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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
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
Securities registered pursuant to Section
12(b) of the Act:
Name of each exchange
Title of each class on which registered
Not Applicable Not Applicable
Securities registered pursuant to Section
12(g) of the Act:
Title of class
Common Stock, $0.005 par value per share
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant was approximately $20,716,866 computed by reference to the sale
price for such stock on the NASDAQ Small-Cap Market on March 2, 2001.
The number of shares of the Registrant's common stock, $0.005 par value
per share (being the only class of common stock of the Registrant), outstanding
on March 2, 2001 was 10,045,003 shares.
HANSEN NATURAL CORPORATION
FORM 10-K
TABLE OF CONTENTS
Item Number Page Number
PART I
1. Business 3
2. Properties 16
3. Legal Proceedings 16
4. Submission of Matters to a Vote of Security Holders 17
PART II
5. Market for the Registrant's Common Equity and Related 17
Shareholder Matters
6. Selected Consolidated Financial Data 18
7. Management's Discussion and Analysis of Financial 19
Condition and Results of Operations
8. Financial Statements and Supplementary Data 28
9. Changes in and Disagreements with Accountants on 28
Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant 29
11. Executive Compensation 30
12. Security Ownership of Certain Beneficial Owners and Management 35
13. Certain Relationships and Related Transactions 37
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 38
Signatures 39
2
PART I
ITEM 1. BUSINESS
Background of the Company and Subsidiaries
Hansen Natural Corporation ("Hansen" or the "Company"), which was incorporated
in Delaware on April 25, 1990, maintains its principal place of business at 1010
Railroad Street, Corona, California 92882, and its telephone number is (909)
739-6200.
The Company is a holding company and carries on no operating business
except through its direct wholly-owned subsidiaries, Hansen Beverage Company
("HBC") which was incorporated in Delaware on June 8, 1992 and Hard e Beverage
Company ("HEB") formerly known as Hard Energy Company and previously, CVI
Ventures, Inc., which was incorporated in Delaware on April 30, 1990. HBC
conducts the vast majority of the Company's operating business and generates
substantially all of the Company's operating revenues. During the third quarter
of 2000, the Company, through HEB, introduced a malt-based drink under the name
Hard e which contains up to five-percent alcohol. The Hard e product is not
marketed under the Hansen's name. References herein to "Hansen" or the "Company"
when used to describe the operating business of the Company are references to
the business of HBC unless otherwise indicated and references herein to HEB when
used to describe the operating business of HEB, are references to the Hard e
(TM) brand business of HEB unless otherwise indicated.
In addition, HBC, through its wholly-owned subsidiary, Blue Sky Natural
Beverage Co., ("Blue Sky"), which was incorporated in Delaware on September 8,
2000, acquired full ownership of and operates the natural soda business
previously conducted by Blue Sky Natural Beverage Co., a New Mexico corporation
("BSNBC"), under the Blue Sky(R) trademark.
Background of the Hansen Business
In the 1930's, Hubert Hansen and his three sons started a business to
sell fresh non-pasteurized juices in Los Angeles, California. This business
eventually became Hansen's Juices, Inc., now known as The Fresh Juice Company of
California, Inc. ("FJC"). In 1977, Tim Hansen, one of the grandsons of Hubert
Hansen, perceived a demand for pasteurized natural juices and juice blends that
are shelf stable and formed Hansen Foods, Inc. ("HFI"), which was also based in
the Los Angeles area. HFI expanded its product line from juices to include
Hansen's(R) Natural Sodas. California Co-packers Corporation (d/b/a/ Hansen
Beverage Company) ("CCC") acquired certain assets of HFI including the right to
market the Hansen's(R) brand name, in January 1990. On July 27, 1992, the
Company, through HBC, acquired the Hansen's(R) brand natural soda and apple
juice business (the "Hansen Business") from CCC. Under the Company's ownership,
the Hansen Business has been significantly expanded to include a wide range of
beverages within the growing "alternative" beverage category. On September 20,
2000, HBC acquired the Blue Sky Natural Soda business, through its wholly owned
subsidiary Blue Sky, from BSNBC.
Products
Hansen is engaged in the business of marketing, selling and
distributing so-called "alternative" beverage category natural sodas, fruit
juices, fruit juice Smoothies, "functional drinks", non-carbonated
ready-to-drink iced teas, lemonades and juice cocktails, children's
multi-vitamin juice drinks and still water under the Hansen's(R) brand name as
well as nutritional bars and cereals also under the Hansen's(R) brand name,
natural sodas under the Blue Sky(R) brand name and malt based drinks under the
Hard e brand name.
The alternative beverage category combines non-carbonated
ready-to-drink iced teas, lemonades, juice cocktails, single serve juices,
ready-to-drink iced coffees, sports drinks and single-serve still water with
"new age" beverages, including sodas that are considered natural, sparkling
juices and flavored sparkling waters. The alternative beverage category is the
fastest growing segment of the beverage marketplace. (Source: Beverage Marketing
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Corporation). Sales for the alternative beverage category of the market are
estimated to have reached approximately $9.7 billion at wholesale in 2000 with a
growth rate of approximately 11% over the prior year. (Source: Beverage
Marketing Corporation).
Hansen's(R) Natural Sodas are classified as "new age" beverages and
have been a leading natural soda brand in Southern California for the past 23
years. In 2000, Hansen's(R) Natural Sodas had the highest sales among comparable
carbonated new age category beverages measured by unit volume in the Southern
California market (Source: Information Resources, Inc.'s Analyzer Reports for
Southern California). Hansen's(R) Natural Sodas are currently available in
twelve regular flavors consisting of Mandarin Lime, Key Lime, Grapefruit,
Raspberry, Creamy Root Beer, Vanilla Cola, Cherry Vanilla Creme, Orange Mango,
Kiwi Strawberry, Tropical Passion, Black Cherry and Tangerine. Hansen
discontinued its low calorie sodas in Wildberry and Cola flavors and at the end
of 2000, introduced a new line of diet sodas with Splenda(R) sweetener as the
primary sweetener. This line has been introduced in four flavors: Peach, Black
Cherry, Tangerine Lime, and Kiwi Strawberry. Hansen's(R) Natural Sodas contain
no preservatives, sodium, caffeine or artificial coloring and are made with high
quality natural flavors, citric acid and high fructose corn syrup, or in the
case of its diet sodas, with Splenda(R) and Acesulfame K. Hansen's(R) Natural
Sodas are currently packaged in 12-ounce aluminum cans.
In January 1999, Hansen's introduced its new premium line of Signature
Sodas in unique proprietary 14-ounce glass bottles. Signature Sodas are
currently available in six flavors consisting of Orange Creme, Vanilla Creme,
Ginger Beer, Sarsaparilla, Black Cherry and Sangria. Signature Sodas are being
marketed through the Company's existing distributor network but in 2001, the
Company plans to market these products in certain markets directly through its
warehouse division. During September 2000, the Company acquired the Blue Sky
Natural Soda business from BSNBC. The Blue Sky product line comprises natural
sodas in cans, which are available in fourteen regular flavors consisting of
Lemon Lime, Grapefruit, Cola, Root Beer, Raspberry, Cherry Vanilla Creme, Truly
Orange, Jamaican Ginger Ale, Black Cherry, Orange Creme, Dr. Becker, Cherry
Lemon Lime, Grape and Private Reserve Cream Soda. Blue Sky also has a premium
line of natural sodas, which contain supplements such as Ginseng. This line is
currently available in six flavors consisting of Ginseng Creme, Ginseng Cola,
Ginseng Root Beer, Ginseng Very Berry Creme, Ginseng Ginger Ale, and Ginseng
Cranberry-Raspberry. During 1999, Blue Sky introduced a line of organic natural
sodas, which are currently available in five flavors consisting of Prime Lime
Cream, New Century Cola, Orange Divine, Ginger Gale, and Black Cherry Cherish.
The Company also markets a seltzer water under the Blue Sky label. The Blue Sky
products contain no preservatives, sodium, caffeine or artificial coloring and
are made with high quality natural flavors. All Blue Sky Natural Sodas and
seltzer waters are currently packaged in 12-ounce aluminum cans.
During April 1997, the Company introduced a lightly carbonated citrus
flavored Hansen's(R) energy drink in an 8.2-ounce slim can. The Company's energy
drink falls within the category that has generally been described as the
"functional" beverage category, namely, beverages that provide a real or
perceived benefit in addition to simply delivering refreshment. Management
believes that the "functional" beverage category has good growth potential.
During the first quarter of 1998, the Company extended its functional product
line by introducing three additional functional drinks in 8.2-ounce slim cans,
namely, a ginger flavored d-stress(R) drink, an orange flavored antioox(R) drink
(since renamed bo well(TM)), and a guarana berry flavored stamina(R) drink.
During the fourth quarter of 1998, the Company introduced its power functional
drink in 8.2-ounce slim cans, which is currently marketed in a grape flavor.
During 2000 the Company introduced slim down, its sixth functional drink.
slim-down is a berry-flavored drink that has no calories. Each of the Company's
functional drinks contains different combinations of vitamins, minerals,
nutrients, herbs and supplements ("supplements").
The Company has concentrated on marketing its carbonated functional
drinks and Smoothies and Signature Sodas in glass bottles through its
distributor network, which continued to expand during 2000. The Company intends
to leverage its existing distributor network to facilitate sales of its new
premium line of alternative healthy iced teas and drinks, which is currently
being launched under the "Medicine Man" label, as well as other new single-serve
4
products in glass bottles and cans that it plans to introduce during 2001,
certain of which are described more fully below.
The Company's fruit juice product line currently includes Hansen's(R)
Natural Old Fashioned Apple Juice which is packaged in 64-and 128-ounce
polyethylene terephthalate ("P.E.T.") plastic bottles, and Apple Strawberry and
Apple Grape juice blends in 64-ounce P.E.T. plastic bottles. These juice blends
were introduced in the second quarter of 1998. These Hansen's(R) juice products
contain 100% juice as well as 100% of the recommended daily intake for adults of
Vitamin C. Certain of these products also contain added calcium. Hansen's(R)
juice products compete in the shelf-stable juice category. The Company plans to
introduce an Apple-Cranberry juice blend, a Cranberry juice cocktail and an
Orange-Carrot juice blend in 64-ounce P.E.T. plastic bottles during 2001. These
products will not contain 100% juice.
In March 1995, the Company expanded its juice product line by
introducing a line of fruit juice Smoothies. The Company's fruit juice Smoothies
have a smooth texture that is thick but lighter than a nectar and contain
approximately 35% juice (the Company plans to reduce the juice level to an
average of 25% juice in line with the current juice level of the Company's
Smoothies in 12-ounce glass bottles). The Company's fruit juice Smoothies
provide 100% of the recommended daily intake for adults of Vitamins A, C & E
(the antioxidant triad) and represented Hansen's entry into what is commonly
referred to as the "functional" beverage category. The Company's fruit juice
Smoothies are packaged in 11.5-ounce aluminum cans and in new unique proprietary
12-ounce glass bottles designed by the Company, as well as in 64-ounce P.E.T.
plastic bottles. Hansen's(R) fruit juice Smoothies are available in eleven
flavors: Strawberry Banana, Peach Berry, Mango Pineapple, Guava Strawberry,
Pineapple Coconut, Apricot Nectar, Tropical Passion, Whipped Orange and
Cranberry Twist. The product line also includes a Cranberry Raspberry lite
Smoothie as well as an Energy Smoothie which has a unique formula. The Company
extended its Smoothie line in 64-ounce P.E.T. plastic bottles from two flavors
to six flavors during 2000.
During the second half of 1999, the Company introduced a new line of
premium functional Smoothies in 11.5-ounce cans Energy, Power, Protein and Vita.
Each of these products contain different combinations of supplements. Energy has
a tropical fruit flavor. Power has a berry flavor. Protein has a banana citrus
flavor. Vita has an orange carrot flavor. The juice levels of these products are
generally higher than the juice levels of the regular Smoothie line. The Company
plans to reposition this line as line extensions to its existing regular
Smoothie line. The Company is in the process of reformulating these products to
reduce the juice levels to the same levels as the regular Smoothie products.
During the fourth quarter of 1999, the Company introduced certain of such
premium functional Smoothies as line extensions to its existing Smoothie line in
12-ounce glass bottles.
.
During the second quarter of 1998, the Company launched its first
Healthy Start product, Dyna Juice(R), a shelf stable 100% juice blend with 15
vitamins and minerals added. Dyna Juice(R) was renamed VITAMAX-JUICE during the
fourth quarter of 1998 to more directly communicate its attributes to consumers.
During the fourth quarter of 1998, the Company expanded its Healthy Start
product line with three new Healthy Start 100% juices namely, ANTIOXJUICE(R),
IMMUNEJUICE(TM) and INTELLIJUICE(R). ANTIOXJUICE(R) is a carrot and tropical
juice blend, IMMUNEJUICE(TM)is an aronia and cranberry juice blend and
INTELLIJUICE(R) is an orange and tomato juice blend. Each of the Healthy Start
products contain different combinations of supplements. The Healthy Start line
was originally launched in 46-ounce P.E.T. plastic bottles and at the end of
1998 the Company expanded this line into 64-ounce P.E.T. plastic bottles as
well. Early in 2000, the Company entered into a licensing agreement with the
Silver Foxes Network for the licensing to the Company of the Silver Foxes(TM)
brand and trademark, which is positioned towards consumers in the 50+ age group,
for and in connection with certain of the Company's products. The Company
determined to use that trademark for and in connection with its Healthy Start
100% juice line. The Company redesigned the labels for its Silver
Foxes(TM)/Healthy Start juice line and relaunched the re-named line during 2000.
However, sales from such relaunched line have been disappointing and the Company
is currently reevaluating this line.
5
In the first quarter of 2000, the Company introduced its Healthy Start
100% juice line in single-serve glass bottles, which was marketed through its
distributor network. However, response from distributors and consumers has been
disappointing and the Company is currently commencing to market this product
line through its warehouse division to selected retail outlets, where such
products may have greater appeal.
Hansen's(R) ready-to-drink iced teas and lemonades were introduced in
1993. Hansen's(R) ready-to-drink iced teas are currently available in three
flavors: Original with Lemon, Tropical Peach and Wildberry. Lemonades are
currently available in one flavor: Original Old Fashioned Lemonade. Hansen's(R)
juice cocktails were introduced in 1994 and are currently available in four
flavors: Kiwi Strawberry Melon, Tangerine Pineapple with Passion Fruit,
California Paradise Punch and Mango Magic. The Company plans to introduce a new
12-pack variety pack of iced teas during the first half of 2001. Hansen's
ready-to-drink iced teas, lemonades and juice cocktails are currently packaged
in 16-ounce non-returnable wide-mouth glass bottles.
Hansen's(R) ready-to-drink iced teas are made with decaffeinated tea.
The Company's other non-carbonated products are made with high quality juices.
Hansen's(R) non-carbonated products (other than its 100% juice products) are
also made with natural flavors, high fructose corn syrup, citric acid and other
ingredients.
After offering a ready-to-drink green tea in a 20-ounce glass bottle,
the Company introduced a full line of Specialty teas in 20-ounce glass bottles,
which it named its "Gold Standard" line. This line was introduced in the
20-ounce glass bottles that were being used by the Company at the time, while
the Company proceeded with the design and manufacture of a new unique
proprietary 20-ounce glass bottle for the line, which was introduced towards the
end of 1999. During 2000, the Company introduced two additional green tea
flavors, as well as two diet green flavors, and six juice cocktails in 20-ounce
bottles. All of the products in the Gold Standard line contain different
combinations of supplements, but at lower levels than in the Company's
functional drinks.
In the third quarter of 1999, the Company introduced two new lines of
children's multi-vitamin juice drinks in 8.45-ounce aseptic packages. Each drink
contains eleven essential vitamins and six essential minerals. Each line was
introduced in three flavors. The Company has since introduced additional flavors
and intends to continue to introduce new flavors in the place of existing
flavors from time to time. One of these two lines is a dual-branded 100% juice
line named "Juice Blast(TM)" that was launched in conjunction with Costco
Wholesale Corporation ("Costco") under the "Kirkland Signature(TM)/Hansen's(R)
Natural" brand name and is sold nationally through Costco stores. The other line
was a 10% juice line named "Juice Slam(TM)" that was available to all of
Hansen's customers. During 2000, the Company repositioned that line as a 100%
juice line under the Juice Slam(TM) name and is currently marketing that line to
grocery store chain customers, the health food trade, and other customers.
In 2000, the Company introduced a new line of nutritional food bars
under the Hansen's(R) brand name. This line is made from grains and fruit. The
Company intends to introduce additional lines of nutritional food bars and, in
particular, a line of functional food bars, during the first half of 2001 and
thereafter. In addition, the Company introduced a new line of premium G.M.O.
free (free from genetically modified organisms) cereals under the Hansen's(R)
brand name.
The Company is actively engaged in the development of additional new
products, including new lines of soy based drinks and sparkling lemonades in
1-liter proprietary glass bottles, which the Company plans to introduce later
this year.
During the third quarter of 2000, the Company introduced a malt-based
drink under the name Hard e, which contains up to five-percent alcohol. The Hard
e product is not marketed under the Hansen's name.
6
Hansen's(R) still water products were introduced in 1993. Hansen's(R)
still water products are primarily sold in 0.5-liter plastic bottles to the food
service trade.
The Company continues to evaluate and, where considered appropriate,
introduce additional flavors and other types of beverages to complement its
existing product lines. The Company will also evaluate, and where considered
appropriate, introduce functional foods/snack foods that utilize similar
channels of distribution and/or are complementary to the Company's existing
products and/or to which the Hansen's(R) brand name is able to add value.
Manufacture, Production and Distribution
The concentrates for Hansen's(R) Natural Sodas, Signature Sodas and
Blue Sky Natural Sodas products are blended at independent production
facilities. In each case, the concentrate is delivered by independent trucking
companies to Hansen's various co-packers, each of which adds filtered water,
high fructose corn syrup or cane sugar or, in the case of the diet sodas,
Splenda(R) brand sweetener, Acesulfame K, citric acid, and carbonation and,
where appropriate, supplements, and packages the products in approved
containers. Hansen's most significant co-packing arrangement is with Southwest
Canning and Packaging, Inc. ("Southwest") pursuant to a contract under which
Southwest packages Hansen's(R) Natural Sodas. This arrangement continues
indefinitely and is subject to termination on 60 days written notice from either
party.
The ingredients for the Company's fruit and grain nutritional food bars
are purchased by the Company's co-packer for manufacturing and packaging of the
finished bars. The Company's cereal products are manufactured for the Company by
an overseas supplier who supplies all of the ingredients therefor.
The Company purchases juices, concentrates, flavors, vitamins,
minerals, nutrients, herbs, supplements and other ingredients for its juice
products, ready-to-drink iced tea, lemonade and juice cocktail products, Gold
Standard specialty tea and juice cocktail line, fruit juice Smoothie products,
functional drinks, Healthy Start juice line and children's multi-vitamin juice
drinks from various producers and manufacturers. Such materials are then
delivered to the Company's various co-packers, who add high fructose corn syrup
and water, for manufacture and packaging of the finished products.
All of the Company's beverage products are co-packed by various
co-packers situated throughout the United States and Canada under separate
arrangements, each of which continue on a month-to-month basis, except for the
arrangement with Southwest which is described above.
The Company has concluded arrangements with certain co-packers and
suppliers in respect of equipment installed at the facilities of such co-packers
and suppliers for the specific purpose of facilitating the production of certain
of the Company's products.
In the Western states, the Company's Natural Sodas, juice products,
iced tea, lemonade, and juice cocktail products and Gold Standard Specialty tea
and juice cocktail line, fruit juice Smoothie products in cans and P.E.T.
bottles, Healthy Start juice line in P.E.T. bottles and children's multi-vitamin
juice drinks are primarily sold to major grocery chain stores and, in certain
instances, to mass merchandisers through food brokers; to club stores, specialty
chain stores and, in certain instances, mass merchandisers directly by Hansen
and to the health food trade through specialty health food distributors. In
Colorado, a licensed distributor is responsible for sales of certain of the
above products. The Company's fruit juice Smoothie products in glass bottles,
functional drinks in 8.2-ounce slim cans, Signature Sodas and Healthy Start
juices in glass bottles are distributed almost exclusively by bottles and/or
distributors that do not distribute other products of the Company. However,
commencing in 2001, Signature Sodas and Healthy Start juices in glass bottles
may be sold to major grocery chain stores, mass merchandisers and club stores,
in certain states and/or counties directly by Hansen's. The nutritional food
bars and cereals will primarily be sold to major grocery chain stores, club
stores, mass merchandisers, and convenience chains through food brokers, and to
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specialty chain stores, directly by Hansen's and to the health food trade
through specialty health food distributors.
