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, 1997 Commission file number 0-18761 HANSEN NATURAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 39-1679918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2401 East Katella Avenue, Suite 650 Anaheim, California 92806 (Address of principal executive offices) (Zip Code) (714) 634-4200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- The registrant has 9,122,868 shares of common stock outstanding as of November 1, 1997
HANSEN NATURAL CORPORATION AND SUBSIDIARIES September 30, 1997 INDEX Page No. ---------- Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 3 Consolidated Statements of Operations for the three and nine months ended September 30, 1997 and 1996 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. OTHER INFORMATION Items 1-5. Not Applicable 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature 13
HANSEN NATURAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> September 30, December 31, 1997 1996 -------------- -------------- <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 514,569 $ 186,931 Accounts receivable (net of allowance for doubtful accounts, sales returns and cash discounts of $323,040 in 1997 and $234,749 in 1996 and promotional allowances of $1,302,766 in 1997 and $926,045 in 1996) 2,100,124 944,227 Inventories 3,432,690 3,111,124 Prepaid expenses and other current assets 478,316 331,869 ------------- ------------- Total current assets 6,525,699 4,574,151 PLANT AND EQUIPMENT, net 493,211 602,272 INTANGIBLE AND OTHER ASSETS: Trademark license and trademarks (net of accumulated amortization of $2,310,140 in 1997 and $2,089,641 in 1996) 10,319,201 10,459,144 Notes receivable from officers 67,857 70,153 Deposits and other assets 485,879 403,353 ------------- ------------- Total intangible and other assets 10,872,937 10,932,650 ============= ============= $ 17,891,847 $ 16,109,073 ============= ============= LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 716,294 $ 893,429 Accounts payable 2,773,443 2,139,050 Accrued liabilities and deferred income taxes 527,534 200,602 Current portion of long-term debt (net of unamortized premium of $48,541 in 1996) 462,584 4,048,541 -------------- ------------- Total current liabilities 4,479,855 7,281,622 LONG-TERM DEBT 3,550,389 SHAREHOLDERS' EQUITY: Common stock - $.005 par value; 30,000,000 shares authorized; 9,122,868 shares issued and outstanding 45,614 45,614 Additional paid-in capital 10,847,355 10,847,355 Accumulated deficit (1,041,372) (2,126,100) Foreign currency translation adjustment 10,006 60,582 -------------- ------------- Total shareholders' equity 9,861,603 8,827,451 -------------- ------------- $ 17,891,847 $ 16,109,073 ============== ============= See accompanying notes to consolidated financial statements. </TABLE> 3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- ------------------------------- 1997 1996 1997 1996 <S> <C> <C> <C> <C> --------------- -------------- -------------- -------------- NET SALES $ 13,438,895 $ 10,805,021 $ 32,054,709 $ 28,574,757 COST OF SALES 7,924,398 6,507,371 18,952,135 17,367,924 --------------- -------------- -------------- -------------- GROSS PROFIT 5,514,497 4,297,650 13,102,574 11,206,833 OPERATING EXPENSES: Selling, general and administrative 4,725,864 3,898,036 11,122,820 9,899,684 Amortization of trademark license and trademarks 73,500 73,200 220,500 323,329 Other expenses 36,704 74,292 183,839 222,873 --------------- -------------- -------------- -------------- Total operating expenses 4,836,068 4,045,528 11,527,159 10,445,886 --------------- -------------- -------------- -------------- OPERATING INCOME 678,429 252,122 1,575,415 760,947 NONOPERATING EXPENSE: Net interest and financing expense 140,376 140,786 413,443 460,024 Other expense (income) 37,044 37,044 (232,683) --------------- -------------- -------------- -------------- Net nonoperating expense 177,420 140,786 450,487 227,341 INCOME BEFORE PROVISION FOR INCOME TAXES 501,009 111,336 1,124,928 533,606 PROVISION FOR INCOME TAXES 40,200 2,400 --------------- -------------- -------------- -------------- NET INCOME $ 501,009 $ 111,336 $ 1,084,728 $ 531,206 =============== ============== ============== ============== NET INCOME PER COMMON SHARE: Primary $ 0.05 $ 0.01 $ 0.12 $ 0.06 =============== ============== ============== ============== Fully Diluted $ 0.05 $ 0.01 $ 0.11 $ 0.06 =============== ============== ============== ============== NUMBER OF COMMON SHARES USED IN PER SHARE COMPUTATIONS: Primary 9,325,098 9,522,188 9,202,929 9,400,050 =============== ============== ============== ============== Fully Diluted 9,505,437 9,522,188 9,505,437 9,400,050 =============== ============== ============== ============== See accompanying notes to consolidated financial statements. </TABLE> 4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> 1997 1996 -------------- ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,084,728 $ 531,206 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of