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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, 2001
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. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant was approximately $22,834,760 computed by reference to the sale
price for such stock on the NASDAQ Small-Cap Market on March 11, 2002.
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 11, 2002 was 10,053,003 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
Shareholder Matters 17
6. Selected Consolidated Financial Data 18
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
7a. Qualitative and Quantitative Disclosures about Market Risks 29
8. Financial Statements and Supplementary Data 29
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 29
PART III
10. Directors and Executive Officers of the Registrant 30
11. Executive Compensation 31
12. Security Ownership of Certain Beneficial Owners and Management 36
13. Certain Relationships and Related Transactions 38
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
Signatures 40
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") 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
brand business of HEB unless otherwise indicated.
HBC, in 2000, 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. In 2001, HBC, through its
wholly-owned subsidiary Hansen Junior Juice Company, ("Junior Juice"), which was
incorporated in Delaware on May 7, 2001, acquired full ownership of and operates
the Junior Juice business previously conducted by Pasco Juices, Inc. ("Pasco")
under the Junior Juice(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., which subsequently became 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 and on May
25, 2001, HBC acquired the Junior Juice business, through its wholly owned
subsidiary Junior Juice, from Pasco.
Products
Hansen is engaged in the business of marketing, selling and distributing
so-called "alternative" beverage category natural sodas, fruit juices, fruit
juice and soy Smoothies, energy drinks, "functional drinks", sparkling lemonades
and orangeades, non-carbonated ready-to-drink iced teas, lemonades, juice
cocktails and energy sports drinks, children's multi-vitamin juice drinks and
non-carbonated lightly flavored energy waters under the Hansen's(R) brand name
as well as nutrition bars and cereals also under the Hansen's(R) brand name,
natural sodas, premium natural sodas with supplements, organic natural sodas,
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seltzer waters and energy drinks under the Blue Sky(R) brand name, fruit juices
for toddlers under the Junior Juice(R) brand name and malt based drinks under
the Hard e (TM) 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, energy drinks, sports drinks, soy drinks and single-serve still water
(flavored and unflavored) 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 Corporation). Sales for the alternative
beverage category of the market are estimated to have reached approximately
$11.7 billion at wholesale in 2001 with a growth rate of approximately 14% over
Beverage Marketing's revised estimate for 2000 of $10.3 billion. (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 24 years.
In 2001, 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
thirteen 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, Ginger Ale and Tangerine.
Hansen discontinued its low calorie sodas in Wildberry and Cola flavors and at
the end of 2000/beginning of 2001, introduced a new line of diet sodas with
Splenda(R) sweetener as the primary sweetener. This line was introduced in four
flavors: Peach, Black Cherry, Tangerine Lime, and Kiwi Strawberry. A fifth
flavor, Ginger Ale, was introduced recently. 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, Sasparilla, Black Cherry and Sangria. Signature Sodas are being
marketed in certain areas through the Company's existing distributor network and
in others 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 thirteen 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, 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 six flavors consisting of Prime Lime Cream, New Century Cola,
Orange Divine, Ginger Gale, Black Cherry Cherish, and Root Beer. The Company
also markets a seltzer water under the Blue Sky label. In 2002, Blue Sky
introduced a lightly carbonated energy drink in an 8.3-ounce slim can. The Blue
Sky products contain no preservatives, sodium or caffeine (other than its energy
drink) 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 8.3-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 8.3-ounce slim cans,
namely, a ginger flavored d-stress(R) drink, an orange flavored anti-ox(R) drink
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(since renamed b-well(TM)), and a guarana berry flavored stamina(R) drink.
During the fourth quarter of 1998, the Company introduced its power(TM)
functional drink in 8.3-ounce slim cans, which is currently marketed in a grape
flavor. During 2000, the Company introduced slim-down(TM), its sixth functional
drink. slim-down(TM) 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"). In 2001, the Company
introduced its original energy drink in 8.3-ounce glass bottles as well as two
additional lightly carbonated Energy drinks in 8.3-ounce slim cans in a Tropical
and Wild Berry flavor. Also in 2001 the Company introduced Energade(R), a
non-carbonated Energy sports drink in 23.5-ounce cans in two flavors, citrus and
orange, and E2O Energy Water(TM), a non-carbonated lightly flavored water, in
24-ounce P.E.T. plastic bottles, in four flavors, Tangerine, Apple, Berry and
Lemon. Each of the above new drinks contain different combinations and levels of
supplements.