Management has secured limited additional co-packing arrangements
outside the West to enable the Company to produce certain of its products closer
to the markets where they are sold and thereby reduce freight costs. As volumes
in markets outside California grow, the Company will secure additional
co-packing arrangements to further reduce freight costs.
The Company's ability to estimate demand is imprecise, particularly
with new products, and may be less precise during periods of rapid growth,
particularly in new markets. If the Company materially underestimates demand for
its products or is unable to secure sufficient ingredients or raw materials
including but not limited to glass, cans or labels, or co-packing arrangements,
it might not be able to satisfy demand on a short-term basis. See also "Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYISIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Although the Company's arrangements for production of its products are
generally of short duration or are terminable upon request, management believes
that (subject to what is stated herein) a short disruption would not
significantly affect the Company's revenues since alternative co-packing
facilities in the United States with adequate capacity can be obtained for most
of its products at commercially reasonable rates, if necessary or desirable,
within a reasonably short time period. However, there are limited co-packing
facilities in the United States with adequate capacity for products in 8.2-ounce
slim cans. There are also limited shrink sleeve labeling facilities available in
the United States with adequate capacity for the Company's Signature Soda line
and Healthy Start line in glass bottles. A disruption in production of any of
such products could significantly affect the Company's revenues from such
products as alternative co-packing facilities in the United States with adequate
capacity may not be available for such products at commercially reasonable
rates, if necessary or desirable, within a reasonably short time period. In
addition, with regard to the Hard e product, while there are many co-packing
facilities in the United States with adequate capacity that could produce such
product, due to regulatory issues it may not be feasible for such product to be
co-packed at alternative co-packaging facilities on short notice. Consequently a
disruption in production of such products could affect the Company's revenues
from such products. The Company is taking measures to secure the availability of
alternative co-packing facilities in the United States or Canada with adequate
capacity for the production of certain of its products to minimize the risk of
any disruption in production.
The Company itself is primarily responsible for marketing its products
(other than its fruit juice Smoothies in glass bottles, functional drinks in
8.2-ounce slim cans, Signature Sodas, Healthy Start juices in glass bottles and
Medicine Man iced teas and drinks in glass bottles) in the United States. The
Company has entered into distribution agreements with distributors to distribute
Smoothies in glass bottles and/or functional drinks in 8.2-ounce slim cans
and/or Signature Sodas in more than 40 states. In many of such states, however,
distribution is only on a limited scale. Certain of the Company's products are
also marketed in Canada, and on a more limited basis, in other countries outside
of the United States, including the United Kingdom, Mexico, Philippines, Guam,
the Caribbean, and the United Arab Emirates. During 2000, sales by the Company
to distributors outside the United States amounted to approximately $753,000.
The Company intends to aggressively expand the distribution of its
products into new markets, both within the United States and abroad.
At the end of 2000, the Company introduced its new line of diet natural
sodas and is currently introducing its new premium line of iced teas and drinks
in glass bottles, under the Medicine Man label. Presentations are currently
being made to grocery store chains to secure their agreement to carry the diet
natural sodas and to the Company's existing distributor network to endeavor to
secure their agreement to distribute the Medicine Man line.
8
The Company is developing a separate network of brokers and
distributors to support the introduction, sale and distribution of the Company's
nutritional food bars and cereals to the health food trade, convenience and drug
store chains, grocery chain stores and mass merchandisers.
The Company is continuing to expand distribution of its products by
seeking to enter into agreements with regional bottlers or other direct store
delivery distributors having established sales, marketing and distribution
organizations. Hansen's licensed bottlers and distributors are affiliated with
and manufacture and/or distribute other soda and non-carbonated brands and other
beverage products. In many cases, such products are directly competitive with
the Company's products. The Company's strategy of licensing regional bottlers to
produce Hansen's(R) Natural Sodas from concentrate provided by the Company, did
not fulfill management's expectations, partly because bottlers preferred to
focus on alternative beverage products having higher margins than sodas.
During 2000, the Company expanded the distribution of its Natural Sodas
and Smoothies in cans into Oregon and Washington. The Company plans to secure
additional distribution of its Natural Sodas and Smoothies in cans in Oregon and
Washington during 2001. In these states, the Company has retained responsibility
for securing sales and providing marketing support. To this end, the Company
appointed a regional sales manager for the northwestern states during 2000.
In 2000, the Company continued to expand its national sales force to
support and grow the sales primarily of functional drinks in 8.2-ounce slim cans
together with Smoothies in glass bottles and Signature Sodas and intends to
continue to build such sales force during 2001.
The Blue Sky(R) Natural Soda products are sold primarily to the health
food trade through specialty health food distributors.
The Hard e malt based drinks are manufactured for HEB by Reflo, Inc.
("Reflo"), pursuant to a manufacturing and distribution agreement dated as of
March 23, 2000 ("Reflo Agreement") which has a term of two years. Under the
terms of the Reflo agreement, Reflo administers the sales and distribution of
such products throughout the United States, excluding California, Nevada and
Oregon where HEB is itself responsible for the sales and distribution of such
products. Reflo, Inc., acting on behalf of HEB and HEB itself, have entered into
distribution agreements with a number of independent distributors to distribute
Hard e in more than twenty-six states. However, in many of such states,
distribution is only now commencing and is on an extremely limited scale.
Management continues to evaluate various alternatives to expand the
distribution of its products into selected new markets.
The principal warehouse and distribution center and corporate offices
of the Company relocated to the Company's current facility in October 2000. The
Company is in the process of consolidating its Ontario, California warehouse
space into its new facility and is taking steps to reduce its inventory levels,
in an endeavor to lower its warehouse and distribution costs. See also "ITEM 2 -
PROPERTIES."
Source and Availability of Raw Materials
The Company purchases beverage flavors, concentrates and supplements
from independent suppliers located in the United States and Mexico, juice, bars
and other ingredients from independent suppliers in the United States and
abroad, and cereals from an independent supplier located abroad.
Suppliers regard flavors as proprietary to them. Consequently, Hansen
does not currently have the list of ingredients or formulae for its flavors and
certain of its concentrates readily available to it and may be unable to obtain
these flavors or concentrates from alternative suppliers on short notice. The
Company has identified alternative suppliers of many of the supplements
contained in its carbonated functional drinks, Smoothies, Healthy Start, Gold
Standard and multi-vitamin juice lines. However, industry-wide shortages of
9
certain supplements have been and could, from time to time in the future, be
experienced, which could interfere with production of certain of the Company's
products.
Management is continuing with its attempts to develop back-up sources
of supply for its flavors and concentrates from other suppliers as well as to
conclude arrangements with suppliers which would enable it to obtain access to
certain concentrate or product formulae in certain circumstances. The Company
has been partially successful in these endeavors.
Hansen's goal is to ensure that all raw materials used in the
manufacture and packaging of the Company's products, including natural sodas,
Signature sodas, functional drinks and non-carbonated drinks and juices,
including, but not limited to, concentrates and juices, high fructose corn
syrup, cane sugar, citric acid, caps, cans, glass bottles, P.E.T. plastic
bottles, aseptic packaging and labels, are readily available from two or more
sources and is continuing its efforts to achieve this goal, although each of
such raw materials are, in practice, usually obtained from single sources.
However, the cans for the Company's functional drinks are only manufactured by
one company in the United States. Additionally, the ability of HEB to have its
Hard e products manufactured and/or distributed by other parties may be
restricted by HEB's agreement with Reflo, Inc. and/or the necessity to obtain
certain regulatory approvals and licenses.
In connection with the development of new products and flavors, the
Company works with independent suppliers who bear a large portion of the expense
of product development, thereby enabling the Company to develop new products and
flavors at relatively low cost. The Company has historically developed and
successfully introduced new products and flavors and packaging for its products
and currently anticipates developing and introducing additional new beverage and
food products and flavors.
Competition
The beverage industry is highly competitive. The principal areas of
competition are pricing, packaging, development of new products and flavors and
marketing campaigns. The Company's products compete with traditional soft drinks
(cola and non-cola), and alternative beverages, including new age beverages and
ready-to-drink iced teas, lemonades and juice cocktails and energy drinks as
well as juices and juice drinks and nectars produced by a relatively large
number of manufacturers, most of which have substantially greater financial and
marketing resources than Hansen.
The Company's functional energy drink competes directly with Red Bull,
Red Devil, Lipovitan, MET-Rx, Hype, XTC, Adrenaline Rush, 180 and KMX and many
other brands and its other functional drinks compete directly with Elix,
Lipovitan, MET-Rx, Think, Sobe Essentials and other brands. The "functional"
beverage category is in its infancy and increased competition is anticipated
within a relatively short period of time. A number of companies who market and
distribute iced teas and juice cocktails in larger volume packages, such as 16-
and 20-ounce glass bottles, including Sobe, Snapple Elements and Arizona, have
added, or are in the process of adding, supplements to their products with a
view to marketing their products as "functional" beverages or as having
functional benefits. However, many of those products are believed to contain low
levels of supplements and principally deliver refreshment. In addition, many of
the competitive products are positioned differently than the Company's
functional drinks. The Company's functional Smoothies and Gold Standard lines
are positioned more closely against those products.
For its Natural Sodas, Smoothies, functional drinks and Signature sodas
as well as other products, Hansen competes not only for consumer acceptance, but
also for maximum marketing efforts by multi-brand licensed bottlers, brokers and
distributors, many of which have a principal affiliation with competing
companies and brands. The Company's products compete with all liquid
refreshments and with products of much larger and substantially better financed
competitors, including the products of numerous nationally and internationally
known producers such as The Coca Cola Company, PepsiCo, Inc., Cadbury Schwepps,
which includes Dr. Pepper/Seven-up, RC Cola, Snapple, Mistic and Stewart's
brands, Nestle Beverage Company, The Quaker Oats Company and Ocean Spray. More
10
specifically, the Company's products compete with other alternative beverages,
including new age beverages, such as Snapple, Mistic, Arizona, Clearly Canadian,
Sobe, Stewart's, Everfresh, Nantucket Nectars, Kerns Nectars, Mistic, VeryFine,
V8 Splash, Calistoga, Red Bull, MET-Rx, Adrenaline Rush, 180, KMX and Crystal
Geyser brands. Due to the rapid growth of the alternative beverage segment of
the beverage marketplace, certain large companies such as The Coca Cola Company
and PepsiCo, Inc. have introduced products in that market segment which compete
directly with the Company's products such as Nestea, Fruitopia, Lipton, Ocean
Spray and Dole. The Company's products also compete with private label brands
such as those carried by grocery store chains and club stores. Important factors
affecting Hansen's ability to compete successfully include taste and flavor of
products, trade and consumer promotion, rapid and effective development of new,
unique, cutting edge products, attractive and different packaging, brand and
product advertising and pricing. Hansen must also compete for distributors who
will concentrate on marketing the Company's products over those of Hansen's
competitors provide stable and reliable distribution and secure adequate shelf
space in retail outlets. Competitive pressures in the alternative and functional
beverage categories could cause the Company's products to lose market share or
experience price erosion, which could have a material adverse effect on Hansen's
business.
The Company's fruit juice Smoothies compete with Kern's nectars in the
Western states and Libby's in the Eastern states and Whipper Snapple, Mistic and
Nantucket Nectars nationally and also with single serve juice products produced
by many competitors. Such competitive products are packaged in glass and P.E.T.
bottles ranging from 8- to 20-ounces in size and in 11.5-ounce aluminum cans.
The juice content of such competitive products ranges from 1% to 100%.
The Company's apple and other juice products compete directly with Tree
Top, Mott's, Martinelli's, Welsh's, Ocean Spray, Minute Maid, Langers, Wildland,
Apple and Eve, Seneca, Northland and also with other brands of apple juice and
juice blends, especially store brands. The Company's Healthy Start line competes
with Langer's, V8 Splash, Knudsen, Nantucket Nectars, Wildland and other juice
products. The Company's still water products compete directly with Evian,
Crystal Geyser, Naya, Palomar Mountain, Sahara, Arrowhead, Aquafina, Dannon, and
other brands of still water especially store brands.
The nutritional food bar and cereal categories as well as flavored
malt-based drink categories are also highly competitive. Principal areas of
competition are pricing, packaging, development of new product and flavors and
marketing campaigns. The Company's cereals compete with traditional cereals of
companies such as Kellogg's, General Mills and Kashi and the Company's
nutritional food bars compete with products of other independent bar companies
such as Power Bar, Balance Bar, Gatorade, Kashi, Cliff Bar, MET-Rx, and numerous
other bars. HEB's Hard e product competes with wine coolers, such as Seagram's
and Bartles and James and flavored low alcohol beverages such as Mike's Hard
Lemonade, Hooper's Hooch, Doc Otis Hard Lemon, Smirnoff Ice, Zima and Rick's
Spiked Lemonade and other flavored malt and alcohol based drinks. Many of these
products are produced by large national and international manufacturers, most of
which have substantially greater financial and marketing resources than
Hansen's. Such companies include Anhaeuser Busch, Coors, Gallo Winery, Diageo
plc, etc.
Important factors affecting Hansen's ability to compete successfully
include taste and flavor of products, trade and consumer promotions, rapid and
effective development of new, unique cutting edge products, attractive and
different packaging, branded product advertising and pricing. Hansen also
competes for distributors who will concentrate on marketing the Company's
products over those of Hansen's competitors provide stable and reliable
distribution and secure adequate shelf space in retail outlets. Competitive
pressures in the cereal, nutritional food bar and flavored malt beverage
categories could cause the Company's products to be unable to gain or to lose
market share or experience price erosion, which could have a material adverse
affect on Hansen's business.
11
Marketing
Hansen's marketing strategy is to focus on consumers who seek products
that are perceived to be natural and healthy. To attract these consumers, the
Company emphasizes the natural ingredients and the absence of preservatives,
sodium, artificial coloring and caffeine in the Company's beverages (other than
the Company's functional energy, stamina(R) and power drinks which do contain
caffeine) and the addition to most of its products, of one or more supplements.
This message is reinforced in the product packaging, the majority of which was
redesigned in 2000. The regular wholesale price of Hansen's(R) Natural Sodas in
cans is slightly higher than mainstream soft drinks such as Coca-Cola and Pepsi,
although generally lower than the prices of the products of many competitors in
the new age category. In its marketing, Hansen emphasizes its high quality
"natural" image and the fact that its soda products contain no preservatives,
sodium, caffeine or artificial coloring. The regular wholesale price of the
Company's iced teas, lemonades and juice cocktails, including its Gold Standard
line, is comparable to or slightly lower than that of competitive non-carbonated
beverages marketed under the Snapple, Sobe, Arizona, Mistic, Lipton, Nestea,
Fruitopia, Ocean Spray and Nantucket Nectar brands. In its marketing, Hansen
emphasizes the high quality natural and healthy image of its products. The
regular wholesale price of the Company's fruit juice Smoothie products is
similar to that of Kern's nectars. Without abandoning its natural and healthy
image, the Company launched a lightly carbonated energy drink in 8.2-ounce slim
cans, containing certain supplements, to appeal to the young and active segment
of the beverage market that desires an energy boost from its beverage selection.
The Company has since launched five additional lightly carbonated functional
drinks, namely, stamina(R), d-stress(R), anti-ox(R) (since renamed b-well(TM)),
power(TM) and slim-down. The supplements contained in each of the functional
drinks are intended to provide specific but different functional benefits to the
consumers of each of such products. Hansen's marketing strategy with respect to
its nutritional food bars and cereals is similarly to focus on consumers who
seek bars and cereals that are perceived to be natural and healthy. To attract
these consumers, the Company emphasizes the natural ingredients and the absence
of preservatives and, in the case of the cereals, the fact that they are
G.M.O.-free. HEB's marketing strategy with respect to its Hard e product is to
focus on adult consumers who seek an alcohol-based beverage that is good
tasting, fashionable and meets consumers' needs.
To cater to consumers, who purchase juices in multi-serve sizes and
perceive the inclusion of supplements therein to be of added value, the Company
launched its Healthy Start line of 100% juices in 1998. Although marketed in
larger multi-serve packages that are appropriate for grocery store chains, club
stores, specialty chains and health food stores, the positioning of these
products is similar to the Company's lightly carbonated functional drinks in
8.2-ounce slim cans. To distinguish these products from those of competitors,
each label indicates the function of the product, in addition to listing the
supplements contained therein. As stated above, following the conclusion of a
licensing agreement by the Company with the Silver Foxes Network, the Company
had the labels for its Silver Foxes(TM)/Healthy Start 100% juice line
redesigned. The new renamed line, which was targeted at the 50+ age group, was
relaunched during 2000. However, sales of this line were disappointing and the
Company is currently reevaluating this line. During the year, the Company also
introduced its Healthy Start 100% line in single serve 12-ounce glass bottles,
through its distributor network. Sales of this line did not meet expectations
and the Company is in the process of repositioning the distribution of this
product line. In this regard, the Company plans to market these products
directly through its warehouse division with focus on the health food trade and
specialty retail stores.
According to Roche Vitamins, very few American children meet all of the
recommendations of the Food Guide Pyramid. In 1999, the Company introduced a new
line of children's multi-vitamin juice drinks in 8.45-ounce aseptic packaging.
These products are positioned to assist parents improve the daily intake by
their children of essential vitamins and minerals.
The Company's sales and marketing strategy is to focus its efforts on
developing brand awareness and trial through sampling both in stores and at
events in respect to all its beverage, food and alcoholic beverage products. The
Company intends to continue to place increased emphasis on product sampling and
12
participating in direct promotions. The Company proposes to continue to use its
branded vehicles, PT Cruisers and other promotional vehicles at events at which
the Company's products, including its fruit juice smoothies, natural sodas and
functional energy drinks will be distributed to consumers for sampling. Hansen
utilizes "push-pull" tactics to achieve maximum shelf and display space exposure
in sales outlets and maximum demand from consumers for its products including
advertising, in store promotions and point of sale materials, prize promotions,
price promotions, competitions, endorsements from selected public figures,
coupons, sampling and sponsorship of selected sports figures as well as sporting
events such as marathons, 10k runs, bicycle races, volleyball tournaments and
other health- and sports-related activities, including extreme sports, and also
participates in product demonstrations, food tasting and other related events.
Posters, print, radio and television advertising together with price promotions
and coupons are also used extensively to promote the Hansen's(R) brand.
Management increased expenditures for its sales and marketing programs
by approximately 18% in 2000 compared to 1999.
While the Company retains responsibility for the marketing of the Juice
Slam(TM) line of children's multi-vitamin juice drinks, Costco has undertaken
sole responsibility for the marketing of the co-branded Juice Blast(TM) line.
The Company intends to support its planned expansion of distribution
and sale of its functional drinks in 8.2-ounce slim cans, Smoothie products in
glass bottles, Signature Sodas, Healthy Start juices in glass bottles, and
Medicine Man iced teas and drinks in glass bottles, through the in-store
placement of point-of-sale materials, use of glide racks, suction cup racks and
a proprietary rolling rack for its functional drinks, co-operative trade
marketing with customers and by attending and sponsoring many sporting events,
including extreme sports and selected sports figures and through endorsements
from selected public and sports figures, through focused radio campaigns and by
developing local marketing programs in conjunction with its distributors in
their respective markets. By enlisting its distributors as participants in its
marketing and advertising programs, Hansen intends to create an environment
conducive to the growth of both the Hansen's(R) brand and the businesses of its
distributors.
In January 1994, the Company entered into an agreement with a barter
company for the exchange of certain inventory for future advertising and
marketing credits. The Company assigned a value of $490,000 to these credits
based on the net realizable value of the inventory exchanged. As of December 31,
2000, unused advertising and marketing credits totaled $111,000. Although such
credits remain available for use by the Company through January 2002, management
was unable to estimate their remaining net realizable value at December 31,
1997. Accordingly, in the year ended December 31, 1997, the Company fully
reserved against and expensed such advertising and marketing credits.
Management continues to believe that one of the keys to success in the
beverage industry is differentiation; making Hansen's(R) products clearly
distinctive from other beverages on the shelves of retailers. Management is of
the view that the same keys to success apply to its nutritional food bars and
cereals and Hard e products. The Company reviews its products and packaging on
an ongoing basis and, where practical, endeavors to make them different, better
and unique. The labels and graphics for the Company's juice products, Natural
Sodas and Smoothie products were redesigned in an endeavor to develop a new
system to maximize their visibility and identification, wherever they may be
placed in stores.