trademark license and trademarks 220,500 323,329 Depreciation and other amortization 188,022 143,167 Loss on disposal of plant and equipment 37,044 4,613 Effect on cash of changes in operating assets and liabilities: Accounts receivable (1,155,897) 646,825 Inventories (321,566) (502,114) Prepaid expenses and other current assets (113,557) 235,495 Accounts payable 634,393 (361,193) Accrued liabilities and deferred income taxes 326,932 210,183 -------------- ------------ Net cash provided by operating activities 900,599 1,231,511 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment (168,757) (74,068) Proceeds from sale of plant and equipment 21,320 70,665 Increase in trademark license and trademarks (80,556) (42,631) Decrease (increase) in notes receivable from officers 2,296 (752) Increase in deposits and other assets (82,526) (62,654) -------------- ------------ Net cash used in investing activities (308,223) (109,440) CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in short-term borrowings (177,135) (998,789) Increase in long-term debt 14,546 Principal payments on long-term debt (51,573) (36,966) -------------- ------------ Net cash used for financing activities (214,162) (1,035,755) EFFECT OF EXCHANGE RATE CHANGES ON CASH (50,576) 19,208 -------------- ------------ NET INCREASE IN CASH 327,638 105,524 CASH, beginning of period 186,931 87,916 ============== ============ CASH, end of period $ 514,569 $ 193,440 ============== ============ SUPPLEMENTAL INFORMATION : Cash paid during the year for: Interest $ 276,754 $ 340,617 ============== ============= Income taxes $ 2,400 $ 2,400 ============== ============= SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: During the fiscal year 1997, the Company reclassified $32,890 of plant and equipment to prepaid expenses and other current assets. See accompanying notes to consolidated financial statements. </TABLE> 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, 1996, which is incorporated by reference, for a summary of significant policies utilized by Hansen Natural Corporation ("Hansen" or "Company") and its subsidiaries, Hansen Beverage Company ("HBC") and CVI Ventures, Inc. ("CVI"), and its indirect subsidiary, Hansen Beverage Company (UK) Limited ("HBC (UK)"). The information set forth in these interim financial statements is unaudited and may be subject to normal year-end adjustments. The information reflects all adjustments, which include only normal recurring adjustments, which in the opinion of management are necessary to make the financial statements not misleading. Results of operations covered by this report may not necessarily be indicative of results of operations for the full fiscal year. 2. LONG-TERM DEBT On June 30, 1997, HBC entered into a definitive agreement (the "Loan Agreement") with a bank (the "Bank") pursuant to which the Bank agreed to provide a credit facility to HBC consisting of a revolving line of credit (the "Revolver") of up to $3,000,000 in aggregate at any time outstanding and a term loan of $4,000,000 (the "Term Loan"). The credit facility is secured by all of the assets of the Company and its subsidiaries, including, but not limited to, accounts receivable, inventory, machinery and equipment, as well as all trademarks, trademark licenses, formulas and recipes and other intellectual property. The credit facility is guaranteed by the Company, CVI and HBC (UK). The initial proceeds received under the Revolver were used to refinance the outstanding balance due on HBC's previous line of credit. The Revolver will expire on May 1, 1998. The Company anticipates that the Revolver will be renewed on the expiration date, but there can be no assurance that it will, in fact, be renewed, or if renewed, that the terms of such renewal will not be disadvantageous to HBC and its business. The interest rate payable on amounts outstanding under the Revolver is 1% above the Bank's base rate as set from time to time (currently 8.75% per annum). The proceeds of the Term Loan were used to retire the $4,000,000 principal amount of the note payable to ERLY Industries, Inc. due July 27, 1997 (the "ERLY Note"). The ERLY Note, including accrued interest thereon, was paid on October 24, 1997. The Term Loan will mature in October 2002 and requires monthly payments of principal in set amounts which escalate over time plus payments of a portion of HBC's adjusted cash flow, from year to year. The interest rate payable on the Term Loan is 1.5% above the Bank's base rate as set from time to time. In consequence of management's intent to utilize the Term Loan to retire the ERLY Note, the Company reclassified a portion of the amount due under the ERLY Note from current portion of long-term debt to long-term debt. Accordingly, as of September 30, 1997, $458,337 of the amount due under the ERLY Note is included in current portion of long-term debt. The $458,337 included in current portion of long-term debt represents amounts due under the Term Loan through September 30, 1998. 6