The Company has concentrated on marketing its carbonated functional drinks
and, in particular, its energy drinks including Energade(R), as well as
Signature Sodas and Smoothies in glass bottles, through its distributor network.
During 2001, the Company launched its new premium line of alternative
healthy iced teas and drinks under the "Medicine Man(R)" label in proprietary
glass bottles. Response from customers and consumers to the Medicine Man(R) line
was disappointing and, in consequence, the Company is presently re-evaluating
this line.
The Company's fruit juice product line currently includes Hansen's(R)
Natural Old Fashioned Apple Juice which is packaged in 64-ounce polyethylene
terephthalate ("P.E.T.") plastic bottles and 128-ounce polypropylene/lamicon
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% (120%
in the case of Apple Juice) 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. During 2001, the
Company introduced an Apple-Cranberry juice blend, a Cranberry juice cocktail
and an Orange-Carrot juice blend in 64-ounce P.E.T. plastic bottles. These
products do 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 juice levels of the Company's Smoothies in glass and P.E.T. plastic
bottles is 25%). 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 cans and in unique proprietary 12-ounce glass bottles designed by
the Company, as well as in 64-ounce and 16-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, Cranberry Twist, a Cranberry
Raspberry lite as well as an Energy Smoothie with 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 but reduced this line in 64-ounce P.E.T. plastic
bottles back to two flavors in 2001. In 2001, the Company extended its Smoothie
line by introducing four flavors in 16-ounce P.E.T. plastic bottles.
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 contained different combinations of supplements.
Energy had a tropical fruit flavor. Power had a berry flavor. Protein had a
banana citrus flavor. Vita had an orange carrot flavor. The juice levels of
these products were higher than the juice levels of the regular Smoothie line.
During the fourth quarter of 1999, the Company introduced reformulated versions
of certain of these products with lower juice levels as line extensions to its
regular Smoothie line in 12-ounce glass bottles. In 2001, the Company
repositioned these products as line extensions to its regular Smoothie line in
11.5-ounce cans, by reformulating these products with lower juice levels.
5
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(R)
and INTELLIJUICE(R). ANTIOXJUICE(R) is a carrot and tropical juice blend,
IMMUNEJUICE(R) 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 in P.E.T. plastic
bottles. 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 were disappointing and the Company is discontinuing
the entire line.
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 was
disappointing and the Company is discontinuing this line.
Hansen's(R) ready-to-drink iced teas and lemonades were introduced in 1993.
Hansen's(R) ready-to-drink iced teas and juice cocktails 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 introduced a new 12-pack
variety pack of iced teas during the first half of 2001, which experienced
limited success. The Company will continue to market this package in 2002.
Hansen's ready-to-drink iced teas, lemonades and juice cocktails are currently
packaged in 16-ounce 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 that time, 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(R)" 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
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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 nutrition food bars under the
Hansen's(R) brand name. This line is made from grains and fruit. 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. During the first
half of 2001, the Company introduced a line of functional food bars, and towards
the end of the year introduced a line of active nutrition bars, which are
specially formulated for adults 50+.
In 2001, the Company introduced a new line of sparkling lemonades (regular
and pink) and orangeades in 1-liter glass bottles and a new line of
Soy-Smoothies in 1-liter and 11-ounce aseptic packaging in five flavors: Berry
Splash, Tropical Breeze, Orange Dream, Lemon Chiffon and Peach Passion. The
sparkling lemonades and orangeades contain real juice and pulp and the Soy
Smoothies contain soy protein and fruit juices.
On May 25, 2001, the Company acquired the Junior Juice(R) beverage
business. The Junior Juice product line comprises seven flavors of 100% juices
in 4.23-ounce aseptic packages and is targeted at toddlers. The Junior Juice
line has calcium and vitamin C added (excluding White Grape which only has
vitamin C added).
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.
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 complimentary 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 Soda, Signature Soda and Blue Sky
Natural Soda 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 Company purchases juices, concentrates, flavors, vitamins, minerals,
nutrients, herbs, supplements and other ingredients for its remaining beverage
products including, but not limited to, juice products, ready-to-drink iced tea,
lemonade and juice cocktail products, Gold Standard specialty tea and juice
cocktail line, fruit juice and soy Smoothie products, Energy drinks, functional
drinks, Energade energy sports drinks, E2O Energy Water, sparkling lemonades and
orangeades, children's multi-vitamin juice drinks and Junior Juice products from
various producers and manufacturers. Such materials are then delivered to the
Company's various co-packers, who add water and/or high fructose corn syrup
and/or sucrose, for manufacture and packaging of the finished products.