Customers
Retail and specialty chains, and club stores represented 56% of
Hansen's sales in the year ended December 31, 2000 and 58% in the year ended
December 31, 1999, while the percentage of sales to distributors (primarily of
Hansens(R) functional drinks in 8.2-ounce slim cans, Smoothies in glass bottles
and Signature Sodas) in the year ended December 31, 2000, was 33%, about the
same as in the previous year.
13
Hansen's major customers in 2000 included Costco, Trader Joe's, Sam's
Club, Lucky, Vons, Ralph's, Wal-Mart and Albertson's. One customer accounted for
approximately 23%, 25% and 27% of the Company's sales for the years ended
December 31, 2000, 1999 and 1998, respectively. A decision by that or any other
major customer to decrease the amount purchased from the Company or to cease
carrying the Company's products could have a material adverse effect on the
Company's financial condition and consolidated results of operations.
Seasonality
Hansen normally experiences greater sales and profitability during its
second and third fiscal quarters (April through September). The consumption of
beverage products fluctuates in part due to temperature changes with the
greatest consumption occurring during the warm months. During months where
temperatures are abnormally warm or cold, consumption goes up or down
accordingly. Similarly, consumption is affected in those regions where
temperature and other weather conditions undergo dramatic changes with the
seasons. Management anticipates that the sale of the Company's products may
become increasingly subject to seasonal fluctuations as more sales occur outside
of California in areas where weather conditions are intemperate. Sales of the
Company's juice products, functional drinks and children's multi-vitamin juice
drinks are likely to be less affected by such factors. Similarly, sales of the
Company's nutritional food bars and cereals are likely to be less affected by
such factors. However, as the Company has not had experience with such products,
it is unable to predict the likely sales trend of such products with any degree
of accuracy.
Trademark
The Hansen's(R) trademark is crucial to the Company's business. This
trademark is registered in the U.S. Patent and Trademark Office and in various
countries throughout the world. The Hansen's(R) trademark is owned by a trust
(the "Trust") which was created by an agreement between HBC and the predecessor
company of Fresh Juice Company of California ("FJC") (the "Agreement of Trust").
The Trust licensed to HBC in perpetuity on an exclusive world-wide royalty-free
basis the right to use the Hansen's(R) trademark in connection with the
manufacture, sale and distribution of carbonated beverages and waters and shelf
stable fruit juices and drinks containing fruit juices. In addition, the Trust
licensed to HBC, in perpetuity, on an exclusive world-wide basis, the right to
use the Hansen's(R) trademark in connection with the manufacture, sale and
distribution of certain non-carbonated beverages and water in consideration of
royalty payments. A similar license agreement exists between the Trust and HBC
with regard to non-beverage products. No royalties are payable on sodas, juices,
lemonades, juice cocktails, fruit juice Smoothies, the Signature Soda line or on
the children's multi-vitamin juice drinks. Royalty expenses of $12,000 were
incurred in 1999. As explained below, no royalty expenses were incurred during
2000.
HBC, FJC's predecessor and the Trust also entered into a Royalty
Sharing Agreement pursuant to which royalties payable by third parties procured
by FJC or its predecessor or HBC are initially shared between the Trust and HBC
and, after a specified amount of royalties have been received, are shared
equally between HBC and FJC. Under the terms of the Agreement of Trust, FJC
receives royalty income paid to the Trust in excess of Trust expenses and a
reserve therefor.
Effective September 22, 1999, HBC entered into an Assignment and
Agreement with FJC pursuant to which HBC acquired exclusive ownership of the
Hansen's(R) trademark and trade names. Under the Assignment and Agreement, among
other matters, HBC acquired all FJC's rights as grantor and beneficiary of the
Trust, all FJC's rights as licensee under certain license agreement pursuant to
which FJC has the right to manufacture, sell and distribute fresh juice products
under the Hansen's(R) trademark and all FJC's rights under the Royalty Sharing
Agreement referred to above, as well as certain additional rights, for a total
consideration of $775,010, payable over three years. FJC is permitted to
continue to manufacture, sell and distribute fresh juice products under the
Hansen's(R) trademark for a period of five years. Consequently, HBC now has full
ownership of the Hansen's(R) trademark and its obligation to pay royalties to,
14
and to share royalties with, FJC has been terminated. As of December 31, 2000, a
balance of $287,500 was payable to FJC.
The Company has applied to register a number of trademarks in the
United States including, but not limited to, THE REAL DEAL(TM), IMMUNEJUICE(TM),
Hansen's energy(TM), Hansen's power(TM), Hansen's Natural Multi-Vitamin Juice
Slam(TM), Defense(TM), Powerpack(TM), Medicine Man(TM), b-well(TM), Hard e(TM),
Hard Energy(TM), and A New Kind a Buzz(TM).
The Company owns in its own right, a number of trademarks including,
but not limited to, LIQUIDFRUIT(R), Imported from Nature(R), California's
Natural Choice(R), California's Choice(R), Dyna Juice(R), Equator(R),
be-well(R), anti-ox(R), d-stress(R), stamina(R), Aqua Blast(R), Antioxjuice(R)
Intellijuice(R) and Juice Blast(R) in the United States and the Hansen's(R) and
"Smoothie(R)" trademarks in a number of countries around the world.
In September 2000, in connection with the acquisition of the Blue Sky
Natural Beverage business, the Company, through its wholly owned subsidiary Blue
Sky, acquired the Blue Sky(R) trademark, which is registered in the United
States and Canada.
On April 4, 2000, the United States Patent and Trademark Office issued
a patent to the Company for an invention related to a shelf structure (rolling
rack) and, more particularly, a shelf structure for a walk-in cooler. Such shelf
structure is utilized by the Company to secure shelf space for and to
merchandise its functional drinks in 8.2-ounce slim cans in refrigerated Visi
coolers and walk-in coolers in retail stores.
Government Regulation
The production and marketing of beverages are subject to the rules and
regulations of the United States Food and Drug Administration (the "FDA") and
other federal, state and local health agencies. The FDA also regulates the
labeling of containers including, without limitation, statements concerning
product ingredients.
In connection with Hard e, the production and marketing of alcoholic
beverages are subject to the rules and regulations of the Bureau of Alcohol,
Tobacco and Firearms and in each state, are also subject to the rules and
regulations of state regulatory agencies. The Bureau of Alcohol, Tobacco and
Firearms and state regulatory agencies also regulate the labeling of containers
containing alcoholic beverages including, without limitation, statements
concerning product name and ingredients as well as advertising and marketing, in
connection therewith.
Employees
As of March 2, 2001, Hansen employed a total of 107 employees, 100 of
whom are employed on a full-time basis. Of Hansen's 107 employees, 34 are
employed in administrative and quality control capacities and 73 are employed in
sales and marketing capacities.
Compliance with Environmental Laws
The operation of Hansen's business is not materially affected by
compliance with federal, state or local environmental laws and regulations. In
California, Hansen's is required to collect deposits from its customers and to
remit such deposits to the State of California Department of Conservation based
upon the number of cans and bottles of certain of its carbonated and
non-carbonated products sold. In certain other states and Canada where Hansen(R)
products are sold, the Company is also required to collect deposits from its
customers and to remit such deposits to the respective conservation agencies
based upon the number of cans and bottles of certain of its carbonated and
non-carbonated products, sold in such states.
15
ITEM 2. PROPERTIES
Hansen's corporate offices and main warehouse are located in a single
building at 1010 Railroad Street, Corona, California 92882. This facility is
leased by HBC for a period of ten years commencing October 20, 2000. The gross
area of the facility is approximately 113,600 square feet. The monthly rental
payments, according to the terms of the lease, are subject to increase during
the third, sixth and eighth years. HBC also utilizes public warehouses situated
throughout the United States and Canada.
ITEM 3. LEGAL PROCEEDINGS
Towards the end of 1998, HBC, together with the Trustee of the Hansen
Trust, commenced arbitration proceedings before the American Arbitration
Association in Los Angeles, California, against FJC, the former Trustees of the
Trust, and a company called Hansen's Juice Creations LLC ("Creations"), in which
HBC and the Trustee claimed, among other matters: (i) that certain acts of the
former Trustees of the Trust constituted breach of trust; (ii) a certain license
agreement purportedly entered into between the former Trustees of the Trust and
Creations (the "Purported Agreement") was, in whole or in part, void or
terminable by the Trust; and (iii) certain acts of Creations constituted
infringement of the Hansen's(R) trademark and certain acts of FJC constituted
contributory infringement of the Hansen's(R) trademarks. HBC and the Trustee
sought damages and injunctive relief against FJC and Creations. Such proceedings
were settled in September 1999. Pursuant to written settlement agreements among
the various parties to such proceedings, the Purported Agreement was terminated
by mutual consent, the right of the successor to Creations to use the
Hansen's(R) trademark on limited, but clearly defined, fresh juice products, was
clarified and agreed upon, and certain other matters relating to and concerning
the use of the Hansen's(R) trademark, were resolved.
During 2000, the Company commenced arbitration proceedings against
Sammy Sosa before the American Arbitration Association in Orange County, for the
repayment by Mr. Sosa to the Company of the sum of $175,000 which was paid to
Mr. Sosa, by virtue of Mr. Sosa's failure to perform his obligations in terms of
his agreement with the Company. Mr. Sosa has filed a counter claim against the
Company seeking damages approximating $2.8 million. The Company believes that
Mr. Sosa's counter-claim has no factual or legal basis whatsoever and is
completely unmeritorious. A hearing has not yet taken place in the arbitration.
Late in 2000, Rhonda Morris filed a complaint in the Superior Court for
the State of California, County of San Francisco against the Company, in which
she claims sexual harassment by an employee of the Company in connection with an
alleged denial of employment to her and in which she seeks unspecified monetary
damages. The Company has removed the complaint to the United States District
Court for the Northern District of California. The Company believes the claim is
without merit and is defending the claim.
In March 2001, the Company filed a complaint in Federal Court for the
Central District of California against South Beach Beverage Company LLC
("Sobe"), for patent infringement, violation of trademark rights, false
advertising, unfair competition, trespass to chattels and tortious interference
with business relations arising from Sobe's unlawful conduct and unauthorized
use of the Company's property and the patent held by the Company in respect of
its rolling rack shelf structure, Sobe's improper business practices,
interference with the Company's right to conduct its business, injunctive relief
and unspecified monetary damages.
The Company is subject to, and involved in, claims and contingencies
related to lawsuits, arbitration proceedings, and other matters arising out of
the normal course of business. The ultimate liability associated with such
claims and contingencies, including those mentioned above, is not likely to have
a material adverse effect on the financial condition of the Company.
16
Except as described above, there are no material pending legal
proceedings to which the Company or any of its subsidiaries is a party or to
which any of the properties is subject, other than ordinary and routine
litigation incidental to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on November
3, 2000. At the meeting, the following individuals were elected as directors of
the Company and received the number of votes set opposite their respective
names:
Votes For
Rodney C. Sacks 8,514,511
Hilton H. Schlosberg 8,514,611
Benjamin M. Polk 8,514,611
Norman C. Epstein 8,514,461
Harold C. Taber, Jr. 8,514,611
Mark S. Vidergauz 8,514,611
In addition, at the meeting the stockholders of the Company ratified
the appointment of Deloitte & Touche LLP as independent auditors of the Company
for the year ended December 31, 2000, by a vote of 8,510,325 for, 4,555 against
and 10,782 abstaining.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Principal Market
The Company's Common Stock began trading in the over-the-counter market
on November 8, 1990 and is quoted on the NASDAQ Small-Cap Market under the
symbol "HANS". As of March 2, 2001, there were 10,045,003 shares of the
Company's Common Stock outstanding held by approximately 659 holders of record.
17
Stock Price and Dividend Information
The following table sets forth high and low bid closing quotations for
the Common Stock,on a quarterly basis from January 1, 1998 to December 31, 2000:
Common Stock
High Bid Low Bid
Year Ended December 31, 2000
First Quarter $ 4 5/8 $ 4
Second Quarter $ 4 1/2 $ 3 13/32
Third Quarter $ 5 29/32 $ 4 1/8
Fourth Quarter $ 5 3/8 $ 3 1/4
Year Ended December 31, 1999
First Quarter $ 5 5/8 $ 3 7/16
Second Quarter $ 5 1/2 $ 3 5/8
Third Quarter $ 5 5/8 $ 4 5/16
Fourth Quarter $ 5 1/8 $ 3 7/8
Year Ended December 31, 1998
First Quarter $ 2 9/16 $ 1 15/32
Second Quarter $ 4 3/4 $ 2 3/8
Third Quarter $ 6 13/16 $ 3 3/4
Fourth Quarter $ 6 17/32 $ 2 15/16
The quotations for the Common Stock set forth above represent bid
quotations between dealers, do not include retail markups, mark-downs or
commissions and bid quotations may not necessarily represent actual transactions
and "real time" sale prices. The source of the bid information is the NASDAQ
Stock Market, Inc.
Hansen has not paid dividends to its stockholders since its inception
and does not anticipate paying dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of operations data set forth below with
respect to each of the years ended December 31, 1996 through 2000 and the
balance sheet data as of December 31, for the years indicated, are derived from
the consolidated financial statements audited by Deloitte & Touche LLP,
independent certified public accountants, and should be read in conjunction with
those financial statements and notes thereto included elsewhere in this and in
the 1996, 1997, 1998 and 1999 Forms 10-K.
18
(in thousands, except per
share information)
2000 1999 1998 1997 1996
- --------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
Net sales $ 79,733 $ 72,303 $ 53,866 $ 43,057 $ 35,565
Net income $ 3,915 $ 4,478 $ 3,563 $ 1,250 $ 357
Net income per
common share
Basic $ 0.39 $ 0.45 $ 0.38 $ 0.14 $ 0.04
Diluted $ 0.38 $ 0.43 $ 0.34 $ 0.13 $ 0.04
Total assets $ 38,745 $ 28,709 $ 22,557 $ 16,933 $ 16,109
Long-term debt $ 9,732 $ 903 $ 1,335 $ 3,408 $ -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
During 2000, the Company continued to expand its existing product lines
and further develop its markets. In particular, the Company continues to focus
on developing and marketing beverages that fall within the category generally
described as the "functional" beverage category.
The Company achieved record sales in 2000. The increase in sales in
2000 was primarily attributable to the growth in sales of the Company's
functional drinks in 8.2-ounce slim cans, as well as increased sales of the
children's multi-vitamin juice drinks in 8.45-ounce aseptic packaging and
increased sales of apple juice and natural sodas as well as sales of Blue Sky
Natural Sodas since the acquisition by the Company of that brand. The increase
in sales was partially offset by decreased sales of Smoothies and the Company's
Silver Foxes juice line as well as lower sales of iced teas, lemonades and juice
cocktails and Signature Sodas. Despite such changes in the Company's product
mix, the gross profit percentage achieved by the Company in 2000 was marginally
higher than the gross profit percentage achieved in 1999.
During 2000, sales outside of California represented 37% of the
aggregate sales of the Company, as compared to approximately 39% of the
aggregate sales of the Company in 1999. Sales to distributors outside the United
States during 2000 amounted to $753,000 compared to $800,000 in 1999.
During 2000, the Company introduced slim-down, its sixth functional
drink in 8.2-ounce slim-cans. slim-down is a berry-flavored drink that has no
calories. During the year, the Company introduced two additional Smoothie
flavors in 11.5-ounce. cans: Whipped Orange and Cranberry Twist. The Company
also extended its Smoothie line in 64-ounce P.E.T. plastic bottles from two
flavors to six flavors. In the first quarter of 2000, the Company introduced its
Healthy Start 100% juice line in single serve glass bottles, which it marketed
through its distributor network. However, response from customers and consumers
was disappointing and in consequence the Company has decided to market that line
through its warehouse division to selected retail outlets where such products
may have greater appeal. The Company also introduced two additional Green Tea
flavors as well at two diet Green Tea flavors and six juice cocktails in the
same 20-ounce glass bottle as its "Gold Standard" Green Tea and Specialty Teas.
Each of the products in the "Gold Standard" line contain different combinations
of supplements.
19
The Company also entered the functional foods market in 2000 with the
introduction of a line of fruit and grain nutritional food bars and commenced
test marketing a line of G.M.O.-free gourmet cereals. The Company intends to
expand its nutritional food bar business with the introduction of functional
food bars in 2001 as well as additional nutritional food bars later in 2001.
During 2000, the Company entered into a license agreement with the
Silver Foxes Network for the licensing to the Company of the Silver Foxes(TM)
brand and trademark, which is positioned towards consumers in the 50+ age group,
for and in connection with certain of the Company's products. The Company
determined to use that trademark for and in connection with its Healthy Start
100% juice line. The Company had the labels for its Health Start juice line
redesigned under the Silver Foxes brand and trademark and relaunched the new
re-named line during the year. However, sales of the Company's Silver Foxes
juice line were disappointing and the Company is currently reevaluating this
line.
Sales of the Company's dual-branded 100% juice line named "Juice
Blast(R)", which was launched in conjunction with Costco under the "Kirkland
Signature(TM)/Hansen's(R) Natural" brand name and is sold nationally through
Costco stores, were satisfactory. The Company has, in conjunction with Costco,
introduced new flavors in place of certain of the existing flavors and will
continue to introduce new flavors in an effort to ensure that its variety pack
remains fresh and different for consumers.
During 2000, the Company repositioned its Juice Slam(TM) line as a 100%
juice line. The Company is currently marketing this line to grocery store
chains, specialty chains, the health food trade and other customers directly
through its warehouse division.
On September 20, 2000 the Company, through its wholly owned subsidiary
Blue Sky, acquired the Blue Sky Natural Soda business. The Blue Sky Natural Soda
brand is the leading natural soda in the health food trade. Blue Sky offers
natural sodas, premium natural sodas with added ingredients such as Ginseng and
anti-oxidant vitamins, organic sodas and seltzers in 12-ounce cans.
The Company is currently launching a new premium line of iced teas and
drinks with a unique theme under the Medicine Man label, in proprietary glass
bottles. This line will initially be introduced in four flavors.
At the end of 2000, the Company launched a new line of diet sodas in
four flavors: Peach, Black Cherry, Kiwi-Strawberry, and Tangerine Lime. These
products are sweetened with Splenda(R) brand sweetener and Acesulfame K and are
aspartame free. Initial response from both customers and consumers to this line
has been extremely encouraging.
During 2000, the Company entered into several new distribution
agreements for the sale of its products, both within and outside the United
States. As discussed under "ITEM 1 BUSINESS - MANUFACTURE, PRODUCTION and
DISTRIBUTION", it is anticipated that the Company will continue building its
national sales force in 2001 to support and grow the sales of its products.
Further, during 2000, the Company, through its wholly owned subsidiary,
HEB, introduced a malt-based beverage called Hard e, which contains up to 5%
alcohol. The Hard e product will not be marketed under the Hansen's name.
The Company is actively engaged in the development of additional new
products, including new lines of soy-based drinks and sparkling lemonades in
1-liter proprietary glass bottles.
The Company continues to incur expenditures in connection with the
development and introduction of new products and flavors.
20
Results of Operations for the Year Ended December 31, 2000 Compared to the Year
Ended December 31, 1999
Net Sales. For the year ended December 31, 2000, net sales were $79.7
million, an increase of $7.4 million or 10.3% over the $72.3 million net sales
for the year ended December 31, 1999. The increase in net sales was primarily
attributable to increased sales of the Company's energy and other functional
drinks in 8.2-ounce slim cans and increased sales of the Company's new
children's multi-vitamin juice drinks. To a lesser extent, the increase in net
sales was also attributable to increased sales of apple juice and Natural Sodas
and sales of Healthy Start in glass bottles as well as Blue Sky Natural Sodas
since the acquisition by the Company of that brand in September 2000. The
increase in net sales was partially offset by decreases in sales of the Silver
Foxes juice line, Smoothies in cans, glass and P.E.T. bottles, Signature Sodas
and iced teas, lemonades and juice cocktails.
Gross Profit. Gross profit was $37.1 million for the year ended
December 31, 2000, an increase of $3.6 million or 10.6% over the $33.5 million
gross profit for the year ended December 31, 1999. Gross profit as a percentage
of net sales increased marginally to 46.5% for the year ended December 31, 2000
from 46.4% for the year ended December 31, 1999. The increase in gross profit
was primarily attributable to increased net sales. The increase in gross profit
as a percentage of net sales is primarily attributable to slightly higher
margins achieved as a result of a change in the Company's product mix.
Total Operating Expenses. Total operating expenses were $30.2 million
for the year ended December 31, 2000, an increase of $4.2 million or 16.0% over
total operating expenses of $26.0 million for the year ended December 31, 1999.