HANSEN NATURAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. LEGAL PROCEEDINGS The second stage of the trial in HBC's action against ERLY Industries, Inc. ("ERLY") in the Superior Court for the State of California, was held in July 1997 for the sole purpose of determining the amount of HBC's damages, if any, resulting from ERLY's breach of certain rights of first refusal provisions contained in the ERLY Note. In October 1997, the court ruled that HBC was not entitled to any damages. HBC is currently evaluating whether to appeal that ruling. 4. SUBSEQUENT EVENT As discussed above in Note 2, the ERLY Note was paid on October 24, 1997 with proceeds from the Term Loan. 5. EARNINGS PER SHARE The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share", which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the statement is not permitted. The Company has applied this statement to the results for the first, second and third quarters of 1997 and determined that the adoption of this statement would not have had a material impact on the earnings per share calculations for these periods. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- GENERAL During the nine months ended September 30, 1997, the expansion of distribution of certain of the Company's products into markets outside of California continued to contribute positively to the profitability of the Company. However, both the Company's operations in the United Kingdom and route distribution system in Southern California continued to incur losses, albeit at a lower rate than were incurred from these activities during the comparable nine-month period ended September 30, 1996. During the second quarter, the Company completed the discontinuation of the operation of its route distribution system. During late April 1997, the Company introduced a lightly carbonated Energy drink in an 8-ounce slim can and currently intends to introduce additional flavors and other types of beverages to complement its existing product lines consistent with the overall image of the Hansen's(R) brand, during 1997. On September 19, 1997, the Company relocated its warehouse, distribution and repacking operations to its facility in Corona, California. RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 Net Sales. For the three-month period ended September 30, 1997, net sales were approximately $13.4 million, an increase of $2.6 million or 24.4% over the $10.8 million net sales for the three-month period ended September 30, 1996. The increase in net sales was attributable to increased sales of Hansen's(R) fruit juice Smoothies and sales of Hansen's(R) Energy drink, which was introduced during the second quarter of 1997. The increase in net sales was partially offset by a decrease in net sales of Hansen's(R) apple juice. Sales of soda and iced teas, lemonades and juice cocktails were about the same as in the comparable period in 1996. Gross Profit. Gross profit was $5.5 million for the three-month period ended September 30, 1997, an increase of $1.2 million or 28.3% over the $4.3 million gross profit for the three-month period ended September 30, 1996. Gross profit as a percentage of net sales increased to 41.0% for the three-month period ended September 30, 1997 from 39.8% for the three-month period ended September 30, 1996. The increase in gross profit as a percentage of net sales was primarily attributable to higher margins achieved as a result of a change in the Company's product mix. Total Operating Expenses. Total operating expenses were $4.8 million for the three-month period ended September 30, 1997, an increase of $791,000 or 19.5% over total operating expenses of $4.0 million for the three-month period ended September 30, 1996. However, total operating expenses as a percentage of net sales decreased to 36.0% for the three-month period ended September 30, 1997 from 37.4% for the three-month period ended September 30, 1996. The increase in total operating expenses was primarily attributable to increased selling, general and administrative expenses which was partially offset by a decrease in other expenses. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the increase in net sales and the comparatively smaller increase in operating expenses from the comparable period in 1996. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Selling, general and administrative expenses were $4.7 million for the three-month period ended September 30, 1997, an increase of $828,000 or 21.2% over selling, general and administrative expenses of $3.9 million for the three-month period ended September 30, 1996. However, selling, general and administrative expenses as a percentage of net sales decreased to 35.2% for the three-month period ended September 30, 1997 from 36.1% for the three-month period ended September 30, 1996. The increase in selling expenses was primarily attributable to increases in distribution costs, advertising in general and, in particular, a radio campaign during the third quarter, and costs of promotional materials primarily in connection with the launching of the Company's new Energy drink. The increase in general and administrative expenses was primarily attributable to increased payroll costs in connection with the Company's expansion activities into additional states. Amortization of trademark license and trademarks was approximately $74,000 for the three- month periods ended September 30, 1997 and 1996. Other expenses were $37,000 for the three-month period ended September 30, 1997, a decrease of $37,000 or 50.6% below other expenses of $74,000 for the three-month period ended September 30, 1996. This decrease was primarily attributable to the expiration of certain consulting agreements, which were entered into in connection with the purchase of the Hansen Business and the merger between the Company, CVI Ventures, Inc. and Continental Ventures, Inc. This decrease was partially offset by a new consulting agreement entered into with the former president of HBC. Operating Income. Operating income was $678,000 for the three-month period ended September 30, 1997 compared to operating income of $252,000 for the three-month period ended September 30, 1996. The $426,000 increase in operating income was attributable to a $1.2 million increase in gross profit which was partially offset by an increase of $791,000 in operating expenses. Net Nonoperating Expense. Net nonoperating expense was $177,000 for the three-month period ended September 30, 1997, which was $36,000 higher than net nonoperating expense of $141,000 for the three-month period ended September 30, 1996. Net nonoperating expense for the three-month period ended September 30, 1997 consists of net interest and financing expense and other expense. Net nonoperating expense for the three-month period ended September 30, 1996 consists of net interest and financing expense. Net interest and financing expense for the three-month period ended September 30, 1997 was $140,000 compared to $141,000 for the three-month period ended September 30, 1996. Other expense for the third quarter of 1997 consists of a $37,000 loss on the disposal of plant and equipment, primarily vehicles, following the discontinuation of the Company's route distribution system. Net Income. Net income was $501,000 for the three-month period ended September 30, 1997 compared to net income of $111,000 for the three-month period ended September 30, 1996. The $390,000 increase in net income for this period consists of an increase in operating income of $426,000 which was partially offset by an increase of $36,000 in net nonoperating expense. RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 Net Sales. For the nine-month period ended September 30, 1997, net sales were approximately $32.1 million, an increase of $3.5 million or 12.2% over the $28.6 million net sales for the nine-month period ended September 30, 1996. The increase in net sales was attributable to increased sales of Hansen's(R) fruit juice Smoothies, increased sales of Hansen's(R) apple juice and sales of Hansen's(R) Energy drink, which was introduced during the second quarter of 1997. The increase in net sales was partially offset by a decrease in net sales of soda, iced teas, lemonades and juice cocktails and the discontinuance of distribution of Equator(R) products in certain markets. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Gross Profit. Gross profit was $13.1 million for the nine-month period ended September 30, 1997, an increase of $1.9 million or 16.9% over the $11.2 million gross profit for the nine-month period ended September 30, 1996. Gross profit as a percentage of net sales increased to 40.9% for the nine-month period ended September 30, 1997 from 39.2% for the nine-month period ended September 30, 1996. The increase in gross profit as a percentage of net sales was primarily attributable to higher margins achieved as a result of a change in the Company's product mix. Total Operating Expenses. Total operating expenses were $11.5 million for the nine-month period ended September 30, 1997, an increase of $1.1 million or 10.4% over total operating expenses of $10.4 million for the nine-month period ended September 30, 1996. However, total operating expenses as a percentage of net sales decreased to 36.0% for the nine-month period ended September 30, 1997 from 36.6% for the nine-month period ended September 30, 1996. The increase in total operating expenses was primarily attributable to increased selling, general and administrative expenses which was partially offset by decreases in amortization of trademark license and trademarks and other expenses. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the increase in net sales and the comparatively smaller increase in operating expenses from the comparable period in 1996. Selling, general and administrative expenses were $11.1 million for the nine-month period ended September 30, 1997, an increase of $1.2 million or 12.4% over selling, general and administrative expenses of $9.9 million for the nine-month period ended September 30, 1996. Selling, general and administrative expenses as a percentage of net sales increased to 34.7% for the nine-month period ended September 30, 1997 from 34.6% for the nine-month period ended September 30, 1996. The increase in selling expenses was primarily attributable to increases in distribution costs, advertising in general and, in particular, a radio campaign during the third quarter, and costs of promotional materials primarily in connection with the launching of the Company's new Energy drink. The increase in general and administrative expenses was primarily attributable to increased payroll costs in connection with the Company's expansion activities into additional states. Amortization of trademark license and trademarks was approximately $220,000 for the nine-month period ended September 30, 1997, a decrease of $103,000 from the $323,000 for the nine-month period ended September 30, 1996. This decrease is attributable to the change in the amortization period from 25 years to 40 years as more fully described in Note 1 in the Company's Form 10-K for the year ended December 31, 1996. Other expenses were $184,000 for the nine-month period ended September 30, 1997, a decrease of $39,000 or 17.5% below other expenses of $223,000 for the nine-month period ended September 30, 1996. This decrease was primarily attributable to the expiration of certain consulting agreements, which were entered into in connection with the purchase of the Hansen Business and the merger between the Company, CVI Ventures, Inc. and Continental Ventures, Inc. This decrease was partially offset by a new consulting agreement entered into with the former president of HBC. Operating Income. Operating income was $1.6 million for the nine-month period ended September 30, 1997 compared to operating income of $761,000 for the nine-month period ended September 30, 1996. The $814,000 increase in operating income was attributable to a $1.9 million increase in gross profit, which was partially offset by an increase of $1.2 million in operating expenses. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Net Nonoperating Expense. Net nonoperating expense was $450,000 for the nine-month period ended September 30, 1997, which was $223,000 higher than net nonoperating expense of $227,000 for the nine-month period ended September 30, 1996. Net nonoperating expense for the nine months ended September 30, 1997 consists of net interest and financing expense and other expense. Net nonoperating expense for the nine months ended September 30, 1996 consists of net interest and financing expense and other income. Net interest and financing expense for the nine-month period ended September 30, 1997 was $413,000 compared to $460,000 for the nine-month period ended September 30, 1996. The decrease in net interest and financing expense was attributable to a decrease in the amortization of certain capitalized financing costs incurred in connection with the securing of HBC's previous revolving line of credit, which were fully amortized by the third quarter of 1996, and lower average short-term borrowings during the nine-month period ended September 30, 1997 than during the comparable nine-month period in 1996. Other expense for the third quarter of 1997 consists of a $37,000 loss on the disposal of plant and equipment, primarily vehicles, following the discontinuation of the Company's route distribution system. Other income for 1996 consisted of $233,000 of income from the recovery under the Hawaiian Water Partners note described in Note 3 in the Company's Form 10-K for the year ended December 31, 1996. Net Income. Net income was $1.1 million for the nine-month period ended September 30, 1997 compared to net income of $531,000 for the nine-month period ended September 30, 1996. The $553,000 increase in net income for this period consists of an increase in operating income of $814,000 which was partially offset by an increase of $223,000 in net nonoperating expense and a provision for income taxes of $38,000. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1997, the Company had working capital of $2,045,844 compared to a working capital deficit of $2,707,471 as of December 31, 1996. The increase in working capital was primarily attributable to the reclassification of the amount due under the ERLY Note from current portion of long-term debt to long-term debt, as explained above in Note 2 to the Company's unaudited financial statements for the period ended September 30, 1997, and partially attributable to net income earned, after adjustments for certain noncash expenses, primarily amortization of trademark license and trademarks, depreciation and other amortization, during the nine-month period ended September 30, 1997. As explained in Note 2 to the Company's unaudited financial statements for the period ended September 30, 1997, HBC obtained a revolving line of credit of up to $3 million