SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 0-18761 HANSEN NATURAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 39-1679918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2401 EAST KATELLA AVENUE, SUITE 650 ANAHEIM, CALIFORNIA 92806 (Address of principal executive offices) (Zip Code) (714) 634-4200 (Registrant's telephone number, including area code) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- THE REGISTRANT HAS 9,122,868 SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 1, 1997
HANSEN NATURAL CORPORATION AND SUBSIDIARIES June 30, 1997 INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 3 Consolidated Statements of Operations for the three and six months ended June 30, 1997 and 1996 5 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Items 1-5. Not Applicable 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature 15
HANSEN NATURAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) - ------------------------------------------------------------------------------ <TABLE> <CAPTION> June 30, December 31, 1997 1996 ------------ ------------ ASSETS <S> <C> <C> CURRENT ASSETS: Cash $ 288,064 $ 186,931 Accounts receivable (net of allowance for doubtful accounts, sales returns and cash discounts of $236,543 in 1997 and $234,749 in 1996 and promotional allowances of $1,062,001 in 1997 and $926,045 in 1996) 2,023,713 944,227 Inventories 3,149,496 3,111,124 Prepaid expenses 652,303 331,869 ------------ ------------ Total current assets 6,113,576 4,574,151 PLANT AND EQUIPMENT, net 631,075 602,272 INTANGIBLE AND OTHER ASSETS: Trademark license and trademarks (net of accumulated amortization of $2,236,640 in 1997 and $2,089,640 in 1996) 10,356,895 10,459,144 Notes receivable from officers 71,322 70,153 Deposits and other assets 459,850 403,353 ------------ ------------ Total intangible and other assets 10,888,067 10,932,650 ------------ ------------ $ 17,632,718 $ 16,109,073 ------------ ------------ ------------ ------------ See accompanying notes to consolidated financial statements. </TABLE> 3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)(CONTINUED) - ------------------------------------------------------------------------------ <TABLE> <CAPTION> June 30, December 31, 1997 1996 ------------ ------------ LIABILITIES & SHAREHOLDERS' EQUITY <S> <C> <C> CURRENT LIABILITIES: Short-term borrowings $ 899,457 $ 893,429 Accounts payable 3,076,912 2,139,050 Accrued liabilities 247,801 200,602 Current portion of long-term debt (net of unamortized premium of $49,786 in 1997 and 48,541 in 1996) 512,584 4,048,541 ------------ ------------ Total current liabilities 4,736,754 7,281,622 LONG-TERM DEBT 3,551,128 SHAREHOLDERS' EQUITY: Common stock - $.005 par value; 30,000,000 Shares authorized; 9,122,868 shares issued and outstanding in 1997 and 1996 45,614 45,614 Additional paid-in capital 10,847,355 10,847,355 Accumulated deficit (1,542,381) (2,126,100) Foreign currency translation adjustment (5,752) 60,582 ------------ ------------ Total shareholders' equity 9,344,836 8,827,451 ------------ ------------ $ 17,632,718 $ 16,109,073 ------------ ------------ ------------ ------------ See accompanying notes to consolidated financial statements. </TABLE> 4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------ <TABLE> <CAPTION> THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> NET SALES $ 11,496,228 $ 10,399,155 $ 18,615,814 $ 17,769,736 COST OF SALES 6,791,491 6,252,600 11,027,737 10,860,553 ------------- ------------- ------------- ------------- GROSS PROFIT 4,704,737 4,146,555 7,588,077 6,909,183 OPERATING EXPENSES: Selling, general and administrative 3,809,192 3,514,143 6,396,957 6,001,647 Amortization of trademark license and trademarks 73,500 124,705 147,000 250,129 Other expenses 72,991 74,291 147,135 148,582 ------------- ------------- ------------- ------------- Total operating expenses 3,955,683 3,713,139 6,691,092 6,400,358 ------------- ------------- ------------- ------------- OPERATING INCOME 749,054 433,416 896,985 508,825 NONOPERATING EXPENSE (INCOME): Net interest and financing expense 148,691 157,845 273,066 319,238 Other income (125,793) (232,683) ------------- ------------- ------------- ------------- Net nonoperating expense 148,691 32,052 273,066 86,555 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAX PROVISION 600,363 401,364 623,919 422,270 INCOME TAX PROVISION 37,800 40,200 2,400 ------------- ------------- ------------- ------------- NET INCOME $ 562,563 $ 401,364 $ 583,719 $ 419,870 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- NET INCOME PER COMMON SHARE: Primary $ 0.06 $ 0.04 $ 0.06 $ 0.05 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Fully diluted $ 0.06 $ 0.04 $ 0.06 $ 0.04 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- NUMBER OF COMMON SHARES USED IN PER SHARE COMPUTATIONS: Primary 9,214,962 9,406,004 9,195,639 9,185,944 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Fully diluted 9,219,049 9,726,478 9,219,049 9,726,478 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- See accompanying notes to consolidated financial statements. </TABLE> 5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited) - ------------------------------------------------------------------------------ 1997 1996 