Total operating expenses as a percentage of net sales increased to 37.9% for the
year ended December 31, 2000, from 36.0% for the year ended December 31, 1999.
The increase in total operating expenses was primarily attributable to increased
selling, general and administrative expenses and was partially offset by a
decrease in other operating expenses. The increase in total operating expenses
as a percentage of net sales was primarily attributable to the increase in net
sales and the comparatively larger increase in selling, general and
administrative expenses.
Selling, general and administrative expenses were $29.8 million for the
year ended December 31, 2000 an increase of $4.5 million or 17.7% over selling,
general and administrative expenses of $25.3 million for the year ended December
31, 1999. Selling, general and administrative expenses as a percentage of net
sales increased to 37.4% for the year ended December 31, 2000 from 35.0% for the
year ended December 31, 1999. Selling expenses were $20.8 million for the year
ended December 31, 2000, an increase of $3.0 million or 16.7% over selling
expenses of $17.8 million for the year ended December 31, 1999. Selling expenses
as a percentage of net sales increased to 26.0% for the year ended December 31,
2000 from 24.6% for the year ended December 31, 1999. The increase in selling
expenses was primarily attributable to increased promotional expenditures,
distribution (freight) expenses, expenditures for merchandise displays and point
of sale materials, as well as fees paid for slotting. The increase in selling
expenses was partially offset by a decrease in expenditures for in-store
demonstrations. General and administrative expenses were $9.0 million for the
year ended December 31, 2000, an increase of $1.5 million or 19.9% over general
and administrative expenses of $7.5 million for the year ended December 31,
1999. General and administrative expenses as a percentage of net sales increased
to 11.4% for the year ended December 31, 2000 from 10.4% for the year ended
December 31, 1999. The increase in general and administrative expenses was
primarily attributable to increased payroll costs and certain other expenses
incurred in connection with product development and expansion activities into
additional states.
Amortization of trademark license and trademarks was $371,000 for the
year ended December 31, 2000, an increase of $63,000 over amortization of
trademark license and trademarks of $308,000 for the year ended December 31,
1999. The increase in amortization of trademark license and trademarks was
primarily attributable to the acquisition of the Blue Sky trademark, which was
acquired during 2000 and is being amortized over a period of 40 years.
No other operating expenses were incurred for the year ended December
31, 2000 as compared with $380,000 in other operating expenses incurred for the
21
year ended December 31, 1999. Other operating expenses incurred in 1999 were
primarily attributable to expenses incurred in connection with a proposed
business combination that was not completed.
Operating Income. Operating income was $6.9 million for the year ended
December 31, 2000, compared to $7.5 million for the year ended December 31,
1999. The $601,000 decrease in operating income was primarily attributable to
increased operating expenses, which was partially offset by increased gross
profit.
Net Non-operating Expense. Net non-operating expense was $369,000 for
the year ended December 31, 2000, which was $317,000 higher than net
non-operating expense of $52,000 for the year ended December 31, 1999. Net
non-operating expense consists of interest and financing expense and interest
income. Interest and financing expense for the year ended December 31, 2000, was
$382,000 as compared to $171,000 for the year ended December 31, 1999. The
increase in interest and financing expense was primarily attributable to the
increase in long-term debt, primarily related to the acquisition of the Blue Sky
business. See also "Liquidity and Capital Resources" below. Interest income for
the year ended December 31, 2000 was $13,000, as compared to interest income of
$118,000 for the year ended December 31, 1999. The decrease in interest income
was primarily attributable to a reduction in the cash available for investment
during the year ended December 31, 2000.
Provision for Income Taxes. Provision for income taxes for the year
ended December 31, 2000 was $2.6 million as compared to provision for income
taxes of $3.0 million for the year ended December 31, 1999. The effective
combined federal and state tax rate for 2000 was 40.1% as compared to 39.9% for
1999. The decrease in the provision for income taxes was primarily attributable
to decreased operating income.
Net Income. Net income was $3.9 million for the year ended December 31,
2000, compared to $4.5 million for the year ended December 31, 1999. The
$563,000 decrease in net income was attributable to decreased operating income
of $601,000 and increased non-operating expense of $317,000, which was partially
offset by decreased provision for income taxes of $355,000.
Results of Operations for the Year Ended December 31, 1999 Compared to the Year
Ended December 31, 1998
Net Sales. For the year ended December 31, 1999, net sales were $72.3
million, an increase of $18.4 million or 34.2% over the $53.9 million net sales
for the year ended December 31, 1998. The increase in net sales was primarily
attributable to increased sales of the Company's energy and other functional
drinks in 8.2-ounce slim cans, the introduction of the Company's new children's
multi-vitamin juice drinks in the third quarter of 1999, as well as the
Company's Signature Soda line, which was introduced in the first quarter of
1999, increased sales of the Company's Healthy Start product line and sales of
Smoothies in 64-ounce P.E.T. bottles. To a lesser extent, the increase in net
sales was also attributable to increased sales of juice blends, Smoothies in
cans, apple juice, soda in cans and sales of Super Smoothies, which were
introduced in the second half of 1999. Net sales of iced teas, lemonades and
juice cocktails in 1999 were comparable to the sales of such products in 1998.
The increase in net sales was partially offset by the discontinuance of
Equator(R) and other marginal products.
Gross Profit. Gross profit was $33.5 million for the year ended
December 31, 1999; an increase of $7.0 million or 26.4% over the $26.5 million
gross profit for the year ended December 31, 1998. Gross profit as a percentage
of net sales decreased to 46.4% for the year ended December 31, 1999 from 49.3%
for the year ended December 31, 1998. The increase in gross profit was primarily
attributable to increased net sales. The decrease in gross profit as a
percentage of net sales are primarily attributable to lower margins achieved as
a result of a change in the Company's product mix.
Total Operating Expenses. Total operating expenses were $26.0 million
for the year ended December 31, 1999 an increase of $5.4 million or 26.5% over
total operating expenses of $20.6 million for the year ended December 31, 1998.
Total operating expenses as a percentage of net sales decreased to 36.0% for the
22
year ended December 31, 1999, from 38.2% for the year ended December 31, 1998.
The increase in total operating expenses was primarily attributable to increased
selling, general and administrative expenses and other operating 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 selling, general and administrative expenses.
Selling, general and administrative expenses were $25.3 million for the
year ended December 31, 1999 an increase of $5.1 million or 25.3% higher than
selling, general and administrative expenses of $20.2 million for the year ended
December 31, 1998. Selling, general and administrative expenses as a percentage
of net sales decreased to 35.0% for the year ended December 31, 1999 from 37.5%
for the year ended December 31, 1998. Selling expenses were $17.8 million for
the year ended December 31, 1999 an increase of $3.7 million or 26.2% higher
than selling expenses of $14.1 million for the year ended December 31, 1998.
Selling expenses as a percentage of net sales decreased to 24.6% for the year
ended December 31, 1999 from 26.2% for the year ended December 31, 1998. The
increase in selling expenses was primarily attributable to increased
distribution (freight) expenses, advertising costs and promotional expenditures,
particularly in-store demonstrations and coupon expenses. The increase in
selling expenses was partially offset by a decrease in expenditures for
merchandise displays and point of sale materials. General and administrative
expenses were $7.5 million for the year ended December 31, 1999; an increase of
$1.4 million or 23.4% higher than general and administrative expense of $6.1
million for the year ended December 31, 1998. General and administrative
expenses as a percentage of net sales decreased to 10.4% for the year ended
December 31, 1999, from 11.4% for the year ended December 31, 1998. The increase
in general and administrative expenses was primarily attributable to increased
payroll costs and certain other expenses incurred in connection with the
Company's product development and expansion activities into additional states.
Amortization of trademark license and trademarks was $308,000 for the
year ended December 31, 1999, an increase of $12,000 over amortization of
trademark license and trademarks of $296,000 for the year ended December 31,
1998.
Other operating expenses were $380,000 for the year ended December 31,
1999, an increase of $320,000 over other operating expenses of $60,000 for the
year ended December 31, 1998. The increase in other operating expenses was
primarily attributable to expenses incurred in connection with a proposed
business combination that was not completed. The increase in other expenses was
partially offset by the expiration of a consulting agreement with a director of
the Company.
Operating Income. Operating income was $7.5 million for the year ended
December 31, 1999, compared to $6.0 million for the year ended December 31,
1998. The $1.5 million increase in operating income was primarily attributable
to increased gross profits, which was partially offset by increased operating
expenses.
Net Non-operating Expense. Net non-operating expense was $52,000 for
the year ended December 31, 1999, which was $278,000 lower than net
non-operating expense of $330,000 for the year ended December 31, 1998. Net
non-operating expense consists of interest and financing expense interest income
and for 1998, other non-operating expense. Interest and financing expense for
the year ended December 31, 1999 was $171,000 as compared to $387,000 for the
year ended December 31, 1998. The decrease in interest and financing expense was
attributable to a reduction in financing fees that were fully amortized in 1998
and to the fact that the principal amounts outstanding on the Company's term
loan were lower in 1999 than 1998. See also "Liquidity and Capital Resources"
below. Interest income for the year ended December 31, 1999 was $118,000, which
was $46,000 higher than interest income of $72,000 for the year ended December
31, 1998. The increase in interest income was primarily attributable to interest
earned on excess cash invested.
Provision for Income Taxes. Provision for income taxes for the year
ended December 31, 1999 was $3.0 million as compared to provision for income
taxes of $2.1 million for the year ended December 31, 1998. The effective
combined federal income taxes were primarily attributable to increased operating
23
income and the increase in the effective tax rate for 1999. Certain net
operating loss carry forwards resulted in a lower effective tax rate in 1998.
Such net operating loss carry forwards were not available in 1999.
Net Income. Net income was $4.5 million for the year ended December 31,
1999, compared to $3.6 million for the year ended December 31, 1998. The
$915,000 increase in net income was attributable to increased operating income
of $1.5 million and decreased non-operating expense of $278,000, which was
offset by increased provision for income taxes of $904,000.
Liquidity and Capital Resources
As of December 31, 2000, the Company had working capital of $13,644,000
compared to working capital of $8,997,000 as of December 31, 1999. The increase
in working capital was primarily attributable to net income earned after
adjustments for certain non-cash expenses, primarily amortization of trademark
license and trademarks, depreciation and other amortization, and compensation
expense related to the issuance of stock options. The increase in working
capital was partially offset by increases in trademark license and trademarks,
property and, to a lesser extent, increases in deposits and other assets.
During 2000, the Company's cash reserves were used for working capital
including the acquisition of the Blue Sky business, trademark licenses and
trademarks, increases in accounts receivable, purchases of property and
equipment, acquisition of increased inventories and to reduce accounts payable.
The acquisition of increased inventories, increases in accounts receivable,
increases in deposits and other assets, acquisition of property and equipment,
acquisition of trademark licenses and trademarks, and repayment of the Company's
line of credit, are expected to remain the Company's principal recurring use of
cash and working capital funds.
Net cash used in investing activities for the year ended December 31,
2000, was $7.9 million as compared to net cash used in investment activities of
$1.5 million in 1999. The increase in net cash used in investing activities was
primarily attributable to the acquisition of the Blue Sky business and trademark
licenses and trademarks, the purchases of property and equipment as well as
increases in deposits and other assets. Management, from time to time, considers
the acquisition of capital equipment, particularly, merchandise display racks,
vans and promotional vehicles, coolers and other promotional equipment and
businesses compatible with the image of the Hansen's(R) brand as well as the
introduction of new product lines.
Net cash provided by financing activities was $7.1 million for the year
ending December 31, 2000, as compared to net cash used in financing activities
of $1.6 million in 1999. The net cash provided by financing activities is
primarily attributable to borrowings on the Company's line of credit of $9.2
million which was partially offset by repayments in respect of the Company's
term loan and line of credit of $1.6 million in the year ended December 31, 2000
as compared to payments of $2.1 million made in the year ended December 31,
1999. The Company also repurchased 206,761 shares of the Company's stock for
$815,000 in 2000. Additionally, cash generated by the issuance of common stock
increased to $257,000 in 2000 from $28,000 in 1999.
In 1997 the Company obtained a credit facility from Comerica
Bank-California ("Comerica"), consisting of a revolving line of credit of up to
$3.0 million in aggregate at any time outstanding and a term loan of $4.0
million. The utilization of the revolving line of credit by HBC was dependent
upon certain levels of eligible accounts receivable and inventory from time to
time. Such revolving line of credit and term loans were secured by substantially
all of HBC's assets, including accounts receivable, inventory, trademarks,
trademark licenses and certain equipment. That facility was subsequently
modified from time to time, and on September 19, 2000, the Company entered into
modification agreement with Comerica which amended certain provisions under the
above facility in order to finance the acquisition of the Blue Sky business,
repay the term loan, and provide additional working capital ("Modification
Agreement"). Pursuant to the Modification Agreement, the revolving line of
24
credit was increased to $12.0 million, reducing to $6.0 million by September
2004. The revolving line of credit remains in full force and effect through
September 2005. Further, the rate of interest payable by the Company on advances
under the line of credit are based on 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.
The initial use of proceeds under the Modification Agreement was to pay
the seller in connection with the acquisition of the Blue Sky business, to repay
the remaining $807,000 balance due under the term loan and to finance working
capital. The Company's outstanding borrowings on the line of credit at December
31, 2000 were $9.2 million.
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. At
both December 31, 2000 and 1999, respectively, the Company was in compliance
with all covenants.
Management believes that cash available from operations, including cash
resources and the revolving line of credit, will be sufficient for its working
capital needs, including purchase commitments for raw materials, payments of tax
liabilities, debt servicing, expansion and development needs, purchases of
shares of common stock of the Company, as well as any purchases of capital
assets or equipment through December 31, 2001.
European Monetary Union
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the Euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
On January 1, 2000, the participating countries adopted the Euro as
their local currency, initially available for currency trading on currency
exchanges and non-cash transactions such as banking. The existing local
currencies, or legacy currencies, will remain legal tender through January 1,
2002. Beginning January 1, 2002, Euro-denominated bills and coins will be used
for cash transactions. For a period of up to six months from this date, both
legacy currencies and the Euro will be legal tender. On or before July 1, 2002,
the participating countries will withdraw all legacy currencies and exclusively
use the Euro.
The Company's transactions are recorded in U.S. Dollars and the Company
does not currently anticipate future transactions being recorded in the Euro.
Based on the lack of transactions recorded in the Euro, the Company does not
believe that the Euro will have a material effect on the financial position,
results of operations or cash flows of the Company. In addition, the Company has
not incurred and does not expect to incur any significant costs from the
continued implementation of the Euro, including any currency risk, which could
materially affect the Company's business, financial condition or results of
operations.
The Company has not experienced any significant operational disruptions
to date and does not currently expect the continued implementation of the Euro
to cause any significant operational disruptions.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which the
Company is required to adopt effective in its fiscal year 2001. SFAS 133, as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS 133, certain contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. SFAS No. 133 requires derivatives to be reported as assets or
liabilities at fair value, and is effective for all fiscal years beginning after
June 15, 2000. The Company will adopt SFAS No. 133 effective January 1, 2001.
25
Management does not expect the adoption of SFAS 133 to have significant impact
on the financial position, results of operations or cash flows of the Company.
In December 1999, the Securities Exchange Commission staff issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
No. 101"). SAB No. 101 summarizes certain of the staff's views in applying
accounting principles generally accepted in the United States of America to
revenue recognition and accounting for deferred costs in the consolidated
financial statements and is effective no later than the fourth quarter of fiscal
years beginning after December 15, 1999. Based on the Company's current revenue
recognition policy, there was no material impact to the Company's financial
position and consolidated statements of income from the adoption of SAB No. 101.
In accordance with Emerging Issues Task Force No. 00-10, Accounting for
Shipping and Handling Fees and Costs, reimbursements of freight charges are
recorded in net sales in the accompanying consolidated statements of income. For
the years ended December 31, 2000, 1999 and 1998, freight-out costs amounted to
$4.9 million, $4.3 million, and $3.0 million, respectively, have been recorded
in selling, general and administrative expenses in the accompanying consolidated
statements of income.
Year 2000 Compliance
Prior to January 1, 2000, the Company reviewed the readiness of its
computer systems and business practices for handling Year 2000 issues. Since
entering the Year 2000, the Company has not experienced any major disruptions to
its business nor is it aware of any significant Year 2000 related disruptions
impacting its customers and suppliers.
Cost incurred to achieve Year 2000 readiness, which include any
contractor costs to modify existing systems and costs of internal resources
dedicated to achieving Year 2000 compliance, were changed to expense as incurred
and were not material in 2000.
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 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;
26
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 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 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 and in respect of many
which the Company's experience is limited. There can be no assurance that
the Company will achieve projected levels or mixes of product sales;
o The Company's ability to penetrate new markets;
o The marketing efforts of distributors of the Company's products, most of
which distribute products that are competitive with the products of the
Company;
o Unilateral decisions by distributors, grocery store chains, specialty chain
stores, club stores, mass merchandisers 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 facility 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
its functional drinks in 8.2-ounce slim cans and Smoothies in 11.5-ounce
cans.
The foregoing list of important factors is not exhaustive.
Sales
The table set forth below discloses selected quarterly data regarding
sales for the past five years. Data from any one or more quarters is not
necessarily indicative of annual results or continuing trends.
Sales are expressed in actual cases and case equivalents. A case is
defined as follows:
o Soda concentrate sold that will yield twenty-four 12-ounce (354-ml) cans
measured by volume.
o Soda cases equal twenty-four 12-ounce cans or 11-ounce (325 ml) bottles,
thirty 12-ounce cans, or twelve 23-ounce (680 ml), twenty four 14-ounce
(414 ml) or twelve 1-liter bottles measured by volume.
o Juice and juice blend cases equal twelve 32-ounce bottles, six 64-ounce
glass bottles, eight 64-ounce P.E.T. bottles, four 128-ounce P.E.T.
bottles, twenty-four or twenty-seven 8.45-ounce (250 ml) tetra-pak boxes or
the equivalent volume.
o Non-carbonated iced tea, lemonade and juice cocktail cases equal
twenty-four 16-ounce (473 ml) or fifteen or twenty 20-ounce (591-ml)
bottles measured by volume.
o Still water cases equal twenty-four 0.5-liter, twelve 1.0-liter and twelve
1.5-liter plastic bottles measured by volume.
o Fruit juice Smoothie cases equals twenty-four 11.5-ounce (340-ml) cans or
twenty-four 16-ounce or 13.5-ounce (400 ml) or 12-ounce bottles or eight
64-ounce P.E.T. bottles measured by volume.
o Functional drink cases equal twenty-four 8.2-ounce (243-ml) cans measured
by volume.
o Healthy Start cases equal twelve 46-ounce (1.36 L), eight 64-ounce P.E.T.
bottles or twenty-four 12-ounce glass bottles measured by volume.
27
o Hard e cases equal twenty-four 12-ounce bottles, measured by volume.
o Fruit and grain bar cases equal ninety 1.76-ounce bars.
o Natural cereal cases equal twenty 13-ounce boxes measured by volume.
The Company's quarterly results of operations reflect seasonal trends
that are primarily the result of increased demand in the warmer months of the
year. It has been Hansen's experience that beverage sales tend to be lower
during the first and fourth quarters of each fiscal year. Because the primary
historical market for Hansen's products is California, which has a year-long
temperate climate, the effect of seasonal fluctuations on quarterly results may
have been mitigated; however, such fluctuations may be more pronounced as the
distribution of Hansen's products expands outside of California. The Company has
no experience with its food bars, cereal products and Hard e malt based products
and consequently has no knowledge of the trends which may occur with such
products. Quarterly fluctuations may also be affected by other factors including
the introduction of new products, the opening of new markets where temperature
fluctuations are more pronounced, the addition of new bottlers and distributors,
changes in the mix of the sales of its finished products, soda concentrates and
food products and increased advertising and promotional expenses. See also "ITEM
1. BUSINESS - SEASONALITY."
Case Sales (in Thousands)
2000 1999 1998 1997 1996
----------- ------------ ----------- ------------ ------------
Quarter 1 1,730 1,372 1,237 861 940
Quarter 2 2,331 1,716 1,566 1,383 1,340
Quarter 3 2,238 2,074 1,845 1,648 1,341
Quarter 4 1,985 1,779 1,241 1,234 876
----------- ------------ ----------- ------------ ------------
Total 8,284 6,941 5,889 5,126 4,497
=========== ============ =========== ============ ============
Net Revenues (in Thousands)
2000 1999 1998 1997 1996
----------- ------------ ----------- ------------ ------------
Quarter 1 $ 15,978 $ 15,229 $ 11,265 $ 7,120 $ 7,365
Quarter 2 22,667 19,142 13,950 11,496 10,394
Quarter 3 22,702 20,491 16,589 13,439 10,817
Quarter 4 18,386 17,441 12,062 11,002 6,989
----------- ------------ ----------- ------------ ------------
Total $ 79,733 $ 72,303 $ 53,866 $ 43,057 $ 35,565
=========== ============ =========== ============ ============
Inflation
The Company does not believe that inflation had a significant impact on
the Company's results of operations for the periods presented.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be furnished in response to this item is
submitted hereinafter following the signature page hereto at pages F-1 through
F-19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
General
Directors of the Company are elected annually by the holders of the
common stock and executive officers are elected annually by the Board of
Directors, to serve until the next annual meeting of stockholders or the Board
of Directors, as the case may be, or until their successors are elected and
qualified. It is anticipated that the next annual meeting of stockholders will
be held in September 2001.