in aggregate at any time outstanding. As of September 30, 1997, $716,294 was outstanding under the Revolver. The Revolver is secured by substantially all of HBC's assets, including accounts receivable, inventory, trademarks, trademark licenses and certain equipment. The initial use of proceeds under this line of credit was to refinance HBC's previous line of credit. The Revolver is subject to renewal on the maturity date, May 1, 1998. The Company anticipates that the Revolver will be renewed on the expiration date, but there can be no assurance it will, in fact, be renewed, or if renewed, that the terms of such renewal will not be disadvantageous to HBC and its business. During the first, second and third quarters of 1997, HBC utilized a portion of its then existing line of credit, together with its own funds, for working capital, to finance its expansion and development plans, and to reduce long-term debt. Purchases of inventory and financing of accounts receivable, as well as HBC's expansion and development plans, have been, and for the foreseeable future, are expected to remain, HBC's principal recurring use of working capital funds. Management believes that cash available from operations, current cash resources and the Revolver, will be sufficient for its working capital needs, including purchase commitments for raw materials, debt servicing and expansion and development needs through September 30, 1998. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Although the Company has no current plans to incur any material capital expenditures, management, from time to time, considers the acquisition of capital equipment, businesses compatible with the image of the Hansen's(R) brand and the introduction of new product lines. The Company may require additional capital resources in the event of any such transaction, depending upon the cash requirements relating thereto. Any such transaction will also be subject to the terms and restrictions of HBC's credit facility. FORWARD LOOKING STATEMENTS Certain statements made in this Report, including certain statements made in this Management's Discussion and Analysis, contain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the expectations of management with respect to revenues, profitability, adequacy of funds from operations and the Company's existing credit facility, among other things. Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of the control of the Company, that could cause actual results and events to differ materially from the statements made herein, including, but not limited to, the following: changes in consumer preferences, changes in demand that are weather related, particularly in areas outside of California, competitive pricing pressures, changes in the price of the raw materials for the Company's beverage products, the marketing efforts of the distributors of the Company's products, most of which distribute products that are competitive with the products of the Company, as well as unilateral decisions that may be made by grocery chain stores, specialty chain stores and club stores to discontinue carrying all or any of the Company's products that they are carrying at any time. Management further notes that the Company's plans and results may be affected by the terms of the Company's credit facilities and the actions of its creditors. INFLATION The Company does not believe that inflation has a significant impact on the Company's results of operations for the periods presented. 12
PART II - OTHER INFORMATION Items 1-5. Non Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - See Exhibit Index. (b) Reports on Form 8-K - None SIGNATURES Pursuant of the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HANSEN NATURAL CORPORATION Registrant Date: November 12, 1997 By: RODNEY SACKS Rodney C. Sacks Chairman of the Board and Chief Executive Officer By: HILTON SCHLOSBERG Hilton H. Schlosberg Vice Chairman and Chief Financial Officer 13
INDEX TO EXHIBITS The following designated exhibits, as indicated below, are either filed herewith or have hereto fore been filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934 as indicated by footnote. Exhibit No. Document Description - ------------------ ------------------------------------------------ Exhibit 10 (ww) Packaging Agreement dated April 14, 1997 between Hansen Beverage Company and U.S. Continental Packaging, Inc. Exhibit 10 (xx) Revolving Credit Loan and Security Agreement dated May 15, 1997 between Comerica Bank - California and Hansen Beverage Company. Exhibit 10 (yy) Severance and Consulting Agreement dated as of June 20, 1997 by and among Hansen Beverage Company, Hansen Natural Corporation and Harold C. Taber, Jr. Exhibit 10 (zz) Stock Option Agreement made as of June 20, 1997 by and between Hansen Natural Corporation and Harold C. Taber, Jr. Exhibit 10 (aaa) Variable Rate Installment Note dated October 14, 1997 between Comerica Bank - California and Hansen Beverage Company. Exhibit 27 Financial Data Schedule 14