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 583,719 $ 419,870 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of trademark license and trademarks 147,000 250,129 Depreciation and other amortization 124,034 94,783 Loss on sale of equipment 4,730 Effect on cash of changes in operating assets and liabilities: Accounts receivable (1,079,485) (772,243) Inventories (38,372) (169,925) Prepaid expenses (320,434) 162,988 Accounts payable 937,861 361,583 Accrued liabilities 47,199 199,490 ----------- ---------- Net cash provided by operating activities 401,522 551,405 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment (151,952) (67,497) Proceeds from sale of plant and equipment 360 68,302 Increase in trademark license (44,750) (23,846) (Increase) decrease in notes receivable from officers (1,169) 764 Increase in deposits and other assets (56,497) (56,717) ----------- ---------- Net cash used in investing activities (254,008) (78,994) CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings 6,028 (438,591) Increase in long-term debt 14,546 Principal payments on long-term debt (621) (34,717) ----------- ---------- Net cash provided by (used in) financing activities 19,953 (473,308) EFFECT OF EXCHANGE RATE CHANGES ON CASH (66,334) (18,055) ----------- ---------- NET INCREASE (DECREASE) IN CASH 101,133 (18,952) CASH, beginning of period 186,931 87,916 ----------- ---------- CASH, end of period $ 288,064 $ 68,964 ----------- ---------- ----------- ---------- SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $ 225,505 $ 224,867 ----------- ---------- ----------- ---------- Cash paid during the period for taxes $ 2,400 $ 2,400 ----------- ---------- ----------- ---------- See accompanying notes to consolidated financial statements. 6
HANSEN NATURAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 1. BASIS OF PRESENTATION Reference is made to the Notes to Consolidated Financial Statements, in the Company's Form 10-K for the year ended December 31, 1996, which is incorporated by reference, for a summary of significant policies utilized by Hansen Natural Corporation ("Hansen" or "Company") and its subsidiaries, Hansen Beverage Company ("HBC") and CVI Ventures, Inc. ("CVI"), and its indirect subsidiary, Hansen Beverage Company (UK) Limited ("HBC (UK)"). The information set forth in these interim financial statements is unaudited and may be subject to normal year-end adjustments. The information reflects all adjustments, which include only normal recurring adjustments, which in the opinion of management are necessary to make the financial statements not misleading. Results of operations covered by this report may not necessarily be indicative of results of operations for the full fiscal year. 2. LONG-TERM DEBT On June 30, 1997, HBC entered into a definitive agreement (the "Loan Agreement") with a bank (the "Bank") pursuant to which the Bank agreed to provide credit facilities to HBC consisting of a revolving line of credit (the "Revolver") of up to $3,000,000 in aggregate at any time outstanding and a term loan of up to $4,000,000 (the "Term Loan") or such lesser amount as may be necessary to retire the note payable to ERLY Industries, Inc. ("ERLY") due July 27, 1997 (the "ERLY Note"). The Term Loan will mature 60 months after the date of funding of the Term Loan. The credit facilities are secured by all of the assets of the Company and its subsidiaries, including, but not limited to, accounts receivable, inventory, machinery and equipment, as well as all trademarks, trademark licenses, formulas and recipes and other intellectual property. The credit facilities are also guaranteed by the Company, CVI and HBC (UK). The initial proceeds received under the Revolver were used to refinance the outstanding balance due on HBC's previous line of credit. The Revolver will expire on May 1, 1998. The Company anticipates that the Revolver will be renewed on the expiration date, but there can be no assurance it will, in fact, be renewed, or if renewed, that the terms of such renewal will not be disadvantageous to HBC and its business. On July 24, 1997, the Bank, by written letter (the "Commitment Letter"), confirmed its commitment to fund the Term Loan pursuant to HBC's instructions at any time up to August 31, 1997. On July 28, 1997, HBC tendered payment to ERLY under the ERLY Note, offsetting damages claimed by HBC in its lawsuit against ERLY. In that lawsuit, the trial court has ruled that ERLY breached certain of its obligations to HBC under the ERLY Note and the only issue remaining for determination is the amount of HBC's damages. ERLY has not responded to that tender. In light of the conclusion of the Loan Agreement, the receipt of the Commitment Letter referred above, and management's intent to utilize the Term Loan to satisfy the ERLY Note, the Company reclassified a portion of the amount due under the ERLY Note from "current portion of long-term debt" to "long-term debt". The amount reclassified is equal to the long- 7