7
The ingredients for the Company's fruit and grain nutrition food bars,
functional food bars and active nutrition bars are purchased by the Company's
co-packers 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.
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 arrangements
with Southwest, which is described above, and Reflo, Inc., which is described
below.
The Company has secured arrangements with certain co-packers and suppliers
in respect of equipment purchased by the Company and 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.
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 and soy Smoothie products in cans, aseptic packaging and P.E.T. bottles,
sparkling lemonades and orangeades, children's multi-vitamin juice drinks,
Junior Juice products, Blue Sky products and nutrition bars and cereals 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, Energy drinks,
functional drinks, Energade energy sports drinks, E2O Energy Water and Signature
Sodas are distributed almost exclusively by bottlers and/or distributors that do
not distribute other products of the Company. However, from 2001, Signature
Sodas have also been sold to major grocery chain stores, mass merchandisers and
club stores, in certain states and/or counties directly by Hansen's.
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 Analysis 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 or delay would not
significantly affect the Company's revenues since alternative co-packing
facilities in the United States with adequate capacity can usually be obtained
for many of its products at commercially reasonable rates and/or within a
reasonably short time period. However, there are limited co-packing facilities
in the United States with adequate capacity for many of the Company's newer
products, including its Energy drinks, functional drinks, Energade products, E2O
Energy Water, soy Smoothies, fruit juice Smoothies in glass bottles, sparkling
lemonades and orangeades, Gold Standard line and aseptic juice products. There
are also limited shrink sleeve labeling facilities available in the United
States with adequate capacity for the Company's Signature Soda line, Energy
drinks in glass bottles and E2O Energy Water. A disruption or delay 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 either at
commercially reasonable rates, and/or within a reasonably short time period, if
at all. 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
8
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 continues to seek 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 in
the United States. The Company has entered into distribution agreements with
distributors to distribute Smoothies in glass bottles and/or Energy drinks
and/or functional drinks and/or Energade energy sports drinks and/or E2O Energy
Waters and/or Signature Sodas in 49 states. In many of such states, however,
distribution is only on a limited scale. Certain of the Company's products,
particularly, Energy drinks, Signature Sodas and the Gold Standard line are also
marketed in Canada. Certain Hansen products are also marketed on a limited basis
in other countries outside of the United States, including the United Kingdom,
Mexico, Philippines, Germany, Japan, Guam, the Caribbean, and the United Arab
Emirates. During 2001, sales by the Company to distributors outside the United
States amounted to approximately $1,233,000.
The Company intends to aggressively expand the distribution of its products
into new markets, both within the United States and abroad.
The Company has developed a separate network of brokers and distributors to
support the introduction, sale and distribution of the Company's nutrition bars
and cereals, sparkling lemonades and orangeades and soy Smoothies 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 previous 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 2001, the Company continued to expand the distribution of its
Natural Sodas and Smoothies in cans into Oregon and Washington. 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 2001, the Company continued to expand its national sales force to
support and grow sales primarily of Energy drinks, functional drinks,
Energade(R), E2O Energy Water, Smoothies in glass bottles and Signature Sodas
and intends to continue to build such sales force during 2002.
The Blue Sky(R) products are sold primarily to the health food trade
through specialty health food distributors.
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"). Either party may elect to terminate the Reflo
Agreement at any time on 90 days notice. Under the terms of the Reflo Agreement,
Reflo administers the sales and distribution of such products throughout the
United States, excluding Arizona, California, Nevada and Oregon where HEB is
itself responsible for the sales and distribution of such products. Hard e is
currently being distributed in 14 states. However, in many of such states,
distribution is on an extremely limited scale.
Management continues to evaluate various alternatives to expand the
distribution of its products into selected new markets.
9
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 continuing to take 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, juices and
supplements from independent suppliers located in the United States, Mexico and
abroad, 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 many of its beverages and bars. However, industry-wide shortages of
certain supplements and sweeteners 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 certain of its flavors and concentrates from other suppliers as well
as to conclude arrangements with suppliers which would enable it to obtain
access to certain concentrates or product formulae in certain circumstances. The
Company has been partially successful in these endeavors.
Hansen's goal is to ensure that the raw materials used in the manufacture
and packaging of the Company's products, including natural sodas, Energy drinks,
Energade energy sport drinks, E2O Energy Water, Blue Sky 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 Energy and 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 beverages
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,
marketing and distribution resources than Hansen.