Set forth below are the names, ages and principal occupations for the last five
years of the directors and/or executive officers of the Company:
Rodney C. Sacks (51) - Chairman of the Board of Directors of the
Company, Chief Executive Officer and director of the Company from November 1990
to the present. Member of the Executive Committee of the Board of Directors of
the Company since October 1992. Chairman and a director of HBC from June 1992 to
the present. Mr. Sacks resigned from his position as Chief Financial Officer of
the Company in July 1996, which office he had held from November 1990 to July
1996.
Hilton H. Schlosberg (48) - Vice Chairman of the Board of Directors of
the Company, President, Chief Operating Officer, Secretary, and a director of
the Company from November 1990 to the present. Chief Financial Officer of the
Company since July 1996. Member of the Executive Committee of the Board of
Directors of the Company since October 1992. Member of the Audit Committee of
the Board of Directors from September 1997 to April 2000. Vice Chairman of the
Board of Directors, Secretary and a director of HBC from July 1992 to the
present. Director and/or Deputy Chairman of AAF Industries PLC, a United Kingdom
publicly quoted industrial group, from June 1990 until April 1995.
Benjamin M. Polk (50) - Director of the Company from November 1990 to
the present. Assistant Secretary of HBC since October 1992 and a director of HBC
since July 1992. Member of the Audit Committee of the Board of Directors of the
Company from September 1997 to November 2000. Member of the Compensation
Committee of the Board of Directors of the Company from April 1991 until
September 1997. Partner with Wintson & Strawn (New York, New York) where Mr.
Polk has practiced law with that firm and its predecessors, Whitman Breed Abbott
& Morgan LLP and Whitman & Ransom, from August 1976 to the present. (1)
Norman C. Epstein (60) - Director of the Company and member of the
Compensation Committee of the Board of Directors of the Company since June 1992.
Member and Chairman of the Audit Committee of the Board of Directors of the
Company since September 1997. Director of HBC since July 1992. Director of
Integrated Asset Management Limited, a company listed on the London Stock
Exchange since June 1998. Managing Director of Cheval Acceptances, a mortgage
finance company based in London, England. Partner with Moore Stephens, an
international accounting firm, from 1974 to December 1996 (senior partner
beginning 1989 and the managing partner of Moore Stephens, New York from 1993
until 1995).
Harold C. Taber, Jr. (61) - Director of the Company since July 1992.
Member of the Audit Committee of the Board of Directors since April 2000.
Consultant to the Company from July 1, 1997 to June 30, 2000. Consultant to The
Joseph Company from September 1997 to March 1999. President and Chief Executive
Officer and a director of HBC from July 1992 to June 1997. On June 30, 1997, Mr.
Taber resigned from his employment as well as director, President and Chief
Executive Officer of HBC. In addition, effective June 30, 1997, Mr. Taber
resigned as a member of the Executive Committee on which he served since October
1992.
29
Mark S. Vidergauz (47) - Director of the Company and member of the
Compensation Committee of the Board of Directors of the Company since June 1998.
Member of the Audit Committee of the Board of Directors since April 2000.
Managing Director and Chief Executive Officer of Sage Group LLC from April 2000
to present. Managing director at the Los Angeles office of ING Barings LLC, a
diversified financial service institution headquartered in the Netherlands from
April 1995 to April 2000. Prior to joining ING Barings LLC in April 1995, Mr.
Vidergauz was a managing director at Wedbush Morgan Securities, an investment
banking firm in Los Angeles, from 1991 to 1995. Prior to joining Wedbush, Mr.
Vidergauz was a corporate finance attorney in the Los Angeles office of
O'Melveny & Meyers.
1 Mr. Polk and his law firm, Winston & Strawn, serve as counsel to the Company
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file by specific dates with the SEC
initial reports of ownership and reports of changes in ownership of equity
securities of the Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms that they file. The Company is required to report in
this annual report on Form 10-K any failure of its directors and executive
officers and greater than ten percent stockholders to file by the relevant due
date any of these reports during the most recent fiscal year or prior fiscal
years.
To the Company's knowledge, based solely on review of copies of such
reports furnished to the Company during the year ended December 31, 2000, all
Section 16(a) filing requirements applicable to the Company's officers,
directors and greater than ten percent stockholders were in compliance.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth certain information regarding the total
remuneration earned and grants of options/stock appreciation rights ("SARs")
made to the chief executive officer and each of the four most highly compensated
executive officers of the Company and its subsidiaries who earned total cash
compensation in excess of $100,000 during the year ended December 31, 2000.
These amounts reflect total cash compensation paid by the Company and its
subsidiaries to these individuals during the years December 31, 1998 through
2000.
30
SUMMARY COMPENSATION TABLE
Long Term
ANNUAL COMPENSATION Compensation (4)
Awards (5)
- ----------------------------- ----------- --------------- ----------- ----------------- --------------------
Other Securities
Annual underlying
Name and Principal Bonus (2) Compensation Options/SARs
Positions Year Salary (1)($) ($) ($) (#)
- ----------------------------- ----------- --------------- ----------- ----------------- --------------------
Rodney C. Sacks 2000 194,400 10,000 6,262 (3)
Chairman, CEO 1999 180,000 25,000 6,088 (3) 100,000
and Director 1998 160,000 34,000 1,927,431 (6) 75,000
- ----------------------------- ----------- --------------- ----------- ----------------- --------------------
Hilton H. Schlosberg 2000 194,400 10,000 6,263 (3)
Vice-Chairman, CFO 1999 180,000 25,000 6,088 (3) 100,000
President, Secretary and 1998 160,000 34,000 1,689,972 (7) 75,000
Director
- ----------------------------- ----------- --------------- ----------- ----------------- --------------------
Mark J. Hall 2000 160,000 20,000 8,061 (3)
Sr. Vice President 1999 150,000 40,000 7,551 (3) 30,000
Distributor Division 1998 136,250 65,000 180,982 (8) 120,000
- ----------------------------- ----------- --------------- ----------- ----------------- --------------------
Kirk S. Blower 2000 115,000 4,000 7,316 (3)
Sr. Vice President 1999 110,000 16,800 7,099 (3) 12,500
Juice Division 1998 111,250 16,800 363,440 (9)
- ----------------------------- ----------- --------------- ----------- ----------------- --------------------
Timothy M. Welch 2000 110,000 3,000 14,202 (10)
Senior Vice President Soda 1999 99,000 12,960 12,310 (10) 72,000
Division 1998
- ----------------------------- ----------- --------------- ----------- ----------------- --------------------
1 SALARY - Pursuant to employment agreement, Mrs. Sacks and Schlosberg are
entitled to an annual base salary of $194,400 and $180,000 for 2000 and 1999
respectively. For 1998, Mrs. Sacks and Schlosberg agreed to a temporary
reduction of their respective salaries to $160,000.
2 BONUS - Payments made in 2001, 2000 and 1999 are for bonuses accrued in 2000,
1999 and 1998.
3 OTHER ANNUAL COMPENSATION - The cash value of perquisites of the named persons
did not total $50,000 or 10% of payments of salary and bonus for the years
shown.
4 LONG-TERM INCENTIVE PLAN PAYOUTS - None paid. No plan in place.
5 RESTRICTED STOCK AWARDS - The Company does not have a plan for restricted
stock awards.
6 Includes $1,921,625 representing the dollar value of the difference between
the price paid for common stock of the Company through the exercise of stock
options and the fair market value of the common stock on the date of exercise;
and $5,806 for automobile expense reimbursement.
7 Includes $1,684,125 representing the dollar value of the difference between
the price paid for common stock of the Company through the exercise of stock
options and the fair market value of the common stock on the date of exercise;
and $5,847 for automobile expense reimbursement.
8 Includes $179,660 representing the dollar value of the difference between
the price paid for common stock of the Company through the exercise of stock
options and the fair market value of the common stock on the date of exercise;
and $1,322 for automobile expense reimbursement.
9 Includes $362,040 representing the dollar value of the difference between the
price paid for common stock of the Company through the exercise of stock options
and the fair market value of the common stock on the date of exercise; and
$1,400 for automobile expense reimbursement.
10 Includes $6,000 for auto reimbursement expenses and $6,000 for housing
expenses in 2000. Includes $5,500 for auto reimbursement expenses and $5,500 for
housing expenses in 1999.
ALL OTHER COMPENSATION - none paid
OPTION/SAR GRANTS FOR THE YEAR ENDED DECEMBER 31, 2000
None.
31
AGGREGATED OPTION/SAR EXERCISES DURING THE YEAR ENDED DECEMBER 31 2000 AND
OPTION/SAR VALUES AT DECEMBER 31, 2000
Number of Value of unexercised
underlying in-the-money
unexercised options/SARs at
options/SARs at December 31, 2000
December 31, 2000 ($)
(#)
--------------------- ------------------------
Shares acquired on Value Exercisable/ Exercisable/
Name exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------------------- --------------------- --------------------- --------------------- ------------------------
Rodney C. Sacks - - 70,500/67,000 (1) 85,688/0
- ------------------------------- --------------------- --------------------- --------------------- ------------------------
Hilton H. Schlosberg - - 70,500/67,000 (1) 85,688/0
- ------------------------------- --------------------- --------------------- --------------------- ------------------------
Mark J. Hall - - 68,000/48,000 (2) 180,820/135,120
- ------------------------------- --------------------- --------------------- --------------------- ------------------------
Kirk S. Blower - - 2,500/10,000 (3) 0/0
- ------------------------------- --------------------- --------------------- --------------------- ------------------------
Timothy M. Welch - - 14,400/57,600 (4) 0/0
- ------------------------------- --------------------- --------------------- --------------------- ------------------------
1 Includes options to purchase 37,500 shares of common stock at $1.59 per share
of which all are exercisable at December 31, 2000, granted pursuant to a Stock
Option Agreement dated January 30, 1998 between the Company and Messrs. Sacks
and Schlosberg, respectively; and options to purchase 100,000 shares of common
stock at $4.25 per share of which 33,000 are exercisable at December 31, 2000,
granted pursuant to Stock Option Agreements dated February 2, 1999 between the
Company and Messrs. Sacks and Schlosberg, respectively.
2 Includes options to purchase 96,000 shares of common stock at $1.06 per share
of which 48,000 are exercisable at December 31, 2000, granted pursuant to a
Stock Option Agreement dated February 10, 1997 between the Company and Mr. Hall;
options to purchase 20,000 shares of common stock at $1.59 per share of which
20,000 are exercisable at December 31, 2000, granted pursuant to a Stock Option
Agreement dated January 30, 1998 between the Company and Mr. Hall.
3 Includes options to purchase 12,500 shares of common stock at $4.25 per share
of which 2,500 are exercisable at December 31, 2000, granted pursuant to a Stock
Option Agreement dated February 2, 1999 between the Company and Mr. Blower.
4 Includes options to purchase 72,000 shares of common stock at $4.44 per share
of which 14,400 are exercisable at December 31, 2000, granted pursuant to a
Stock Option Agreement dated February 1, 1999 between the Company and Mr. Welch.
32
Performance Graph
The following graph shows a five-year comparison of cumulative total
returns: (1)
TOTAL SHAREHOLDER RETURNS
ANNUAL RETURN PERCENTAGE
For the years ended December 31,
Company Name/Index 1996 1997 1998 1999 2000
- ---------------------- -------- -------- -------- -------- --------
HANSEN NAT CORP 54.59 70.62 196.63 (19.78) (10.13)
S&P SMALLCAP 600 INDEX 21.32 25.58 (1.31) 12.40 11.80
PEER GROUP 49.88 34.05 (43.03) 9.99 17.78
INDEXED RETURNS
For the years ended December 31,
Base
Period
Company Name/Index 1995 1996 1997 1998 1999 2000
- ---------------------- ------ -------- -------- -------- -------- --------
HANSEN NAT CORP 100 154.59 263.76 782.39 627.66 564.05
S&P SMALLCAP 600 INDEX 100 121.32 152.36 150.37 169.02 188.96
PEER GROUP 100 149.88 200.91 114.46 125.90 148.28
1 Annual return assumes reinvestment of dividends. Cumulative total return
assumes an initial investment of $100 on December 31, 1995. The Company's
self-selected peer group is comprised of Saratoga Beverage Group, National
Beverage Corporation, Clearly Canadian Beverage Company, Triarc Companies, Inc.,
Leading Brands, Inc. and Northland Cranberries. All of the companies in the peer
group traded during the entire five-year period with the exception of Saratoga
Beverage Group, which traded through 1999, and Triarc Companies, Inc., which
sold their beverage business in October 2000.
Employment Agreements
The Company entered into an employment agreement dated as of January 1,
1999, with Rodney C. Sacks pursuant to which Mr. Sacks renders services to the
Company as its Chairman and Chief Executive Officer for an annual base salary of
$180,000, for the twelve-month period ended December 31, 1999, increasing by a
minimum of 8% for each subsequent twelve-month period during the employment
period, plus an annual bonus in an amount determined at the discretion of the
Board of Directors and certain fringe benefits. The employment period commenced
on January 1, 1999 and ends on December 31, 2003.
The Company also entered into an employment agreement dated as of
January 1, 1999, with Hilton H. Schlosberg pursuant to which Mr. Schlosberg
renders services to the Company as its Vice Chairman, President, Chief Operating
Officer, Chief Financial Officer and Secretary for an annual base salary of
$180,000, for the twelve-month period ended December 31, 1999, increasing by a
minimum of 8% for each subsequent twelve-month period during the employment
period, plus an annual bonus in an amount determined at the discretion of the
Board of Directors and certain fringe benefits. The employment period commenced
on January 1, 2000 and ends on December 31, 2003.
33
The preceding descriptions of the employment agreements for Messrs.
Sacks and Schlosberg are qualified in their entirety by reference to such
agreements which have been filed or incorporated by reference as exhibits to
this report.
Directors' Compensation
The Company's current policy is to pay outside directors (non-executive
officers) who are not contractually entitled to be nominated to serve as
directors, annual fees of $7,000 plus $500 for each meeting attended of the
Board of Directors or any committee thereof. Norman E. Epstein, Benjamin M. Polk
and Harold C. Taber, Jr. earned director's fees of $8,000 and Mark S. Vidergauz
earned director's fees of $7,500 for the one-year period ended December 31,
2000.
Employee Stock Option Plan
The Company has a stock option plan (the "Plan") that provides for the
grant of options to purchase up to 3,000,000 shares of the common stock of the
Company to certain key employees of the Company and its subsidiaries. Options
granted under the Plan may either be incentive stock options qualified under
Section 422 of the Internal Revenue Code of 1986, as amended or non-qualified
options. Such options are exercisable at fair market value on the date of grant
for a period of up to ten years. Under the Plan, shares subject to options may
be purchased for cash, for shares of common stock valued at fair market value on
the date of purchase or in consideration of the cancellation of options valued
at the difference between the exercise price thereof and the fair market value
of the common stock on the date of exercise. The Plan is administered by the
Compensation Committee of the Board of Directors of the Company, comprised of
directors who have not received grants of options under the Plan. Grants under
the Plan are made pursuant to individual agreements between the Company and each
grantee that specifies the terms of the grant, including the exercise price,
exercise period, vesting and other terms thereof.
Outside Directors Stock Option Plan
The Company has an option plan for its outside directors (the
"Directors Plan") that provides for the grant of options to purchase up to an
aggregate of 100,000 shares of common stock of the Company to directors of the
Company who are not and have not been employed by or acted as consultants to the
Company and its subsidiaries or affiliates and who are not and have not been
nominated to the Board of Directors of the Company pursuant to a contractual
arrangement. On the date of the annual meeting of stockholders at which an
eligible director is initially elected, each eligible director is entitled to
receive a one-time grant of an option to purchase 6,000 shares (12,000 shares if
the director is serving on a committee of the Board) of the Company's Common
Stock exercisable at the closing price for a share of common stock on the date
of grant. Options become exercisable one-third each on the first, second and
third anniversary of the date of grant; provided, however, that options granted
as of February 14, 1995 are exercisable 66 2/3% on the date of grant and 100% on
July 8, 1995; provided further, that all options held by an eligible director
become fully and immediately exercisable upon a change in control of the
Company. Options granted under the Directors Plan that are not exercised
generally expire ten years after the date of grant. Option grants may be made
under the Directors Plan for ten years from the effective date of the Directors
Plan. The Directors Plan is a "formula plan" so that a non-employee director's
participation in the Directors Plan does not affect his status as a
"disinterested person" (as defined in Rule 16b-3 under the Securities Exchange
Act of 1934).
34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The following table sets forth information, as of March 2,
2001, of the only persons known to the Company who
beneficially own more than 5% of the outstanding common stock
of the Company:
Title Name and Address of Amount and Nature of Percent
Of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ---------------------------- ------------------------ -----------
Common Stock Brandon Limited
Partnership No. 1 (1) 654,822 6.5%
Brandon Limited
Partnership No. 2 (2) 2,831,667 28.2%
Rodney C. Sacks (3) 3,967,989 (4) 39.1%
Hilton H. Schlosberg (5) 3,929,086 (6) 38.8%
1 The mailing address of Brandon No.1 is P.O. Box 30749, Seven Mile Beach, Grand
Cayman, British West Indies. The general partners of Brandon No. 1 are Rodney C.
Sacks and Hilton H. Schlosberg.
2 The mailing address of Brandon No. 2 is P.O. Box 30749, Seven Mile Beach,
Grand Cayman, British West Indies. The general partners of Brandon No. 2 are
Rodney C. Sacks and Hilton H. Schlosberg.
3 The mailing address of Mr. Sacks is 1010 Railroad Street, Corona, California
92882.
4 Includes 387,500 shares of common stock owned by Mr. Sacks; 654,822 shares
beneficially held by Brandon No. 1 because Mr. Sacks is one of Brandon No. 1's
general partners; and 2,831,667 shares beneficially held by Brandon No. 2
because Mr. Sacks is one of Brandon No. 2's general partners. Also includes
options to purchase 37,500 shares of common stock exercisable at $1.59 per share
granted pursuant to a Stock Option Agreement dated January 30, 1998; and options
presently exercisable to purchase 56,500 shares of common stock, out of options
to purchase a total of 100,000 shares, exercisable at $4.25 per share, granted
pursuant to a Stock Option Agreement dated February 2, 1999 between the Company
and Mr. Sacks.
Mr. Sacks disclaims beneficial ownership of all shares deemed beneficially
owned by him hereunder except: (i) 387,500 shares of common stock; (ii) the
94,000 shares presently exercisable under Stock Option Agreements; (iii) 243,546
shares held by Brandon No. 1 allocable to the limited partnership interests in
Brandon No. 1 held by Mr. Sacks, his children and a trust for the benefit of his
children; and (iv) 250,000 shares held by Brandon No. 2 allocable to the limited
partnership interests in Brandon No. 2 held by Mr. Sacks, his children and a
trust for the benefit of his children.
5 The mailing address of Mr. Schlosberg is 1010 Railroad Street, Corona,
California 92882.
6 Includes 348,597 shares of common stock owned by Mr. Schlosberg, of which
2,000 shares are jointly owned by Mr. Schlosberg and his wife, 654,822 shares
beneficially held by Brandon No. 1 because Mr. Schlosberg is one of Brandon No.
1's general partners; and 2,831,667 shares beneficially held by Brandon No. 2
because Mr. Schlosberg is one of Brandon No. 2's general partners. Also includes
options to purchase 37,500 shares of common stock exercisable at $1.59 per share
granted pursuant to a Stock Option Agreement dated January 30, 1998 between the
Company and Mr. Schlosberg; and options presently exercisable to purchase 56,500
shares of common stock, out of options to purchase a total of 100,000 shares,
exercisable at $4.25 per share, granted pursuant to a Stock Option Agreement
dated February 2, 1999 between the Company and Mr. Schlosberg.