HANSEN NATURAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ term portion of the Term Loan, based upon the assumption that $4,000,000 will be paid to satisfy the ERLY Note. 3. EARNINGS PER SHARE The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share", which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the statement is not permitted. The Company has applied this statement to the results for the first and second quarters of 1997 and determined that the adoption of this statement would not have had a material impact on the earnings per share calculations for these periods. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ General During the six months ended June 30, 1997, the expansion of distribution of certain of the Company's products into markets outside of California continued to contribute positively to the profitability of the Company. However, both the Company's operations in the United Kingdom and route distribution system in Southern California continued to incur losses, albeit at a lower rate than were incurred from these activities during the comparable six-month period ended June 30, 1996. During the period the Company completed the discontinuation of the operation of its route distribution system. During late April 1997, the Company introduced a lightly carbonated Energy drink in an 8-ounce slim can and intends to introduce additional flavors and other types of beverages to complement its existing product lines consistent with the overall image of the Hansen's-Registered Trademark- brand, during 1997. The Company continues to incur expenditures in connection with the development and introduction of new products and flavors. During the second quarter management re-evaluated the Company's warehousing, distribution and repacking arrangements. Management concluded that, in consequence of the expansion of the Company's business and increased volumes, it would be cost efficient for the Company to rent its own warehouse facility and to appoint an independent contractor to manage the warehouse facility, as well as the distribution and repacking of the Company's products. Management also determined that it would be cost efficient and beneficial for the Company's corporate offices to be relocated to such facility. In consequence, on April 25, 1997, the Company agreed to lease approximately 66,700 square feet of warehouse space in Corona, California for use as the Company's corporate offices and the primary national warehouse, distribution and repacking center for the Company's products, for a term of eighty-nine (89) months commencing on the later of August 1, 1997 or the date on which the facility is ready for occupancy. Concurrently, the Company agreed to sublease approximately 10,000 square feet of the space to an independent contractor for two (2) years, subject to early termination upon sixty (60) days prior written notice. It is anticipated that the Company will ultimately need to utilize this space to accommodate the expansion of its business. In terms of a separate agreement, that independent contractor agreed to manage the warehouse facility and the distribution and repacking of the Company's products therefrom. In addition, the independent contractor will utilize its sublet space to repack products for other customers whose products are not directly competitive with the Company's products. As a result, it will not be necessary for the Company to employ additional personnel to manage the warehouse facility and the distribution of its products. Under the terms of the lease, the landlord has agreed to pay for the construction of office facilities and certain other improvements. It is anticipated that the Company will move its warehouse, distribution and repacking operations to the Corona, California site from a temporary site leased from the same landlord, in September 1997 and will move its corporate offices in January 1998. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1997 COMPARED TO THE THREE-MONTH PERIOD ENDED JUNE 30, 1996 NET SALES. For the three-month period ended June 30, 1997, net sales were approximately $11.5 million, an increase of $1.1 million or 10.5% over the $10.4 million net sales for the three-month period ended June 30, 1996. The increase in net sales was attributable to increased sales of Hansens's-Registered Trademark- fruit juice Smoothies, increased sales of Hansens's-Registered Trademark- apple juice and sales of Hansens's-Registered Trademark- Energy drink, which was introduced during the second quarter of 1997. The increase in net sales was partially offset by a decrease in net sales of soda and the discontinuance of distribution of Equator-Registered Trademark- products in certain markets. Sales of iced teas, lemonades and juice cocktails were about the same as in the comparable period in 1996. GROSS PROFIT. Gross profit was $4.7 million for the three-month period ended June 30, 1997, an increase of $558,000 or 13.5% over the $4.1 million gross profit for the three-month period ended June 30, 1996. Gross profit as a percentage of net sales increased to 40.9% for the three-month period ended June 30, 1997 from 39.9% for the three-month period ended June 30, 1996. The increase in gross profit was primarily attributable to increased net sales and higher margins achieved. The increase in gross profit as a percentage of net sales was primarily attributable to higher margins achieved as a result of a change in the Company's product mix. TOTAL OPERATING EXPENSES. Total operating expenses were $4.0 million for the three-month period ended June 30, 1997, an increase of $242,000 or 6.5% over total operating expenses of $3.7 million for the three-month period ended June 30, 1996. However, total operating expenses as a percentage of net sales decreased to 34.4% for the three-month period ended June 30, 1997 from 35.7% for the three-month period ended June 30, 1996. The increase in total operating expenses was primarily attributable to increased selling, general and administrative expenses which was partially offset by a decrease in amortization of trademark license and trademarks. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the increase in net sales and the comparatively smaller increase in operating expenses from the comparable period in 1996. Selling, general and administrative expenses were $3.8 million for the three-month period ended June 30, 1997, an increase of $295,000 or 8.4% over selling, general and administrative expenses of $3.5 million for the three-month period ended June 30, 1996. However, selling, general and administrative expenses as a percentage of net sales decreased to 33.1% for the three-month period ended June 30, 1997 from 33.8% for the three-month period ended June 30, 1996. The increase in selling expenses was primarily attributable to increases in distribution, advertising and other promotional expenditures, and costs of promotional materials. The increase in general and administrative expenses was primarily attributable to increased professional and legal fees incurred in connection with the Company's claim against ERLY, increased costs in connection with the development of and support for new products and increased payroll costs in connection with the Company's expansion activities into additional states. Amortization of trademark license and trademarks was approximately $74,000 for the three- month period ended June 30, 1997, a decrease of $51,000 from the $125,000 for the three-month period ended June 30, 1996. This decrease is attributable to the change in the amortization period from 25 years to 40 years as more fully described in Note 1 in the Company's Form 10-K for the year ended December 31, 1996. OPERATING INCOME. Operating income was $749,000 for the three-month period ended June 30, 1997 compared to operating income of $433,000 for the three-month period ended June 30, 1996. The 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ $316,000 increase in operating income was attributable to a $558,000 increase in gross profit which was partially offset by an increase of $242,000 in operating expenses. NET NONOPERATING EXPENSE. Net nonoperating expense was $149,000 for the three-month period ended June 30, 1997, which was $117,000 higher than net nonoperating expense of $32,000 for the three-month period ended June 30, 1996. Net nonoperating expense for the three-month period ended June 30, 1997 consists of net interest and financing expense. Net nonoperating expense for the three-month period ended June 30, 1996 consists of net interest and financing expense and other income. Interest and financing expense for the three-month period ended June 30, 1997 was $149,000 compared to $158,000 for the three-month period ended June 30, 1996. The decrease in net interest and financing expense was attributable to the decrease in the amortization of certain capitalized financing costs incurred in connection with the securing of the Company's existing revolving line of credit in August 1995, which were fully amortized in the third quarter of 1996, and lower average short-term borrowings during the three-month period ended June 30, 1997 than during the comparable three-month period in 1996. Other income for 1996 consisted of $126,000 of income from the recovery under the Hawaiian Water Partners note described in Note 3 in the Company's Form 10-K for the year ended December 31, 1996. NET INCOME. Net income was $562,000 for the three-month period ended June 30, 1997 compared to net income of $401,000 for the three-month period ended June 30, 1996. The $161,000 increase in net income for this period consists of an increase in operating income of $316,000 which was partially offset by an increase of $117,000 in net nonoperating expense and a provision for income taxes of $38,000. RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 COMPARED TO THE SIX-MONTH PERIOD ENDED JUNE 30, 1996 NET SALES. For the six-month period ended June 30, 1997, net sales were approximately $18.6 million, an increase of $846,000 or 4.8% over the $17.8 million net sales for the six-month period ended June 30, 1996. The increase in net sales was attributable to increased sales of Hansens's-Registered Trademark-fruit juice Smoothies, increased sales of Hansens's-Registered Trademark- apple juice and sales of Hansens's-Registered Trademark- Energy drink, which was introduced during the second quarter of 1997. The increase in net sales was partially offset by a decrease in net sales of soda, iced teas, lemonades and juice cocktails and the discontinuance of distribution of Equator-Registered Trademark- products in certain markets. GROSS PROFIT. Gross profit was $7.6 million for the six-month period ended June 30, 1997, an increase of $679,000 or 9.8% over the $6.9 million gross profit for the six-month period