The Company's Energy drinks compete directly with Red Bull, Red Devil,
Lipovitan, MET-Rx, Hype, XTC, Adrenaline Rush, 180, KMX, Amp, Venom, Extreeme
Energy Shot and many other brands and its other functional drinks compete
directly with Elix, Lipovitan, MET-Rx, Think, Sobe Essentials and other brands.
10
Over the past year or so the Company has experienced substantial competition
from new entrants in the Energy drink category. 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 supplements to their products with a view to marketing their products
as "functional" or "Energy" 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 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, Energy drinks, Energade energy sports
drinks, E2O Energy Water, 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, Anheuser Busch and Ocean Spray. More 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, Adrenaline Rush, Amp, 180, KMX, MET Rx, Venom, Extreeme Energy Shot 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 and Dole. The Company's products also compete with private label brands
such as those carried by grocery store chains and club stores.
The Company's fruit juice Smoothies compete with Kern's and Jumex 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, 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 E2O Energy Water and still water products compete
directly with Vitamin Water, Reebok, Propel, Evian, Crystal Geyser, Naya,
Palomar Mountain, Sahara, Arrowhead, Aquafina, Dannon, Dasani and other brands
of still water especially store brands.
The nutrition 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 products and flavors and marketing
campaigns. The Company's cereals compete with traditional cereals of companies
such as Kellogg's, General Mills, Kashi and Nature Valley, and the Company's
nutrition 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 Lemonade, 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, marketing and distribution resources
than Hansen. Such companies include Anheuser Busch, Miller Brewing Company,
Coors, Gallo Winery, Diageo plc, etc.
11
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 alternative, energy and functional beverage categories as well
as in the cereal, nutrition 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 and results.
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 Energy drinks, Energade energy sports drinks, functional stamina(R)
and power drinks which contain caffeine and/or sodium) 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 from 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 8.3-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 subsequently 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(TM)
as well as two new energy drinks and in addition recently launched Energade(R)
energy sports drinks and E2O Energy Water. The supplements contained in each of
those 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 nutrition 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 8.3-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
discontinuing 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 also discontinuing this line.
12
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. In this regard, the Junior
Juice line, which is aimed at toddlers, contains calcium and vitamin C
(excluding White Grape which only has vitamin C added).
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 of all its beverage, food and alcoholic beverage products. The
Company intends to continue to place increased emphasis on product sampling and
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
Energy drinks, Energade(R) energy sports drinks and E2O Energy Water 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 causes such as breast cancer research as well as sports
figures and 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 20% in 2001 compared to 2000.
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(R) line.
The Company intends to support its planned expansion of distribution and
sale of its Energy drinks, Energade(R) energy sports drinks, E2O Energy Water,
Smoothies in glass bottles and Signature Sodas, through the in-store placement
of point-of-sale materials, use of glide racks, suction cup racks and a
proprietary rolling rack for its Energy 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.
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 nutrition 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.
13
Customers
Retail and specialty chains, and club stores represented 52% of Hansen's
sales in the year ended December 31, 2001 and 56% in the year ended December 31,
2000, while the percentage of sales to distributors (primarily of Hansens(R)
Energy drinks, Energade(R) energy sports drinks, Smoothies in glass bottles and
Signature Sodas) in the year ended December 31, 2001, was 25%, compared to 33%
in the previous year. Sales to health food distributors increased from 5% in the
year ended December 31, 2000 to 11% in the year ended December 31, 2001.
Hansen's major customers in 2001 included Costco, Trader Joe's, Sam's Club,
Vons, Ralph's, Wal-Mart, Safeway and Albertson's. One customer accounted for
approximately 18%, 23% and 25% of the Company's sales for the years ended
December 31, 2001, 2000 and 1999, 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, Energy drinks, children's multi-vitamin juice drinks
and Junior Juice drinks are likely to be less affected by such factors, although
school calendars do have an impact on sales of the children's multi-vitamin
juice drinks and Junior Juice drinks. Similarly, sales of the Company's
nutrition food bars and cereals are likely to be less affected by such factors.
However, as the Company has not had sufficient 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 the
Company which acquired it from 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. There was a similar
license agreement between the Trust and HBC with regard to non-beverage
products. No royalties were payable on sodas, Energy drinks, 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 2001 or
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.
14
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,
and to share royalties with, FJC has been terminated. As of December 31, 2001, a
balance of $143,750 was payable to FJC.