Mr. Schlosberg disclaims beneficial ownership of all shares deemed beneficially
owned by him hereunder except: (i) 348,597 shares of common stock, (ii) the
94,000 shares presently exercisable under Stock Option Agreements; (iii) 247,911
shares held by Brandon No. 1 allocable to the limited partnership interests in
Brandon No. 1 held by Mr. Schlosberg and his children; and (iv) 250,000 shares
held by Brandon No. 2 allocable to the limited partnership interests in Brandon
No. 2 held by Mr. Schlosberg and his children.
35
(b) The following table sets forth information as to the ownership
of shares of common stock, as of March 2, 2001, held by
persons who are directors of the Company, naming them, and as
to directors and officers of the Company as a group, without
naming them:
Title of Class Name Amount Owned Percent of Class
- ---------------- ------------------------ ------------------ -------------------
Common Stock Rodney C. Sacks 3,967,989 (1) 39.1%
Hilton H. Schlosberg 3,929,086 (2) 38.8%
Harold C. Taber, Jr. 107,419 (3) 1.1%
Mark S. Vidergauz 8,000 (4) * %
Officers and Directors as a group (6 members: 4,526,005 shares or 44.1% in
aggregate)
*Less than 1%
1 Includes 387,500 shares of common stock owned by Mr. Sacks; 654,822 shares
beneficially held by Brandon No. 1 because Mr. Sacks is one of Brandon No. 1's
general partners; and 2,831,667 shares beneficially held by Brandon No. 2
because Mr. Sacks is one of Brandon No. 2's general partners. Also includes
options to purchase 37,500 shares of common stock exercisable at $1.59 per share
granted pursuant to a Stock Option Agreement dated January 30, 1998; and options
presently exercisable to purchase 56,500 shares of common stock, out of options
to purchase a total of 100,000 shares, exercisable at $4.25 per share, granted
pursuant to a Stock Option Agreement dated February 2, 1999 between the Company
and Mr. Sacks.
Mr. Sacks disclaims beneficial ownership of all shares deemed beneficially
owned by him hereunder except: (i) 387,500 shares of common stock; (ii) the
94,000 shares presently exercisable under Stock Option Agreements; (iii) 243,546
share held by Brandon No. 1 allocable to the limited partnership interests in
Brandon No. 1 held by Mr. Sacks, his children and a trust for the benefit of his
children; and (iv) 250,000 shares held by Brandon No. 2 allocable to the limited
partnership interests in Brandon No. 2 held by Mr. Sacks, his children and a
trust for the benefit of his children.
2 Includes 348,597 shares of common stock owned by Mr. Schlosberg, of which
2,000 shares are owned jointly by Mr. Schlosberg and his wife; 654,822 shares
beneficially held by Brandon No. 1 because Mr. Schlosberg is one of Brandon No.
1's general partners; and 2,831,667 shares beneficially held by Brandon No. 2
because Mr. Schlosberg is one of Brandon No. 2's general partners. Also includes
options to purchase 37,500 shares of common stock exercisable at $1.59 per share
granted pursuant to a Stock Option Agreement dated January 30, 1998 between the
Company and Mr. Schlosberg; and options presently exercisable to purchase 56,500
shares of common stock, out of options to purchase a total of 100,000 shares,
exercisable at $4.25 per share, granted pursuant to a Stock Option Agreement
dated February 2, 1999 between the Company and Mr. Schlosberg.
Mr. Schlosberg disclaims beneficial ownership of all shares deemed beneficially
owned by him hereunder except: (i) 348,597 shares of common stock; (ii) the
94,000 shares presently exercisable under Stock Option Agreements; (iii) 247,911
shares held by Brandon No. 1 allocable to the limited partnership interests in
Brandon No. 1 held by Mr. Schlosberg and his children; and (iv) 250,000 shares
held by Brandon No. 2 allocable to the limited partnership interests in Brandon
No. 2 held by Mr. Schlosberg and his children.
3 Includes 71,137 shares of common stock owned by Mr. Taber; and 36,281.7 shares
of common stock owned by the Taber Family Trust of which Mr. Taber and his wife
are trustees.
4 Includes options presently exercisable to purchase 8,000 shares of common
stock, out of options to purchase a total of 12,000 shares, exercisable at $3.72
per share, granted under a Stock Option Agreement with the Company dated as of
June 18, 1998 pursuant to the Directors Plan.
There are no arrangements known to the Company, the operation of which,
may at a subsequent date result in a change of control of the Company.
36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Benjamin M. Polk is a partner in the law firm of Winston & Strawn, a
law firm (together with its predecessors) that has been retained by the Company
since 1992.
Rodney C. Sacks is current acting as the sole Trustee of a trust formed
pursuant to an Agreement of Trust dated July 27, 1992 for the purpose of holding
the Hansen's (R) trademark. The Company and HBC have agreed to indemnify Mr.
Sacks and hold him harmless from any claims, loss or liability arising out of
his acting as Trustee.
During 2000, the Company purchased promotional items from IFM Group,
Inc. ("IFM"). Rodney C. Sacks, together with members of his family, own
approximately 27% of the issued shares in IFM. Hilton H. Schlosberg, together
with members of his family, own approximately 43% of the issued shares in IFM.
Purchases from IFM of promotional items in 2000, 1999 and 1998 were $115,520,
$121,289 and $151,393, respectively. The Company continues to purchase
promotional items from IFM Group, Inc. in 2001.
The preceding descriptions of agreements are qualified in their
entirety by reference to such agreements, which have been filed as exhibits to
this Report.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Exhibits
See the Index to Exhibits included hereinafter.
2. Index to Financial Statements filed as part of this Report
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements for the years
ended December 31, 2000, 1999 and 1998 F-8
(b) Financial Statement Schedules
Valuation and Qualifying Accounts for the years ended
December 31, 2000, 1999 and 1998 F-19
(c) Reports on Form 8-K
None
38
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) 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
By: /s/ Rodney C. Sacks Date: March 30, 2001
------------------------
Rodney C. Sacks
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ RODNEY C. SACKS Chairman of the Board of Directors March 30, 2001
- -------------------------- and Chief Executive Officer
Rodney C. Sacks (Principal Executive Officer)
/s/ HILTON H. SCHLOSBERG Vice Chairman of the Board of March 30, 2001
- -------------------------- Directors, President, Chief
Hilton H. Schlosberg Operating Officer, Chief Financial
Officer and Secretary
/s/ BENJAMIN M. POLK Director March 30, 2001
- --------------------------
Benjamin M. Polk
/s/ NORMAN C. EPSTEIN Director March 30, 2001
- --------------------------
Norman C. Epstein
/s/ HAROLD C. TABER, JR. Director March 30, 2001
- --------------------------
Harold C. Taber, Jr.
/s/ MARK S. VIDERGAUZ Director March 30, 2001
- --------------------------
Mark S. Vidergauz
39
INDEX TO EXHIBITS
The following designated exhibits, as indicated below, are either filed
herewith or have heretofore 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
- ----------------- ------------------------------------------------------------------------------------------
2.1 Asset Purchase Agreement among Blue Sky Natural Beverage Co., a Delaware Corporation, as
Purchaser and Blue Sky Natural Beverage Co., a New Mexico Corporation as Seller and
Robert Black dated as of September 20, 2000.19
- ----------------- -------------------------------------------------------------------------------------------
3(a) Certificate of Incorporation. 1
- ----------------- -------------------------------------------------------------------------------------------
3(b) Amendment to Certificate of Incorporation dated October 21, 1992. 2
- ----------------- -------------------------------------------------------------------------------------------
3(c) By-Laws. 2
- ----------------- -------------------------------------------------------------------------------------------
10(c) Asset Purchase Agreement dated June 8, 1992 ("Asset Purchase Agreement"), by and among
Unipac Corporation ("Unipac"), Hansen Beverage Company ("Hansen"), California Co-Packers
Corporation ("Co-Packers"), South Pacific Beverages, Ltd. ("SPB"), Harold C. Taber, Jr.
("Taber"), Raimana Martin ("R. Martin"), Charles Martin ("C. Martin"), and Marcus I.
Bender ("Bender"), and with respect to certain provisions, ERLY Industries, Inc.
("ERLY"), Bender Consulting Incorporated ("Bender Consulting") and Black Pearl
International, Ltd. ("Blank Pear"). 2
- ----------------- -------------------------------------------------------------------------------------------
10(d) First Amendment to Asset Purchase Agreement dated as of July 10, 1992. 2
- ----------------- -------------------------------------------------------------------------------------------
10(e) Second Amendment to Asset Purchase Agreement dated as of July 16, 1992. 2
- ----------------- -------------------------------------------------------------------------------------------
10(f) Third Amendment to Asset Purchase Agreement dated as of July 17, 1992. 2
- ----------------- -------------------------------------------------------------------------------------------
10(g) Fourth Amendment to Asset Purchase Agreement dated as of July 24, 1992. 2
- ----------------- -------------------------------------------------------------------------------------------
10(h) Subordinated Secured Promissory Note of Hansen in favor of ERLY dated July 27, 1992 in
the principal amount of $4,000,000. 2
- ----------------- -------------------------------------------------------------------------------------------
10(i) Security Agreement dated July 27, 1992 by and between Hansen and ERLY. 2
- ----------------- -------------------------------------------------------------------------------------------
10(j) Stock Option Agreement by and between SPB and Unipac dated July 27, 1992 for an option
price of $4.75 per share. 2
- ----------------- -------------------------------------------------------------------------------------------
10(k) Stock Option Agreement by and between Taber and Unipac dated July 27, 1992 for an option
price of $4.75 per share. 2
- ----------------- -------------------------------------------------------------------------------------------
10(l) Stock Option Agreement by and between Co-Packers and Unipac dated July 27, 1992 for an
option price of $4.75 per share. 2
- ----------------- -------------------------------------------------------------------------------------------
10(n) Stock Option Agreement by and between SPB and Unipac dated July 27, 1992 for an option
price of $2.50 per share. 2
- ----------------- -------------------------------------------------------------------------------------------
10(o) Stock Option Agreement by and between Co-Packers and Unipac dated July 27, 1992 for an
option price of $2.50 per share. 2
- ----------------- -------------------------------------------------------------------------------------------
10(p) Assignment Agreement re: Trademarks by and between Hansen's Juices, Inc. ("FJC"), and
Hansen, dated July 27, 1992. 8
- ----------------- -------------------------------------------------------------------------------------------
10(q) Assignment of Trademarks dated July 27, 1992 by FJC to Gary Hansen, Anthony Kane and
Burton S. Rosky, as trustees under that certain trust agreement dated July 27, 1992 (the
"Trust"). 8
- ----------------- -------------------------------------------------------------------------------------------
10(r) Assignment of License by Co-Packers to Hansen dated as of July 27, 1992. 8
- ----------------- -------------------------------------------------------------------------------------------
10(s) Employment Agreement between Hansen and Taber dated as of July 27, 1992. 3
- ----------------- -------------------------------------------------------------------------------------------
10(t) Consulting Agreement by and between Hansen and Black Pearl dated July 27, 1992. 3
- ----------------- -------------------------------------------------------------------------------------------
10(u) Consulting Agreement by and between Hansen and C. Martin dated July 27, 1992. 3
- ----------------- -------------------------------------------------------------------------------------------
10(w) Registration Rights Agreement by and among Unipac, SPB, Co-Packers, Taber, Wedbush Morgan
Securities ("Wedbush"), Rodney C. Sacks, and Hilton H. Schlosberg, dated July 27, 1992. 3
- ----------------- -------------------------------------------------------------------------------------------
10(z) Soda Side Letter Agreement dated June 8, 1992 by and among Unipac, Hansen, SPB, Black
Pearl, Tahiti Beverages, S.A.R.L., R. Martin and C. Martin. 4
- ----------------- -------------------------------------------------------------------------------------------
40
10(bb) Hansen/Taber Agreement dated July 27, 1992 by and among Hansen and Taber. 8
- ----------------- -------------------------------------------------------------------------------------------
10(cc) Other Beverage License Agreement dated July 27, 1992 by and between Hansen and the Trust.
8
- ----------------- -------------------------------------------------------------------------------------------
10(dd) Non-Beverage License Agreement dated July 27, 1992 by and between Hansen and the Trust. 8
- ----------------- -------------------------------------------------------------------------------------------
10(ee) Agreement of Trust dated July 27, 1992 by and among FJC and Hansen and Gary Hansen,
Anthony Kane and Burton S. Rosky. 8
- ----------------- -------------------------------------------------------------------------------------------
10(ff) Carbonated Beverage License Agreement dated July 27, 1992 by and between Hansen and the
Trust. 8
- ----------------- -------------------------------------------------------------------------------------------
10(gg) Royalty Sharing Agreement dated July 27, 1992 by and between Hansen and the Trust. 8
- ----------------- -------------------------------------------------------------------------------------------
10(hh) Fresh Juices License Agreement dated as of July 27, 1992 by and between Hansen and the
Trust. 8
- ----------------- -------------------------------------------------------------------------------------------
10(ii) Incentive Stock Option Agreement dated July 27, 1992 by and between Unipac and Taber at
the option price of $2.00 per share. 2
- ----------------- -------------------------------------------------------------------------------------------
10(jj) Co-Packing Agreement dated November 24, 1992 by and between Tropicana Products Sales,
Inc. and Hansen. 4
- ----------------- -------------------------------------------------------------------------------------------
10(kk) Office Lease, dated December 16, 1992 by and between Lest C. Smull as Trustee, and his
Successors under Declaration of Trust for the Smull family, dated December 7, 1984, and
Hansen. 5
- ----------------- -------------------------------------------------------------------------------------------
10(ll) Stock Option Agreement dated as of June 15, 1992 by and between Unipac and Rodney C.
Sacks. 5
- ----------------- -------------------------------------------------------------------------------------------
10(mm) Stock Option Agreement dated as of June 15, 1992 by and between Unipac and Hilton H.
Schlosberg. 5
- ----------------- -------------------------------------------------------------------------------------------
10(nn) Stock Option Agreement dated as of February 14, 1995 between Hansen Natural Corporation
and Benjamin M. Polk. 7
- ----------------- -------------------------------------------------------------------------------------------
10(oo) Stock Option Agreement dated as of February 14, 1995 between Hansen Natural Corporation
and Norman C. Epstein. 7
- ----------------- -------------------------------------------------------------------------------------------
10(pp) Employment Agreement dated as of January 1, 1994 between Hansen Natural Corporation and
Hilton H. Schlosberg. 6
- ----------------- -------------------------------------------------------------------------------------------
10(qq) Employment Agreement dated as of January 1, 1994 between Hansen Natural Corporation and
Rodney C. Sacks. 6
- ----------------- -------------------------------------------------------------------------------------------
10(rr) Stock Option Agreement dated as of July 3, 1995 between Hansen Natural Corporation and
Rodney C. Sacks. 8
- ----------------- -------------------------------------------------------------------------------------------
10(ss) Stock Option Agreement dated as of July 3, 1995 between Hansen Natural Corporation and
Hilton H. Schlosberg. 8
- ----------------- -------------------------------------------------------------------------------------------
10(tt) Stock Option Agreement dated as of June 30, 1995 between Hansen Natural Corporation and
Harold C. Taber, Jr. 8
- ----------------- -------------------------------------------------------------------------------------------
10(uu) Standard Industrial Lease Agreement dated as of April 25, 1997 between Hansen Beverage
Company and 27 Railroad Partnership L.P. 9
- ----------------- -------------------------------------------------------------------------------------------
10(vv) Sublease Agreement dated as of April 25, 1997 between Hansen Beverage Company and U.S.
Continental Packaging, Inc. 9
- ----------------- -------------------------------------------------------------------------------------------
10(ww) Packaging Agreement dated April 14, 1997 between Hansen Beverage Company and U.S.
Continental Packaging, Inc. 10
- ----------------- -------------------------------------------------------------------------------------------
10(xx) Revolving Credit Loan and Security Agreement dated May 15, 1997 between Comerica Bank -
California and Hansen Beverage Company. 10
- ----------------- -------------------------------------------------------------------------------------------
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. 10
- ----------------- -------------------------------------------------------------------------------------------
10(zz) Stock Option Agreement dated as of June 20, 1997 by and between Hansen Natural
Corporation and Harold C. Taber, Jr. 10
- ----------------- -------------------------------------------------------------------------------------------
10 (aaa) Variable Rate Installment Note dated October 14, 1997 between Comerica Bank - California
and Hansen Beverage Company. 10
- ----------------- -------------------------------------------------------------------------------------------
10 (bbb) Stock Option Agreement dated as of January 30, 1998 by and between Hansen Natural
Corporation and Rodney C. Sacks.11
- ----------------- -------------------------------------------------------------------------------------------
41
10 (ccc) Stock Option Agreement dated as of January 30, 1998 by and between Hansen Natural
Corporation and Hilton S. Schlosberg.11
- ----------------- -------------------------------------------------------------------------------------------
10 (ddd) Warrant Agreement made as of April 23, 1998 by and between Hansen Natural Corporation
and Rick Dees.12
- ----------------- -------------------------------------------------------------------------------------------
10 (eee) Modification to Revolving Credit Loan and Security Agreement as of December 31, 1998 by
and between Hansen Beverage Company and Comerica Bank - California.13
- ----------------- -------------------------------------------------------------------------------------------
10 (fff) Employment Agreement as of January 1, 2000 by and between Hansen Natural Corporation and
Rodney C. Sacks.13
- ----------------- -------------------------------------------------------------------------------------------
10 (ggg) Employment Agreement as of January 1, 2000 by and between Hansen Natural Corporation and
Hilton S. Schlosberg.13
- ----------------- -------------------------------------------------------------------------------------------
10 (hhh) Stock Option Agreement dated as of February 2, 2000 by and between Hansen Natural
Corporation and Rodney C. Sacks.13
- ----------------- -------------------------------------------------------------------------------------------
10 (iii) Stock Option Agreement dated as of February 2, 2000 by and between Hansen Natural
Corporation and Hilton S. Schlosberg.13
- ----------------- -------------------------------------------------------------------------------------------
10 (jjj) Stock Repurchase Agreement dated as of August 3, 1998, by and between Hansen Natural
Corporation and Rodney C. Sacks.14
- ----------------- -------------------------------------------------------------------------------------------
10 (kkk) Stock Repurchase Agreement dated as of August 3, 1998, by and between Hansen Natural
Corporation and Hilton H. Schlosberg.14
- ----------------- -------------------------------------------------------------------------------------------
10 (lll) Assignment and Agreement dated as of September 22, 2000 by the Fresh Juice Company of
California, Inc. and Hansen Beverage Company. 15
- ----------------- -------------------------------------------------------------------------------------------
10 (mmm) Settlement Agreement dated as of September 2000 by and between and among Rodney C. Sacks,
as sole Trustee of The Hansen's Trust and Hansen Beverage Company The Fresh Juice Company
of California, Inc. 15
- ----------------- -------------------------------------------------------------------------------------------
10 (nnn) Trademark Assignment dated as of September 24, 2000 by and between The Fresh Juice
Company of California, Inc. (Assignor) and Rodney C. Sacks as sole Trustee of The
Hansen's Trust (Assignee). 15
- ----------------- -------------------------------------------------------------------------------------------
10 (ooo) Settlement Agreement dated as of September 3, 2000 by and between The Fresh Juice Company
of California, Inc., The Fresh Smoothie Company, LLC, Barry Lublin, Hansen's Juice
Creations, LLC, Harvey Laderman and Hansen Beverage Company and Rodney C. Sacks, as
Trustee of The Hansen's Trust. 15
- ----------------- -------------------------------------------------------------------------------------------
10 (ppp) Royalty Agreement dated as of April 26, 1996 by and between Hansen's Juices, Inc. and
Hansen's Juice Creations, Limited Liability Company. 15
- ----------------- -------------------------------------------------------------------------------------------
10 (qqq) Royalty Agreement dated as of April 26, 2000 by and between Gary Hansen, Anthony Kane and
Burton S. Rosky, as trustees of Hansen's Trust and Hansen's Juice Creations, a limited
liability company. 15
- ----------------- -------------------------------------------------------------------------------------------
10 (rrr) Letter Agreement dated May 14, 1996. 15
- ----------------- -------------------------------------------------------------------------------------------
10 (sss) Amendment to Royalty Agreement as of May 9, 1997 by and between The Fresh Juice Company
of California and Hansen's Juice Creations, Limited Liability Company. 15
- ----------------- -------------------------------------------------------------------------------------------
10 (ttt) Assignment of License Agreements dated as of February 2000 by Hansen's Juice Creations,
LLC (Assignor) to Fresh Smoothie, LLC (Assignee). 15
- ----------------- -------------------------------------------------------------------------------------------
10 (uuu) Amendment to Revolving Credit Loan and Security Agreement between Comerica Bank -
California and Hansen Beverage Company dated March 28, 2000. 16
- ----------------- -------------------------------------------------------------------------------------------
10 (vvv) Endorsement and Spokesman Arrangement dated as of February 18, 2000 by and between Hansen
Beverage Company and Sammy Sosa. 16
- ----------------- -------------------------------------------------------------------------------------------
10 (www) Standard Industrial Lease Agreement dated as of February 23, 2000 between Hansen Beverage
Company and 43 Railroad Partnership L.P. 16
- ----------------- -------------------------------------------------------------------------------------------
10 (xxx) Amended and Restated Variable Rate Installment Note by and between Comerica Bank -
California and Hansen Beverage Company. 17
- ----------------- -------------------------------------------------------------------------------------------
10 (yyy) Sixth Modification to Revolving Credit Loan & Security Agreement by and between Hansen
Beverage Company and Comerica Bank - California, dated May 23, 2000. 18
- ----------------- -------------------------------------------------------------------------------------------
42
- ----------------- -------------------------------------------------------------------------------------------
10 (zzz) Contract Brewing agreement by and between Hard e Beverage Company and Reflo, Inc. dated
March 23, 2000. 18
- ----------------- -------------------------------------------------------------------------------------------
10.1 Modification dated as of September 19, 2000, to Revolving Credit Loan and Security
Agreement by and between Hansen Beverage Company and Comerica Bank California. 19
- ----------------- -------------------------------------------------------------------------------------------
21 Subsidiaries 5
- ----------------- -------------------------------------------------------------------------------------------
23 Independent Auditors' Consent
- ----------------- -------------------------------------------------------------------------------------------
27 Financial Data Schedule
- ----------------- -------------------------------------------------------------------------------------------
99.1 Audited Financial Statements of Blue Sky Natural Beverage Co., a New Mexico corporation
("BSNB-NM") for 1999 and 1998. 20
- ----------------- -------------------------------------------------------------------------------------------
99.2 Unaudited Balance Sheet at September 30, 2000 for BSNB-NM and Unaudited Statement of
Operations for the nine-months then ended. 20
- ----------------- -------------------------------------------------------------------------------------------
1 Filed previously as an exhibit to the Registration Statement on Form S-3
(no. 33-35796) (the "Registration Statement").
