended June 30, 2002, net sales were $44.9
million, an increase of $5.4 million or 13.8% higher than net sales of $39.4
million for the six-months ended June 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 $16.6 million for the six-months ended June
30, 2002, an increase of $1.9 million or 13.3% over the $14.7 million gross
profit for the six-months ended June 30, 2001. Gross profit as a percentage of
net sales decreased to 37.1% for the six-months ended June 30, 2002 from 37.3%
for the six-months ended June 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 mix.
Total Operating Expenses. Total operating expenses were $13.7 million for
the six-months ended June 30, 2002, an increase of $1.7 million or 14.3% over
total operating expenses of $12.0 million for the six-months ended June 30,
2001. Total operating expenses as a percentage of net sales increased to 30.5%
for the six-months ended June 30, 2002 from 30.4% for the six-months ended June
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
six-months ended June 30, 2002 was $26,000, a decrease of $223,000 from
amortization of $249,000 for the six-months ended June 30, 2001.
11
Selling, general and administrative expenses were $13.7 million for the
six-months ended June 30, 2002, an increase of $2.0 million or 16.6% over
selling, general and administrative expenses of $11.7 million for the six-months
ended June 30, 2001. Selling, general and administrative expenses as a
percentage of net sales increased to 30.5% for the six-months ended June 30,
2002 as compared to 29.7% for the six-months ended June 30, 2001. The increase
in selling expenses and selling expenses as a percentage of net sales was
primarily attributable to an increase in spending for discounts, allowances and
promotional payments as well as increased distribution and graphic design
expense and expenditures for point of sale materials and merchandise displays.
The increase in selling expenses was partially offset by decreased expenditures
for in-store demonstrations. The increase in general and administrative expenses
was primarily attributable to increased payroll expenses primarily for sales,
sales support and administrative activities, insurance, bad debts and other
operating expenses.
Operating Income. Operating income was $3.0 million for the six-months
ended June 30, 2002, an increase of $239,000 or 8.8% higher than operating
income of $2.7 million for the six-months ended June 30, 2001. Operating income
as a percentage of net sales decreased to 6.6% for the six-months ended June 30,
2002 from 6.9% 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 $132,000 for the
six-months ended June 30, 2002, a decrease of $199,000 from net nonoperating
expense of $331,000 for the six-months ended June 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 six-months ended June 30, 2002 as compared to the six-months
ended June 30, 2001.
Provision for Income Taxes. Provision for income taxes was $1.1 million for
the six-months ended June 30, 2002, an increase of $189,000 over the provision
for income taxes of $955,000 for the comparable period in 2001. The effective
tax rate for the six-months ended June 30, 2002 was 40.5% which was slightly
higher than the 40.0% effective tax rate for the six-months ended June 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 $1.7 million for the six-months ended June 30,
2002 compared to net income of $1.4 million for the six-months ended June 30,
2001. The $249,000 increase in net income is attributable to an increase in
operating income of $239,000 and a decrease in nonoperating expense of $199,000
which was partially offset by a $189,000 increase in provision for income taxes.
12
Liquidity and Capital Resources
As of June 30, 2002, the Company had working capital of $13.7 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 $1.2 million for the
six-months ended June 30, 2002 as compared to net cash provided by operating
activities of $4.0 million in the comparable period in 2001. For the six-months
ended June 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. For the six-months ended June 30, 2002, cash used in operating
activities was attributable to an increase in accounts receivable, prepaid
expenses and prepaid income taxes and other current assets and decreases in
accrued compensation and accrued liabilities.
Net cash used in investing activities decreased to $7,000 for the
six-months ended June 30, 2002 as compared to net cash used in investing
activities of $443,000 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, 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 $1.2 million for the
six-months ended June 30, 2002 as compared to net cash used in financing
activities of $3.2 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
June 30, 2002, approximately $3.9 million was outstanding under the revolving
line of credit.
The credit facility contains financial covenants, which require the Company
to maintain certain financial ratios and achieve certain levels of annual
income. The facility also contains certain non-financial covenants. As of June
30, 2002, the Company was in compliance with all covenants.
13
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;
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;
14
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 June 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 six-months ended June 30, 2002, the net impact on the Company's
pre-tax earnings would have been approximately $22,000.
15
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
HANSEN NATURAL CORPORATION
Registrant
Date: August 14, 2002 /s/ RODNEY C. SACKS
----------------------------------------
Rodney C. Sacks
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 14, 2002 /s/ HILTON H. SCHLOSBERG
----------------------------------------
Hilton H. Schlosberg
Vice Chairman of the Board of Directors,
President and Chief Financial Officer
16
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 June 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.
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: August 14, 2002 /s/ RODNEY C. SACKS
----------------------------------------
Rodney C. Sacks
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 14, 2002 /s/ HILTON H. SCHLOSBERG
----------------------------------------
Hilton H. Schlosberg
Vice Chairman of the Board of Directors,
President and Chief Financial Officer
17