The Company has applied to register a number of trademarks in the United
States including, but not limited to, Hansen's energy(TM), Hansen's Natural
Multi-Vitamin Juice Slam(TM), Powerpack(TM), Hard e(TM), A New Kind a Buzz(TM),
Monster(TM), E2O Energy Water(TM), slim-down(TM).
The Company owns in its own right, a number of trademarks including, but
not limited to, Hansen's(R), Energade(R), THE REAL DEAL(R), LIQUIDFRUIT(R),
Imported from Nature(R), California's Natural Choice(R), California's Choice(R),
Medicine Man(R), Dyna Juice(R), Equator(R), Hansen's power(R), bewell(R),
anti-ox(R), d-stress(R), stamina(R), Aqua Blast(R), Antioxjuice(R)
Intellijuice(R), Defense(R), Immunejuice(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.
In May 2001, in connection with the acquisition of the Junior Juice
Beverage business, the Company, through its wholly owned subsidiary Junior
Juice, acquired the Junior Juice(R) trademark, which is registered in the United
States.
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 Energy and functional drinks in 8.3-ounce slim cans in
refrigerated Visi coolers and walk-in coolers in retail stores.
Government Regulation
The production and marketing of beverages and supplements is 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 and claims.
In connection with Hard e, the production and marketing of alcoholic
beverages is 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.
15
Employees
As of February 28, 2002, Hansen employed a total of 108 employees, 104 of
whom are employed on a full-time basis. Of Hansen's 108 employees, 42 are
employed in administrative and quality control capacities and 66 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.
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 rents additional warehouse space on
a short term basis from time to time as well as public warehouses situated
throughout the United States and Canada.
ITEM 3. LEGAL PROCEEDINGS
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 filed a counter claim against the
Company seeking damages approximating $2.8 million. The claims by and against
the Company were settled in January 2002 on the basis that each of the parties
withdrew their respective claims against each other.
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
claimed 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 removed the complaint to the United States District Court
for the Northern District of California. In March 2002, the Company entered into
a settlement agreement with Morris in terms of which the Company, without
admission of wrongdoing, agreed to pay the sum of $60,000 in full settlement of
Morris' 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
16
claims and contingencies, including those mentioned above, is not likely to have
a material adverse effect on the financial condition of the Company.
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 October 26,
2001. 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 8,993,861
Hilton H. Schlosberg 8,993,861
Benjamin M. Polk 8,993,861
Norman C. Epstein 8,993,861
Harold C. Taber, Jr. 8,993,861
Mark S. Vidergauz 8,993,861
In addition, at the meeting the stockholders of the Company ratified the
adoption of the Hansen Natural Corporation 2001 Stock Option Plan by a vote of
6,292,081 for, 230,714 against and 38,370 abstaining. The stockholders of the
Company also ratified the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ended December 31, 2001, by a vote of
9,032,580 for, 4,727 against and 8,482 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 11, 2002, there were 10,053,003 shares of the Company's
Common Stock outstanding held by approximately 649 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, 1999 to December 31, 2001:
Common Stock
--------------------------------------
High Bid Low Bid
--------------------------------------
Year Ended December 31, 2001
First Quarter $ 4.31 $ 3.25
Second Quarter $ 3.68 $ 2.93
Third Quarter $ 3.98 $ 3.20
Fourth Quarter $ 4.25 $ 3.30
Year Ended December 31, 2000
First Quarter $ 4.63 $ 4.00
Second Quarter $ 4.50 $ 3.41
Third Quarter $ 5.91 $ 4.13
Fourth Quarter $ 5.38 $ 3.25
Year Ended December 31, 1999
First Quarter $ 5.63 $ 3.44
Second Quarter $ 5.50 $ 3.63
Third Quarter $ 5.63 $ 4.31
Fourth Quarter $ 5.13 $ 3.88
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, 1997 through 2001 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
1997, 1998, 1999 and 2000 Forms 10-K.
18
(in thousands, except per
share information)
2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------
Net $92,280 $79,733 $72,303 $53,866 $43,057
sales
Net income $ 3,019 $ 3,915 $ 4,478 $ 3,563 $ 1,250
Net income per
common share
Basic $ 0.30 $ 0.39 $ 0.45 $ 0.38 $ 0.14
Diluted $ 0.29 $ 0.38 $ 0.43 $ 0.34 $ 0.13
Total assets $38,561 $38,958 $28,709 $22,557 $16,933
Long-term debt $ 5,851 $ 9,732 $ 903 $ 1,335 $ 3,408
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
During 2001, 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 with particular emphasis on
Energy type drinks.