2 Filed previously as an exhibit to the Company's proxy statement dated
October 21, 1992.
3 Filed previously as an exhibit to Form 8-K dated July 27, 1992.
4 Filed previously as an exhibit to Post-Effective Amendment No. 8 to the
Registration Statement.
5 Filed previously as an exhibit to Form 10-KSB for the year ended
December 31, 1992.
6 Filed previously as an exhibit to Form 10-KSB for the year ended
December 31, 1993.
7 Filed previously as an exhibit to Form 10-KSB for the year ended
December 31, 1994.
8 Filed previously as an exhibit to Form 10-K for the year ended
December 31, 1995.
9 Filed previously as an exhibit to Form 10-Q for the period ended
June 30, 1997.
10 Filed previously as an exhibit to Form 10-Q for the period ended
September 30, 1997.
11 Filed previously as an exhibit to Form 10-Q for the period ended
March 31, 1998.
12 Filed previously as an exhibit to Form 10-Q for the period ended
June 30, 1998.
13 Filed previously as an exhibit to Form 10-K for the year ended
December 31, 1998.
14 Filed previously as an exhibit to Form 10-Q for the period ended
June 30, 1999.
15 Filed previously as an exhibit to Form 10-Q for the period ended
September 30, 1999.
16 Filed previously as an exhibit to Form 10-K for the year ended
December 31, 1999.
17 Filed previously as an exhibit to Form 10-Q for the period ended
March 31, 2000.
18 Filed previously as an exhibit to Form 10-Q for the period ended
June 30, 2000.
19 Filed previously as an exhibit to Form 8-K dated September 20, 2000.
20 Filed previously as an exhibit to Form 8-K/A dated September 20, 2000.
43
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements for the years ended
December 31, 2000, 1999 and 1998 F-8
Valuation and Qualifying Accounts for the years ended
December 31, 2000, 1999 and 1998 F-19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Hansen Natural Corporation
Corona, California
We have audited the accompanying consolidated balance sheets of Hansen Natural
Corporation and subsidiaries (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of income, shareholders' equity and cash
flows for the years ended December 31, 2000, 1999 and 1998. Our audits also
included the financial statement schedule listed in Item 14. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hansen Natural Corporation and
subsidiaries as of December 31, 2000 and 1999, and the consolidated results of
its operations and cash flows for the years ended December 31, 2000, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 23, 2001
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 130,665 $ 2,009,155
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $486,462
in 2000 and $415,305 in 1999 and promotional allowances
of $2,583,088 in 2000 and $1,651,604 in 1999) 6,584,486 3,751,258
Inventories, net (Note 3) 10,907,895 9,894,414
Prepaid expenses and other current assets (Note 4) 823,387 553,689
Deferred income tax asset (Note 8) 881,618 743,364
----------------- -----------------
Total current assets 19,328,051 16,951,880
PROPERTY AND EQUIPMENT, net (Note 5) 1,863,044 504,191
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated amortization
of $3,366,358 in 2000 and $2,995,285 in 1999) 16,887,914 10,768,493
Deposits and other assets 665,731 484,388
----------------- -----------------
17,553,645 11,252,881
----------------- -----------------
$ 38,744,740 $ 28,708,952
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,681,956 $ 5,936,873
Accrued liabilities 607,443 345,794
Accrued compensation 281,629 462,285
Current portion of long-term debt (Note 6) 234,655 863,501
Income taxes payable (Note 8) 878,266 346,636
----------------- -----------------
Total current liabilities 5,683,949 7,955,089
LONG-TERM DEBT, less current portion (Note 6) 9,731,956 902,716
DEFERRED INCOME TAX LIABILITY (Note 8) 1,274,139 1,225,271
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY: (Note 9)
Common stock - $0.005 par value; 30,000,000 shares
authorized; 10,148,882 shares issued, 9,942,121 outstanding
in 2000; 10,010,084 issued and outstanding in 1999 50,744 50,050
Additional paid-in capital 11,667,619 11,340,074
Retained earnings 11,150,878 7,235,752
Common stock in treasury, at cost; 206,761 and 0 shares
in 2000 and 1999, respectively (814,545)
----------------- -----------------
Total shareholders' equity 22,054,696 18,625,876
----------------- -----------------
$ 38,744,740 $ 28,708,952
================= =================
See accompanying notes to consolidated financial statements.
F-3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
-------- -------- --------
NET SALES $ 79,732,709 $ 72,303,186 $ 53,866,294
COST OF SALES 42,646,677 38,776,532 27,332,028
-------------------- -------------------- --------------------
GROSS PROFIT 37,086,032 33,526,654 26,534,266
OPERATING EXPENSES:
Selling, general and administrative 29,814,609 25,337,374 20,217,818
Amortization of trademark license and trademarks 371,073 307,823 296,584
Other operating expenses 380,378 60,000
-------------------- -------------------- --------------------
Total operating expenses 30,185,682 26,025,575 20,574,402
-------------------- -------------------- --------------------
OPERATING INCOME 6,900,350 7,501,079 5,959,864
NONOPERATING EXPENSE (INCOME):
Interest and financing expense 382,152 170,506 387,446
Interest income (12,914) (118,413) (72,352)
Other nonoperating expense 14,719
-------------------- -------------------- --------------------
Net nonoperating expense 369,238 52,093 329,813
-------------------- -------------------- --------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 6,531,112 7,448,986 5,630,051
PROVISION FOR INCOME TAXES (Note 8) 2,615,986 2,971,118 2,066,922
-------------------- -------------------- --------------------
NET INCOME $ 3,915,126 $ 4,477,868 $ 3,563,129
==================== ==================== ====================
NET INCOME PER COMMON SHARE:
Basic $ 0.39 $ 0.45 $ 0.38
==================== ==================== ====================
Diluted $ 0.38 $ 0.43 $ 0.34
==================== ==================== ====================
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 9,957,743 9,964,778 9,386,688
==================== ==================== ====================
Diluted 10,405,703 10,510,604 10,430,727
==================== ==================== ====================
See accompanying notes to consolidated financial statements.
F-4
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Retained
Additional earnings Total
Common stock paid-in (accumulated Treasury stock shareholders'
------------------------ -------------------------
Shares Amount capital deficit) Shares Amount equity
------------ ---------- -------------- -------------- ----------- ------------ -----------------
Balance,
January 1, 1998 9,130,869 $ 45,654 $ 10,858,315 $ (943,190) - $ - $ 9,960,779
Issuance of common stock 781,036 3,906 72,051 75,957
Compensation expense related
to issuance of nonqualified
stock options 64,919 64,919
Reduction of tax liability in
connection with the exercise
of certain stock options 277,399 277,399
Net income 3,563,129 3,563,129
------------ ---------- -------------- --------------- ----------- ------------ -----------------
Balance,
December 31, 1998 9,911,905 49,560 11,207,765 2,684,858 - - 13,942,183
Issuance of common stock 98,179 490 38,331 38,821
Compensation expense related to
issuance of nonqualified
stock options 73,026 73,026
Reduction of tax liability in
connection with the exercise
of certain stock options 93,978 93,978
Net income 4,477,868 4,477,868
------------ ---------- -------------- --------------- ----------- ------------ -----------------
Balance,
December 31, 1999 10,010,084 50,050 11,340,074 7,235,752 - - 18,625,876
Issuance of common stock 138,798 694 255,945 256,639
Purchase of treasury stock (206,761) (814,545) (814,545)
Reduction of tax liability in
connection with the exercise
of certain stock options 71,600 71,600
Net income 3,915,126 3,915,126
------------ ---------- -------------- --------------- ----------- ------------ -----------------
Balance,
December 31, 2000 10,148,882 $ 50,744 $ 11,667,619 $ 11,150,878 (206,761) $(814,545) $ 22,054,696
============ ========== ============== =============== =========== ============ =================
See accompanying notes to consolidated financial statements.
F-5
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,915,126 $ 4,477,868 $ 3,563,129
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Amortization of trademark license and trademarks 371,073 307,824 296,584
Depreciation and other amortization 314,662 258,343 246,494
Loss on disposal of plant and equipment 52,786 15,569 317
Compensation expense related to issuance of stock options - 73,026 64,919
Deferred income taxes (89,386) (75,554) 557,461
Effect on cash of changes in operating assets and liabilities:
Accounts receivable (2,833,228) (1,912,674) (285,813)
Inventories (1,013,481) (4,683,337) (1,295,094)
Prepaid expenses and other current assets (269,698) (309,371) (29,850)
Accounts payable (2,254,917) 4,066,620 (324,947)
Accrued liabilities 261,649 (58,070) (84,943)
Accrued compensation (180,656) (13,716) 153,887
Income taxes payable 603,230 (828,571) 1,508,784
---------------- ---------------- ----------------
Net cash (used in) provided by operating activities (1,122,840) 1,317,957 4,370,928
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,191,762) (258,543) (435,838)
Proceeds from sale of property and equipment 12,433 81,963
Increase in trademark license and trademarks (6,490,494) (1,072,900) (91,885)
Decrease in note receivable from director 20,861 39,391
Increase in deposits and other assets (181,343) (272,485) (26,821)
---------------- ---------------- ----------------
Net cash used in investing activities (7,851,166) (1,501,104) (515,153)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt 9,204,471 431,250
Principal payments on long-term debt (1,551,049) (2,072,818) (520,874)
Issuance of common stock 256,639 27,781 75,957
Purchases of common stock, held in treasury (814,545)
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities 7,095,516 (1,613,787) (444,917)
---------------- ---------------- ----------------
NET (DECREASE) INCREASE IN CASH (1,878,490) (1,796,934) 3,410,858
CASH AND CASH EQUIVALENTS, beginning of year 2,009,155 3,806,089 395,231
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of year $ 130,665 $ 2,009,155 $ 3,806,089
================ ================ ================
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest $ 315,876 $ 184,891 $ 372,256
================ ================ ================
Income taxes $ 2,067,337 $ 3,908,586 $ 2,400
================ ================ ================
See accompanying notes to consolidated financial statements.
F-6
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
NONCASH TRANSACTIONS:
During 2000, the Company entered into capital leases of $546,972 for the
acquisition of promotional vehicles.
During 2000, the Company reduced its tax liability and increased
additional paid-in capital in the amount of $71,600 in connection with
the exercise of certain stock options.
During 2000, the Company issued 15,360 shares of common stock to employees
in connection with a net exercise of options to purchase 23,327 shares
of common stock.
During 2000, the Company issued 7,786 shares of common stock to a director
in connection with a net exercise of options to purchase 12,000 shares
of common stock.
During 2000, the Company issued 5,652 shares of common stock to a
non-employee in connection with a net exercise of options to purchase
10,000 shares of common stock.
During 1999, the Company reduced its tax liability and increased
additional paid-in capital in the amount of $93,978 in connection with
the exercise of certain stock options.
During 1999, the Company issued 72,866 shares of common stock to employees
in connection with a net exercise of options to purchase 93,273 shares
of common stock.
During 1999, the Company issued 8,000 shares of common stock to an
employee in connection with the execution of a note receivable in the
amount of $11,040.
During 1998, the Company reduced its tax liability and increased
additional paid-in capital in the amount of $277,399 in connection
with the exercise of certain stock options.
During 1998, the Company issued 554,732 shares of common stock to two
officers in connection with a net exercise of options to purchase
725,000 shares of common stock.
During 1998, the Company issued 138,900 shares of common stock to
employees in connection with the net exercise of options to purchase
99,167 shares of common stock.
During 1998, the Company issued 71,137 shares of common stock to a
non-employee in connection with a net exercise of options to purchase
100,000 shares of common stock.
See accompanying notes to consolidated financial statements.
F-7
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Hansen Natural Corporation (the "Company" or "Hansen")
was incorporated in Delaware on April 25, 1990. The Company is a
holding company and carries on no operating business except through its
direct wholly-owned subsidiaries, Hansen Beverage Company ("HBC") which
was incorporated in Delaware on June 8, 1992 and Hard e Beverage
Company ("HEB") formerly known as Hard Energy Company, and previously
known as CVI Ventures, Inc., which was incorporated in Delaware on
April 30, 1990. HBC conducts the vast majority of the Company's
operating business and generates substantially all of the Company's
operating revenues. During the third quarter of 2000, the Company,
through HEB, introduced a malt-based drink called Hard e which contains
up to five-percent alcohol. The Hard e product is not marketed under
the Hansen's name. References herein to "Hansen" or the "Company" when
used to describe the operating business of the Company are references
to the business of HBC unless otherwise indicated and references herein
to HEB when used to describe the operating business of HEB, are
references to the Hard e brand business of HEB unless otherwise
indicated.
In addition, HBC, through its wholly-owned subsidiary, Blue Sky Natural
Beverage Co. ("Blue Sky"), which was incorporated in Delaware on
September 8, 2000, acquired full ownership of and operates the natural
soda business previously conducted by Blue Sky Natural Beverage Co., a
New Mexico corporation ("BSNBC"), under the Blue Sky(R) trademark (Note
2).
Nature of Operations - Hansen is engaged in the business of marketing,
selling and distributing so-called "alternative" beverage category
natural sodas, fruit juices, fruit juice Smoothies, "functional
drinks", non-carbonated ready-to-drink iced teas, lemonades and juice
cocktails, children's multi-vitamin juice products and still water
under the Hansen's(R) brand name as well as nutritional bars and
cereals also under the Hansen's(R) brand name, natural sodas under the
Blue Sky(R) brand name and malt based drinks under the Hard e brand
name, primarily in certain Western states as well as in other states
and, on a limited basis, in other countries outside the United States.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Hansen and its wholly owned
subsidiaries, HBC, HEB and Blue Sky since their respective dates of
incorporation. All intercompany balances and transactions have been
eliminated in consolidation.
Reclassifications - Certain reclassifications have been made in the
consolidated financial statements to conform to the 2000 presentation.
Cash and Cash Equivalents - The Company considers certificates of
deposit with original maturities of three months or less to be cash and
cash equivalents.
Inventories - Inventories are valued at the lower of first-in,
first-out (FIFO) cost or market value (net realizable value).
Property and Equipment - Property and equipment are stated at cost.
Depreciation of furniture, office equipment, equipment and vehicles is
based on their estimated useful lives (three to seven years) and is
calculated using the straight-line method. Amortization of leasehold
improvements is based on the lesser of their estimated useful lives or
the terms of the related leases and is calculated using the
straight-line method.
F-8
Trademark License and Trademarks - Trademark license represents the
Company's exclusive world-wide right to use the Hansen's(R) trademark
in connection with the manufacture, sale and distribution of carbonated
beverages and waters, shelf stable fruit juices and drinks containing
fruit juices on a royalty free basis and other non-carbonated beverages
and water and non-beverage products in consideration of royalty
payments. In September 1999, HBC entered into an Assignment and
Agreement with the Fresh Juice Company of California, Inc. ("FJC"),
pursuant to which HBC acquired exclusive ownership of the Hansen's(R)
trademark and trade names. The Company also owns in its own right, a
number of other trademarks in the United States as well as in a number
of countries around the world. The Company amortizes its trademark
license and trademarks over 40 years.
Long-Lived Assets - The Company accounts for the impairment and
disposition of long-lived assets in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. In accordance with SFAS No. 121, long-lived assets to be
held are reviewed for events or changes in circumstances that indicate
that their carrying value may not be recoverable. The Company
periodically reviews the carrying value of long-lived assets to
determine whether or not impairment to such value has occurred. As of
December 31, 2000, management does not believe that the Company's
long-lived assets have been impaired.
Revenue Recognition - The Company records revenue at the time the
related products are shipped. Management believes an adequate provision
against net sales has been made for estimated returns, allowances and
cash discounts.
Freight Costs And Reimbursement Of Freight Costs - In accordance with
Emerging Issues Task Force No. 00-10, Accounting for Shipping and
Handling Fees and Costs, reimbursements of freight charges are recorded
in net sales in the accompanying consolidated statements of income. For
the years ended December 31, 2000, 1999, and 1998, freight-out costs
amounted to $4.9 million, $4.3 million, and $3.0 million, respectively,
and have been recorded in selling, general and administrative expenses
in the accompanying consolidated statements of income.
Advertising - The Company accounts for advertising production costs by
expensing such production costs the first time the related advertising
takes place. Advertising expenses included in selling, general and
administrative expenses amounted to $5.6 million, $5.7 million and $4.3
million for the years ended December 31, 2000, 1999 and 1998,
respectively. In addition, the Company supports its customers,
including distributors, with promotional allowances, a portion of which
is utilized for indirect advertising by them. Promotional allowances
amounted to $8.3 million, $6.3 million and $5.6 million for the years
ended December 31, 2000, 1999 and 1998, respectively.
Net Income Per Common Share - In accordance with SFAS No. 128, Earnings
per Share, net income per common share, on a basic and diluted basis,
is presented for all periods. Basic net income per share is computed by
dividing net income by the weighted average number of common shares
outstanding. Diluted net income per share is computed by dividing net
income by the weighted average number of common and dilutive common
equivalent shares outstanding, if dilutive. Weighted average common
equivalent shares include stock options and purchases of the Company's
common stock, held in treasury, using the treasury stock method.
Concentration Risk - Certain of the Company's products utilize
components from a limited number of sources. A disruption in production
of such components could significantly affect the Company's revenues
from those products, as alternative sources of such components may not
be available at commercially reasonable rates or within a reasonably
short time period. The Company continues to take steps on an ongoing
basis to secure the availability of alternative sources for such
components and minimize the risk of any disruption in production.
F-9
One customer accounted for approximately 23%, 25% and 27% of the
Company's sales for the years ended December 31, 2000, 1999 and 1998,
respectively. A decision by that, or any other major customer, to
decrease the amount purchased from the Company or to cease carrying the
Company's products could have a material adverse effect on the
Company's financial condition and consolidated results of operations.
Credit Risk - The Company sells its products nationally, primarily to
retailers and beverage distributors. The Company performs ongoing
credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses,
and such losses have been within management's expectations.
Fair Value of Financial Instruments - SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, requires management to disclose
the estimated fair value of certain assets and liabilities defined by
SFAS No. 107 as financial instruments. At December 31, 2000, management
believes that the carrying amount of cash, accounts receivable and
accounts payable approximate fair value because of the short maturity
of these financial instruments. Long-term debt bears interest at a rate
comparable to the prime rate; therefore, management believes the
carrying amount for the outstanding borrowings at December 31, 2000,
approximates fair value.