ended June 30, 1996. Gross profit as a percentage of net sales increased to 40.8% for the six-month period ended June 30, 1997 from 38.9% for the six-month period ended June 30, 1996. The increase in gross profit was primarily attributable to increased net sales and higher margins achieved. The increase in gross profit as a percentage of net sales was primarily attributable to higher margins achieved as a result of a change in the Company's product mix. TOTAL OPERATING EXPENSES. Total operating expenses were $6.7 million for the six-month period ended June 30, 1997, an increase of $291,000 or 4.5% over total operating expenses of $6.4 million for the six-month period ended June 30, 1996. However, total operating expenses as a percentage of net sales decreased to 35.9% for the six-month period ended June 30, 1997 from 36.0% for the six-month period ended June 30, 1996. The increase in total operating expenses was primarily attributable to increased selling, general and administrative expenses which was partially offset by decreases in amortization of trademark license and trademarks. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the increase in net sales and the comparatively smaller increase in operating expenses from the comparable period in 1996. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Selling, general and administrative expenses were $6.4 million for the six-month period ended June 30, 1997, an increase of $395,000 or 6.6% over selling, general and administrative expenses of $6.0 million for the six-month period ended June 30, 1996. Selling, general and administrative expenses as a percentage of net sales increased to 34.4% for the six-month period ended June 30, 1997 from 33.8% for the six-month period ended June 30, 1996. The increase in selling expenses was primarily attributable to increases in distribution, advertising and other promotional expenditures and costs of promotional materials. The increase in general and administrative expenses was primarily attributable to increased professional and legal fees incurred in connection with the Company's claim against ERLY, increased costs in connection with the development of and support for new products and increased payroll costs in connection with the Company's expansion activities into additional states. Amortization of trademark license and trademarks was approximately $147,000 for the six-month period ended June 30, 1997, a decrease of $103,000 from the $250,000 for the six-month period ended June 30, 1996. This decrease is attributable to the change in the amortization period from 25 years to 40 years as more fully described in Note 1 in the Company's Form 10-K for the year ended December 31, 1996. OPERATING INCOME. Operating income was $897,000 for the six-month period ended June 30, 1997 compared to operating income of $509,000 for the six-month period ended June 30, 1996. The $388,000 increase in operating income was attributable to a $679,000 increase in gross profit which was partially offset by an increase of $291,000 in operating expenses. NET NONOPERATING EXPENSE. Net nonoperating expense was $273,000 for the six-month period ended June 30, 1997, which was $186,000 higher than net nonoperating expense of $87,000 for the six-month period ended June 30, 1996. Net nonoperating expense for the six months ended June 30, 1997 consists of net interest and financing expense. Net nonoperating expense for the six months ended June 30, 1996 consists of interest and financing expense and other income. Net interest and financing expense for the six-month period ended June 30, 1997 was $273,000 compared to $319,000 for the six-month period ended June 30, 1996. The decrease in net interest and financing expense was attributable to the decrease in the amortization of certain capitalized financing costs incurred in connection with the securing of the Company's existing revolving line of credit in August 1995, which were fully amortized in the third quarter of 1996, and lower average short-term borrowings during the six-month period ended June 30, 1997 than during the comparable six-month period in 1996. Other income for 1996 consisted of $233,000 of income from the recovery under the Hawaiian Water Partners note described in Note 3 in the Company's Form 10-K for the year ended December 31, 1996. NET INCOME. Net income was $584,000 for the six-month period ended June 30, 1997 compared to net income of $420,000 for the six-month period ended June 30, 1996. The $164,000 increase in net income for this period consists of an increase in operating income of $388,000 which was partially offset by an increase of $186,000 in net nonoperating expense and a provision for income taxes of $38,000. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the Company had working capital of $1,376,822 compared to a working capital deficit of $2,707,471 as of December 31, 1996. The increase in working capital was primarily attributable to the reclassification of the amount due under the ERLY Note from current portion of long-term debt to long-term debt, as explained above in Note 2 to the Company's unaudited financial statements for the period ended June 30, 1997, and partially attributable to net income earned, after 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ adjustments for certain noncash expenses, primarily amortization of trademark license and trademarks, depreciation and other amortization, during the six-month period ended June 30, 1997. As explained in Note 2 to the Company's unaudited financial statements for the period ended June 30, 1997, HBC obtained a revolving line of credit of up to $3 million in aggregate at any time outstanding. The line of credit is secured by substantially all of HBC's assets, including accounts receivable, inventory, trademarks, trademark licenses and certain equipment. The initial use of proceeds under this line of credit was to refinance HBC's previous line of credit. The line of credit is subject to renewal on the maturity date. As of June 30, 1997, $890,414 was outstanding under this line of credit. During the first and second quarters of 1997, HBC utilized a portion of the then existing line of credit, together with its own funds, for working capital and to finance its expansion and development plans. Purchases of inventory and financing of accounts receivable, as well as HBC's expansion and development plans, have been, and for the foreseeable future, are expected to remain, HBC's principal recurring use of working capital funds. Also, as explained in Note 2, HBC obtained a commitment for a Term Loan, the proceeds of which will be used for the repayment of principal on the ERLY Note. In the event that funding of the Term Loan does not occur by August 31, 1997, and the bank does not extend its commitment to fund the same thereafter, it will be necessary for management to secure alternative financing to enable HBC to meet its obligations under the ERLY Note. There can be no assurance that any replacement financing, if required, can be completed prior to the due date for payment of the ERLY Note or, if completed, that the terms of any such financing will not be disadvantageous to HBC and its business. The obligations of HBC under certain consulting agreements entered into in connection with the acquisition of the Hansen Business terminated on July 27, 1997. Management believes that cash available from operations, current cash resources and the Revolver, will be sufficient for its working capital needs, including its purchase commitments for raw materials, through June 30, 1998. Although the Company has no current plans to incur any material capital expenditures, management, from time to time, considers the acquisition of capital equipment, businesses compatible with the image of the Hansen's-Registered Trademark- brand and the introduction of new product lines. The Company may require additional capital resources in the event of any such transaction, depending upon the cash requirements relating thereto. Any such transaction will also be subject to the terms and restrictions of HBC's credit facility. FORWARD LOOKING STATEMENTS Certain statements made in this Report, including certain statements made in this Management's Discussion and Analysis, contain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the expectations of management with respect to revenues, profitability, refinancing of the ERLY Note, adequacy of funds from operations and the Company's existing credit facility, among other things. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of the control of the Company, that could cause actual results and events to differ materially from the statements made herein, including, but not limited to, the following: changes in consumer preferences, changes in demand that are weather related, particularly in areas outside of California, competitive pricing pressures, changes in the price of the raw materials for the Company's beverage products, the marketing efforts of the distributors of the Company's products, most of which distribute products that are competitive with the products of the Company, as well as unilateral decisions that may be made by grocery chain stores, specialty chain stores and club stores to discontinue carrying all or any of the Company's products that they are carrying at any time. Management further notes that the Company's plans and results may be affected by the terms of the Company's credit facilities and the actions of its creditors and the court's final adjudication of damages in the ERLY litigation. INFLATION The Company does not believe that inflation has a significant impact on the Company's results of operations for the periods presented. 14
PART II - OTHER INFORMATION Items 1-5. Non Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - See Exhibit Index. (b) Reports on Form 8-K - None SIGNATURES Pursuant of the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HANSEN NATURAL CORPORATION Registrant Date: August 8, 1997 By: RODNEY SACKS ------------------------------ Rodney C. Sacks Chairman of the Board and Chief Executive Officer; Principal Financial Officer 15
INDEX TO EXHIBITS The following designated exhibits, as indicated below, are either filed herewith or have hereto fore been filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934 as indicated by footnote. Exhibit No. Document Description - ----------- -------------------- Exhibit 10(uu) Standard Industrial Lease Agreement Exhibit 10(vv) Sublease Agreement Exhibit 27 Financial Data Schedule 16