The Company achieved record sales in 2001. The increase in sales in 2001
was primarily attributable to the growth in sales of the Company's Natural
Sodas, Blue Sky Natural Sodas and apple juice, as well as sales of Junior Juice
drinks since the acquisition by the Company of that brand and Energade(R) and
E2O Energy Water since their respective introductions during the year. The
increase in sales was partially offset by decreased sales of Smoothies in P.E.T.
and glass bottles, and the Healthy Start/Silver Foxes juice line as well as
lower sales of iced teas, lemonades and juice cocktails, Signature Sodas and the
children's multi vitamin juice drinks in 8.45-ounce aseptic packaging. As a
result of the change in the Company's product and customer mix, the gross profit
percentage achieved by the Company in 2001 decreased to 44.2% from 46.5% in
2000.
During 2001, sales outside of California represented 39% of the aggregate
sales of the Company, as compared to approximately 37% of the aggregate sales of
the Company in 2000. Sales to distributors outside the United States during 2001
amounted to $1,233,000 compared to $753,000 in 2000.
The Company introduced a line of diet Natural Sodas in 12-ounce cans at the
end of 2000/beginning of 2001 and an additional flavor, Ginger Ale, to its
regular Natural Soda line in 2001. In addition, the Company also introduced its
original Energy drink in 8.3-ounce glass bottles, two additional energy drinks
in 8.3-ounce slim-cans, Sparkling Lemonades and Orangeades in 1-liter glass
bottles, Medicine Man(R) in glass bottles, Energade(R) in 23.5-ounce cans, E2O
Energy Water in 24-ounce P.E.T. bottles, Soy Smoothies in 1-liter and 11-ounce
aseptic packaging, additional juice blends in 64-ounce P.E.T. bottles, fruit
juice Smoothies in 16-ounce P.E.T. bottles, functional nutrition bars and active
nutrition bars. The Company reduced its Smoothie line in 64-ounce P.E.T. bottles
from six flavors to two flavors. The Company is discontinuing its entire Healthy
Start/Silver Foxes 100% juice lines in glass and P.E.T. bottles. Response from
customers and consumers to the Medicine Man(R) line was disappointing and, in
consequence, the Company is presently reevaluating that line.
19
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 slightly lower than in 2000. 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.
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.
On May 25, 2001 the Company, through its wholly owned subsidiary Junior
Juice, acquired the Junior Juice beverage business. The Junior Juice product
line is comprised of a line of 100% juices packed in 4.23-ounce aseptic packages
and is targeted at toddlers.
During 2001, 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 2002 to support and grow the sales of its products.
Further, during 2001, the Company, through its wholly owned subsidiary,
HEB, continued to market a malt-based beverage called Hard e, which contains up
to 5% alcohol. The Hard e product is not marketed under the Hansen's name.
The Company continues to incur expenditures in connection with the
development and introduction of new products and flavors.
Results of Operations for the Year Ended December 31, 2001 Compared to the Year
Ended December 31, 2000
Net Sales. For the year ended December 31, 2001, net sales were $92.3
million, an increase of $12.6 million or 15.7% over the $79.7 million net sales
for the year ended December 31, 2000. The increase in net sales was primarily
attributable to increased sales of natural sodas, Blue Sky Natural Sodas, which
trademark was acquired in September 2000, and apple juice and sales of Junior
Juice, which trademark was acquired in May 2001 and Energade(R), which was
introduced in July 2001. To a lesser extent, the increase in net sales was also
attributable to the introduction of E2O Energy Water in June 2001, increased
sales of Hard e, which was introduced in August 2000, natural bars, which were
introduced in August 2000, smoothies in 11.5-ounce cans and juice blends. The
increase in net sales was partially offset by decreases in sales of smoothies in
glass and P.E.T. bottles, Signature Sodas, children's multi-vitamin juice
drinks, Healthy Start/Silver Foxes in glass and P.E.T. bottles and teas,
lemonade and juice cocktails.
Gross Profit. Gross profit was $40.8 million for the year ended December
31, 2001, an increase of $3.7 million or 10.0% over the $37.1 million gross
profit for the year ended December 31, 2000. Gross profit as a percentage of net
sales decreased to 44.2% for the year ended December 31, 2001 from 46.5% for the
year ended December 31, 2000. The increase in gross profit was primarily
attributable to increased net sales. The decrease in gross profit as a
percentage of net sales is primarily attributable to slightly lower margins
achieved as a result of a change in the Company's product and customer mix.