Use of Estimates - The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives many now meet
the definition of a derivative. SFAS No. 133 requires derivatives to
be reported as assets or liabilities at fair value, and is effective
for all fiscal years beginning after June 15, 2000. The Company
will adopt SFAS No. 133 effective January 1, 2001. Management does
not expect the adoption of SFAS No. 133 to have a significant
impact on the financial position, results of operations or cash flows
of the Company.
In December 1999, the Securities Exchange Commission staff issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB No. 101"). SAB No. 101 summarizes certain of the
staff's views in applying accounting principles generally accepted in
the United States of America to revenue recognition and accounting for
deferred costs in the consolidated financial statements and is
effective no later than the fourth quarter of fiscal years beginning
after December 15, 1999. Based on the Company's current revenue
recognition policy, there was no material impact to the Company's
financial position and consolidated statements of income from the
adoption of SAB No. 101.
2. ACQUISITION
On September 20, 2000, the Company acquired through its subsidiary,
Blue Sky, the beverage business of BSNBC, including the Blue Sky(R)
trademarks and certain other assets for a purchase price of $6.5
million. The Blue Sky(R) products include a range of all-natural
carbonated sodas and seltzers that are marketed throughout the United
States and in certain international markets, principally to the health
food trade. The acquisition has been accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16, Business
Combinations. Accordingly, the purchase price, inclusive of certain
acquisition costs, was allocated to the tangible and intangible assets
acquired based on a valuation of their respective fair values at the
date of acquisition. The purchase price, inclusive of certain
acquisition costs, was financed through the Company's credit facility
(Note 6).
F-10
Trademarks acquired will be amortized on a straight-line basis over 40
years. The operating results of Blue Sky have been included in the
Company's results of operations since the date of acquisition.
3. INVENTORIES
Inventories consist of the following at December 31:
2000 1999
-------- --------
Raw materials $ 4,704,363 $ 3,615,269
Finished goods 6,371,941 6,442,193
------------ ------------
11,076,304 10,057,462
Less inventory reserves (168,409) (163,048)
------------ ------------
$10,907,895 $ 9,894,414
============ ============
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
In January 1994, the Company entered into an agreement with a barter
company for the exchange of certain inventory for future advertising
and marketing credits. The Company assigned a value of $490,000 to
these credits based on the net realizable value of the inventory
exchanged. As of December 31, 2000, unused advertising and marketing
credits totaled $111,000. Although such credits remain available for
use by the Company through January 2002, management was unable to
estimate their remaining net realizable value at December 31, 1997.
Accordingly, in the year ended December 31, 1997, the Company fully
reserved against and expensed such advertising and marketing credits.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
2000 1999
-------- --------
Leasehold improvements $ 153,812 $ 61,277
Furniture and office equipment 662,481 546,105
Equipment and vehicles 1,555,008 768,576
Machinery in progress 569,432
-------------- --------------
2,940,773 1,375,958
Less accumulated depreciation
and amortization (1,077,689) (871,767)
--------------- --------------
$ 1,863,044 $ 504,191
=============== ==============
6. LONG-TERM DEBT
In 1997, the Company obtained a credit facility from Comerica
Bank-California ("Comerica"), consisting of a revolving line of credit
of up to $3.0 million in aggregate at any time outstanding and a term
loan of $4.0 million. The utilization of the revolving line of credit
by HBC was dependent upon certain levels of eligible accounts
receivable and inventory from time to time. Such revolving line of
credit and term loans were secured by substantially all of HBC's
assets, including accounts receivable, inventory, trademarks, trademark
licenses and certain equipment. That facility was subsequently modified
from time to time and on September 19, 2000, the Company entered into a
modification agreement with Comerica to amend certain provisions under
the above facility in order to finance the acquisition of the Blue Sky
business, repay the term loan, and provide additional working capital
("Modification Agreement"). Pursuant to the Modification Agreement, the
F-11
revolving line of credit was increased to $12.0 million, reducing to
$6.0 million by September 2004. The revolving line of credit remains in
full force and effect through September 2005. Further, the rate of
interest payable by the Company on advances under the line of credit
are based on 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.
The initial use of proceeds under the Modification Agreement was to pay
the seller in connection with the acquisition of the Blue Sky business,
to repay the remaining $807,000 balance due under the term loan and to
finance working capital. The Company's outstanding borrowings on the
line of credit at December 31, 2000 were $9.2 million.
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. At December 31, 2000 and 1999, respectively, the Company was
in compliance with all covenants.
During the year ended December 31, 2000, the Company entered into
capital leases for acquisition of certain vehicles, payable over a
five-year period and having an effective interest rate of 8.8%. At
December 31, 2000, the assets acquired under capital leases had a net
book value of $519,688, net of accumulated depreciation of $66,819.
Long-term debt consists of the following at December 31:
2000 1999
-------- --------
Line of credit to Comerica, collarteralized by substantially
all of HBC's assets, at an effective interest rate of
9.5% as of December 31, 2000 $9,164,884 $ -
Note payable to Comerica, collateralized by substantially all of HBC's
assets, payable in variable amounts of principal and interest
which escalate over time. Note was repaid during 2000 1,331,881
Note payable in connection with the acquisition of the Hansen's(R)
trademark and trade name, payable in three equal annual installments of
$143,750 each, due between August 2, 2000 and August 2, 2000 287,500 431,250
Capital leases, collateralized by vehicles acquired, payable over 60
months in monthly installments at an effective interest rate of 8.8%,
with final payments ending in 2005 514,227
Other 3,086
------------------ ------------------
9,966,611 1,766,217
Less: current portion of long-term debt (234,655) (863,501)
------------------ ------------------
$9,731,956 $ 902,716
================== ==================
F-12
Long-term debt is payable as follows:
Year ending December 31:
2001 $ 234,655
2002 242,502
2003 107,316
2004 1,481,545
2005 1,900,593
Thereafter 6,000,000
------------
$ 9,966,611
============
Interest expense amounted to $380,651, $168,131 and $368,896, for
the years ended December 31, 2000, 1999 and 1998, respectively.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company's warehouse facility and corporate
offices are leased for a period of 10 years from October 20, 2000, when
the Company first occupied the facility. The facility lease and certain
equipment and other non-cancelable operating leases expire through
2010. The facility lease has scheduled rent increases which are
accounted for on a straight-line basis. Rent expense under such leases
amounted to $416,505, $391,000 and $369,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Future minimum rental payments at December 31, 2000 under the leases
referred to above are as follows:
Year ending December 31:
2001 $ 605,779
2002 602,179
2003 623,367
2004 629,256
2005 637,059
Thereafter 3,199,953
------------
$ 6,297,593
============
Employment and Consulting Agreements - The Company entered into an
employment agreement with Rodney C. Sacks dated as of January 1, 1999,
pursuant to which Mr. Sacks renders services to the Company as its
Chairman and Chief Executive Officer, and entered into an employment
agreement with Hilton H. Schlosberg dated as of January 1, 1999,
pursuant to which Mr. Schlosberg renders services to the Company as its
Vice Chairman, President and Chief Financial Officer for an annual base
salary of $180,000 each, increasing by a minimum of 8% for each
subsequent twelve-month period during the employment period, plus an
annual bonus in an amount determined at the discretion of the Board of
Directors of the Company and certain fringe benefits for the period
commencing January 1, 1999 and ending December 31, 2003. After such
date, such agreements provide for automatic annual renewals unless
written notice is delivered to each of them by June 30, 2003 or any
subsequent June 30 thereafter.
Purchase Commitments - As of December 31, 2000, the Company had open
long-term purchase commitments for certain raw materials of
approximately $814,000.
Litigation - The Company is subject to, and involved in, claims and
contingencies related to lawsuits and other matters arising out of the
normal course of business. The ultimate liability associated with such
claims and contingencies, if any, is not likely to have a material
adverse effect on the financial condition of the Company.
F-13
8. INCOME TAXES
The Company accounts for income taxes under the provision of SFAS No.
109, Accounting for Income Taxes. This statement requires the
recognition of deferred tax assets and liabilities for the future
consequences of events that have been recognized in the Company's
financial statements or tax returns. Measurement of the deferred items
is based on enacted tax laws. In the event the future consequences of
differences between financial reporting bases and tax bases of the
Company's assets and liabilities result in a deferred tax asset, SFAS
No. 109 requires an evaluation of the probability of being able to
realize the future benefits indicated by such asset. A valuation
allowance related to a deferred tax asset is recorded when it is more
likely than not that some portion or all of the deferred tax asset will
not be realized.
Components of the income tax provision are as follows:
Year Ended December 31,
2000 1999 1998
-------- -------- --------
Current income taxes:
Federal $2,106,316 $2,409,512 $1,180,688
State 599,056 637,160 328,773
------------------ ------------------ -----------------
2,705,372 3,046,672 1,509,461
Deferred income taxes:
Federal (57,309) (97,681) 675,528
State (32,077) 22,127 159,813
Less change in valuation allowance (277,880)
------------------ ------------------ -----------------
(89,386) (75,554) 557,461
------------------ ------------------ -----------------
$2,615,986 $2,971,118 $2,066,922
================== ================== =================
The differences between the income tax provision that would result from
applying the 34% federal statutory rate to income before provision for
income taxes and the reported provision for income taxes are as
follows:
Year Ended December 31,
2000 1999 1998
-------- -------- --------
Income tax provision using the statutory
rate $2,220,578 $2,532,655 $1,914,217
State taxes, net of federal tax benefit 380,945 434,604 295,272
Change in utilization of certain net
operating losses 106,718
Permanent differences 31,865 3,859 6,318
Other (17,402) 22,277
Change in valuation allowance (277,880)
---------------- ---------------- ---------------
$2,615,986 $2,971,118 $2,066,922
================ ================ ===============
F-14
Major components of the Company's deferred tax assets (liabilities) at
December 31 are as follows:
2000 1999
-------- --------
Reserves for returns $ 130,642 $ 111,681
Reserves for bad debts 51,910 45,192
Reserves for obsolescence 72,146 69,850
Reserves for marketing development fund 221,319 159,327
Capitalization of inventory costs 136,284 72,670
State franchise tax 243,328 267,189
Accrued compensation 25,989 17,456
Stock-based compensation 59,096
Amortization of trademark license (1,421,415) (1,412,994)
Amortization of graphic design 151,844 124,664
Depreciation (4,568) 3,962
--------------- ---------------
$ (392,521) $ (481,907)
=============== ===============
During the year ended December 31, 1999, the Company was audited by the
Internal Revenue Service ("IRS Audit") for the years ended December 31,
1998, 1997 and 1996. Based on the results of the IRS Audit, certain
deductions taken in certain years were postponed until later years. The
effect thereof on the Company's provision for income taxes for the year
ended December 31, 1999 was immaterial.
9. STOCK OPTIONS AND WARRANTS
The Company has two stock option plans, the Employee Stock Option Plan
("the Plan") and the Outside Directors Stock Option Plan ("Directors
Plan").
The Plan provided for the granting of options to purchase not more than
2,000,000 shares of Hansen common stock to key employees of the Company
and its subsidiaries. During 1999, the Company amended the Plan to
provide for the granting of options to purchase up to an additional
1,000,000 shares under the Plan. Stock options are exercisable at such
time and in such amounts as determined by the Compensation Committee of
the Board of Directors of the Company up to a ten-year period after
their date of grant, and no options may be granted after July 1, 2001.
The option price will not be less than the fair market value at the
date of grant. As of December 31, 2000, options to purchase 2,150,200
shares of Hansen common stock had been granted under the Plan, net of
options that have expired, and options to purchase 849,800 shares of
Hansen common stock remain available for grant under the Plan.
The Directors Plan provides for the grant of options to purchase up to
100,000 shares of common stock of the Company to directors of the
Company who are not and have not been employed by or acted as
consultants to the Company and its subsidiaries or affiliates and who
are not and have not been nominated to the Board of Directors of the
Company pursuant to a contractual arrangement. On the date of the
annual meeting of shareholders, at which an eligible director is
initially elected, each eligible director is entitled to receive a
one-time grant of an option to purchase 6,000 shares (12,000 shares if
the director is serving on a committee of the Board) of the Company's
common stock, exercisable one-third each on the first, second and third
anniversary of the date of grant; provided, however, that options
granted as of February 14, 1995, are exercisable 66 2/3% on the date of
grant and 100% on July 8, 1995; provided, further, that all options
held by an eligible director become fully and immediately exercisable
upon a change in control of the Company. Options granted under the
Directors Plan that are not exercised generally expire ten years after
the date of grant. Option grants may be made under the Directors Plan
for ten years from the effective date of the Directors Plan. The
Directors Plan is a "formula" plan so that a non-employee director's
F-15
participation in the Directors Plan does not affect his status as a
"disinterested person" (as defined in Rule 16b-3 under the Securities
Exchange Act of 1934). As of December 31, 2000, options to purchase
36,000 shares of Hansen common stock had been granted under the
Directors Plan and options to purchase 64,000 shares of Hansen common
stock remained available for grant.
For the years ended December 31, 2000, 1999 and 1998, the Company
granted 189,000, 424,000 and 297,500 options to purchase shares under
the Plan and Directors Plan at a weighted average grant date fair value
of $2.26, $2.52 and $1.18, respectively. Additional information
regarding the Plan and the Directors Plan is as follows:
2000 1999 1998
-------- -------- --------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
------------- --------- ----------- --------- ----------- ----------
Options outstanding,
beginning of year 1,093,327 $2.60 833,900 $1.49 1,475,500 $1.34
Options granted 189,000 $4.15 424,000 $4.38 297,500 $2.04
Options (38,327) $1.49 (93,573) $1.35 (919,900) $1.49
exercised
Options canceled or
expired (109,600) $3.17 (71,000) $1.82 (19,200) $1.11
------------- ----------- ------------
Options outstanding,
end of year 1,134,400 $2.84 1,093,327 $2.60 833,900 $1.49
============= =========== ============
Option price range $0.75 to $0.75 to $0.72 to
end of year $5.25 $5.25 $4.50
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation
cost has been recognized for the stock option plans. The impact of
stock options granted prior to 1997 has been excluded from the pro
forma calculation; accordingly, the 2000, 1999 and 1998 pro forma
adjustments are not indicative of future period pro forma adjustments,
when the calculation may apply to all applicable stock options. Had
compensation cost for the Company's option plans been determined based
on the fair value at the grant date for awards in the years 1998
through 2000 consistent with the provisions of SFAS No. 123, the
Company's net income and net income per common share would have been
reduced to the pro forma amounts indicated below:
2000 1999 1998
Net income, as reported $3,915,126 $4,477,868 $3,563,129
Net income, pro forma $3,670,524 $4,176,799 $3,383,375
Net income per common share,
as reported
Basic $0.39 $0.45 $0.38
Diluted $0.38 $0.43 $0.34
Net income per common share,
pro forma
Basic $0.37 $0.42 $0.36
Diluted $0.35 $0.40 $0.32
F-16
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in:
Risk-Free
Dividend Yield Expected Volatility Interest Rate Expected Lives
-------------- ------------------- ------------- --------------
2000 0% 48% 6.0% 6 years
1999 0% 60% 4.8% 5 years
1998 0% 72% 5.2% 4 years
The Company has granted warrants to various non-employees to purchase
shares of Hansen common stock. Such warrants vest in various increments
over an eighteen-month to three-year period.
For the year ended December 31, 1998, the Company granted 180,000
warrants to purchase shares at a weighted average grant date fair value
of $1.08. No warrants were granted for the years ended December 31,
2000 and 1999, respectively. Additional information regarding
non-employee stock options and warrants is as follows:
2000 1999 1998
-------- -------- --------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
------------ ----------- ------------ ------------ ------------ ------------
Options and warrants
outstanding, beginning of year 137,000 $2.37 225,000 $2.29 145,000 $ 1.42
Options and warrants granted 180,000 $ 2.48
Options and warrants exercised (117,000) $2.48 (30,000) $1.50 (100,000) $ 1.38
Options and warrants canceled or
expired (20,000) $1.72 (58,000) $2.50
------------ ------------ ------------
Options and warrants outstanding,
end of year - 137,000 $2.37 225,000 $ 2.29
============ ============ ============
Option and warrant price range, $1.50 to $ 1.50 to
end of year $3.75 $ 3.75
The following table summarizes information about fixed-price stock
options outstanding at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------------------- ---------------------------------
Weighted
Number average Weighted average Number Weighted
outstanding at remaining exercise exercisable at average
Range of exercise prices December 31, 2000 contractual price December 31, 2000 exercise
life (in years) price
------------------ ----------------- ------------------ ------------------ --------------
$0.75 to $1.13 264,000 2 $1.00 144,000 $0.98
$1.59 to $1.79 280,400 2 $1.61 274,400 $1.61
$2.50 to $3.72 73,000 5 $3.45 8,000 $3.72
$4.19 to $4.38 357,000 4 $4.26 91,800 $4.25
$4.44 to $5.25 160,000 5 $4.60 29,000 $4.56
----------- ---------
1,134,400 547,200
=========== =========
F-17
10. EMPLOYEE BENEFIT PLAN
Employees of Hansen Natural Corporation may participate in the Hansen
Natural Corporation 401(k) Plan, a defined contribution plan, which
qualifies under Section 401(k) of the Internal Revenue Code.
Participating employees may contribute up to 15% of their pretax salary
up to statutory limits. The Company contributes 25% of the employee
contribution, up to 8% of each employee's earnings. Matching
contributions were $49,323, $37,274 and $29,438, for the years ended
December 31, 2000, 1999 and 1998, respectively.
11. RELATED PARTY TRANSACTIONS
A director of the Company is a partner in a law firm that serves as
counsel to the Company. Expenses incurred to such firm in connection
with services rendered to the Company during the years ended December
31, 2000, 1999 and 1998 were $180,954, $414,932 and $173,673
respectively.
A director of the Company was a consultant to the Company from July
1997 through June 1999. Expenses incurred to such director in
connection with consulting services rendered to the Company during the
years ended December 31, 1999 and 1998 were $30,000 and $60,000,
respectively.
Two directors of the Company are principal owners of a company that
provides promotional materials to the Company. Expenses incurred to
such company in connection with promotional materials purchased during
the years ended December 31, 2000, 1999 and 1998, were $115,520,
$121,289 and $151,393, respectively.
12. QUARTERLY FINANCIAL DATA (Unaudited)
Net Gross Net Net Income per Common Share
Sales Profit Income Basic Diluted
---------------- --------------- --------------- ----------- ----------
Quarter ended:
March 31, 2000 $ 15,978,002 $ 7,203,960 $ 688,103 $0.07 $0.07
June 30, 2000 22,666,775 10,691,928 1,652,087 0.17 0.16
September 30, 2000 22,701,624 10,978,326 1,365,188 0.13 0.13
December 31, 2000 18,386,308 8,211,818 209,748 0.02 0.02
---------------- --------------- --------------- ----------- -----------
$ 79,732,709 $ 37,086,032 $ 3,915,126 $0.39 $0.38
================ =============== =============== =========== ===========
Quarter ended:
March 31, 1999 $ 15,229,104 $ 7,407,679 $ 908,912 $0.09 $0.09
June 30, 1999 19,142,247 8,980,540 1,440,190 0.15 0.14
September 30, 1999 20,491,265 9,430,337 1,336,768 0.13 0.12
December 31, 1999 17,440,570 7,708,098 791,998 0.08 0.08
---------------- --------------- --------------- ----------- -----------
$ 72,303,186 $ 33,526,654 $ 4,477,868 $0.45 $0.43
================ =============== =============== =========== ===========
Certain of the figures reported above may differ from previously
reported figures for individual quarters due to rounding.
F-18
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Balance at Charged to
beginning of cost and Balance at end
Description period expenses Deductions of period
- ------------ --------------- ------------- ------------ ----------------
Allowance for doubtful accounts, sales returns and cash discounts:
2000 $ 415,305 2,171,731 (2,100,574) $ 486,462
1999 $ 378,641 1,478,889 (1,442,225) $ 415,305
1998 $ 315,629 1,432,404 (1,369,392) $ 378,641
Promotional allowances:
2000 $ 1,651,604 8,295,866 (7,364,382) $ 2,583,088
1999 $ 1,608,123 6,337,903 (6,294,422) $ 1,651,604
1998 $ 1,067,749 5,584,000 (5,043,626) $ 1,608,123
Inventory reserves:
2000 $ 163,048 249,067 (243,706) $ 168,409
1999 $ 268,233 151,091 (256,276) $ 163,048
1998 $ 383,227 4,027 (119,021) $ 268,233
F-19