Total Operating Expenses. Total operating expenses were $35.3 million for
the year ended December 31, 2001, an increase of $5.1 million or 16.9% over
total operating expenses of $30.2 million for the year ended December 31, 2000.
20
Total operating expenses as a percentage of net sales increased to 38.2% for the
year ended December 31, 2001, from 37.9% for the year ended December 31, 2000.
The increase in total operating expenses was primarily attributable to increased
selling, general and administrative 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 $34.8 million for the
year ended December 31, 2001 an increase of $5.0 million or 16.5% over selling,
general and administrative expenses of $29.8 million for the year ended December
31, 2000. Selling, general and administrative expenses as a percentage of net
sales increased to 37.7% for the year ended December 31, 2001 from 37.4% for the
year ended December 31, 2000. Selling expenses were $24.3 million for the year
ended December 31, 2001, an increase of $3.6 million or 17.1% over selling
expenses of $20.8 million for the year ended December 31, 2000. Selling expenses
as a percentage of net sales increased to 26.4% for the year ended December 31,
2001 from 26.0% for the year ended December 31, 2000. The increase in selling
expenses was primarily attributable to increased promotional expenditures,
distribution (freight) expenses, commissions, expenditures for graphic design
and premiums as well as fees paid for slotting. The increase in selling expenses
was partially offset by a decrease in expenditures for advertising, merchandise
displays, point of sale and in-store demonstrations. General and administrative
expenses were $10.4 million for the year ended December 31, 2001, an increase of
$1.4 million or 15% over general and administrative expenses of $9.0 million for
the year ended December 31, 2000. General and administrative expenses as a
percentage of net sales was 11.3% for the year ended December 31, 2001 from
11.4% for the year ended December 31, 2000. The increase in general and
administrative expenses was attributable to an increase in payroll costs, which
was partially offset by a decrease in other general and administrative costs.
The increase in payroll costs was partially attributable to noncash compensation
expense related to the exercise of stock options of $231,000.
Amortization of trademark license and trademarks was $507,000 for the year
ended December 31, 2001, an increase of $136,000 over amortization of trademark
license and trademarks of $371,000 for the year ended December 31, 2000. The
increase in amortization of trademark license and trademarks was primarily
attributable to the amortization of the Blue Sky trademark for a full year since
the trademark was acquired in September 2000. To a lesser extent, the increase
in amortization of trademark license and trademarks was due to the acquisition
of the Junior Juice trademark in May 2001.
Operating Income. Operating income was $5.6 million for the year ended
December 31, 2001, compared to $6.9 million for the year ended December 31,
2000. The $1.3 million 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 $519,000 for the
year ended December 31, 2001, which was $150,000 higher than net non-operating
expense of $369,000 for the year ended December 31, 2000. Net non-operating
expense consists of interest and financing expense and interest income. Interest
and financing expense for the year ended December 31, 2001 was $528,000, as
compared to $382,000 for the year ended December 31, 2000. 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 in
2000. See also "Liquidity and Capital Resources" below. Interest income for the
year ended December 31, 2001 was $9,000, as compared to interest income of
$13,000 for the year ended December 31, 2000. The decrease in interest income
was primarily attributable to a reduction in the cash available for investment
during the year ended December 31, 2001.
Provision for Income Taxes. Provision for income taxes for the year ended
December 31, 2001 was $2.0 million as compared to provision for income taxes of
$2.6 million for the year ended December 31, 2000. The effective combined
federal and state tax rate for 2001 was 40.0% as compared to 40.1% for 2000. The
decrease in the provision for income taxes was primarily attributable to
decreased operating income.
21
Net Income. Net income was $3.0 million for the year ended December 31,
2001, compared to $3.9 million for the year ended December 31, 2000. The
$896,000 decrease in net income was attributable to decreased operating income
of $1.3 million and increased non-operating expense of $150,000, which was
partially offset by decreased provision for income taxes of $603,000.
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
22
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 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.
Liquidity and Capital Resources
As of December 31, 2001, the Company had working capital of $12,978,000
compared to working capital of $13,644,000 as of December 31, 2000. The decrease
in working capital was primarily attributable to payments made on long-term debt
and increased expenditures for the acquisition of property, trademark license
and trademarks, and deposits and other assets. The decrease was offset by
working capital provided by net income earned after adjustments for certain
non-cash expenses, primarily amortization of trademark license and trademarks,
depreciation and other amortization, the increase in deferred income taxes and
compensation expense related to the issuance of stock options.
The Company's cash was used for certain working capital items, such as
acquisition of increased inventories and to reduce accounts payable, as well as
the acquisition of the Blue Sky and Junior Juice businesses, trademark licenses
and trademarks, purchases of property and equipment. 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, 2001
was $682,000, as compared to net cash used in investment activities of $7.9
million in 2000. The decrease in net cash used in investing activities was
23
primarily attributable to lower levels of trademark acquisitions, purchases of
property and equipment and deposits and other assets in 2001. 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 used in financing activities was $4.4 million for the year ending
December 31, 2001, as compared to net cash provided by financing activities of
$7.1 million in 2000. The increase in net cash used in financing activities as
compared to the prior year was primarily attributable to increased principal
payments of long-term debt, the reduction of short-term borrowings and decreased
proceeds from the issuance of common stock during 2001. During 2000, the Company
purchased common stock to be held in treasury, whereas no such purchases
occurred in 2001.
In 1997, HBC 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, HBC 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 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. Interest on
borrowings under the line of credit is 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 HBC from
time to time.
The following represents a summary of the Company's contractual obligations
and related scheduled maturities as of December 31, 2001:
Long Term
Debt & Capital Lease
Obligations Operating Lease Total
---------------------- ---------------------- ----------------------
Year ending December 31:
2002 $ 337,872 $ 623,729 $ 961,601
2003 235,241 644,918 880,159
2004 250,463 647,726 898,189
2005 5,218,641 645,266 5,863,907
2006 146,760 660,468 807,228
Thereafter 2,539,485 2,539,485
---------------------- ---------------------- ----------------------
$ 6,188,977 $ 5,761,592 $ 11,950,569
====================== ====================== ======================
The terms of the Company's line of credit contain certain financial
covenants including certain financial ratios and annual net income requirements.
The line of credit contains provisions under which applicable interest rates
will be adjusted in increments based on the achievement of certain financial
ratios. The Company was in compliance with the financial covenants at December
31, 2001.
If any event of default shall occur for any reason, whether voluntary or
involuntary, Comercia may declare any or all of portions outstanding on the line
of credit immediately due and payable, exercise rights and remedies available to
secured parties under the Uniform Commercial Code, institute legal proceedings
to foreclose upon the lien and security interest granted or for the sale of any
or all collateral.
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
24
shares of common stock of the Company, as well as any purchases of capital
assets or equipment through December 31, 2002.
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.
Critical Accounting Policies
The following summarize the most significant accounting and reporting
policies and practices of the Company.
Trademark License and Trademarks - Trademark license represents the
Company's exclusive world-wide right to use the Hansen's(R) trademark in
connection with the manufacture, sale and distribution of carbonated beverages
and waters, shelf stable fruit juices and drinks containing fruit juices on a
royalty free basis and other non-carbonated beverages and water and non-beverage
products in consideration of royalty payments. In September 1999, HBC entered
into an Assignment and Agreement with the Fresh Juice Company of California,
Inc. ("FJC"), pursuant to which HBC acquired exclusive ownership of the
Hansen's(R) trademark and trade names and its obligation to pay royalties on
certain product lines fell away. The Company also owns in its own right, a
number of other trademarks in the United States as well as in a number of
countries around the world. The Company also owns the Blue Sky(R) trademark,
which was acquired in September 2000, and the Junior Juice(R) trademark, which
was acquired in May 2001. The Company amortizes its trademark license and
trademarks over 40 years. The Company's adoption of SFAS No. 142, Goodwill and
Other Intangible Assets, will affect the Company's method of amortizing its
trademark license and trademarks.
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, 2001,
management does not believe that the Company's long-lived assets have been
25
impaired. If the carrying value of the long-lived asset is considered impaired,
an impairment charge is recorded for the amount by which the carrying value of
the long-lived asset exceeds its fair value.
Advertising and Promotional Allowances - The Company accounts for
advertising production costs by expensing such production costs the first time
the related advertising takes place. In addition, the Company supports its
customers with promotional allowances, portion of which is utilized for
marketing and indirect advertising by them. In certain instances, a portion of
the promotional allowances payable to customers based on the levels of sales to
such customers, promotion requirements or expected use of the allowances, are
estimated by the Company. If the level of sales, promotion requirements or use
of the allowances are different from such estimates, the promotional allowances
could, to the extent it is based on estimates, be affected. The adoption of
Emerging Issues Task Force ("EITF") No. 01-9, as described below, will affect
the presentation of these advertising expenses and promotional allowances within
the Company's Consolidated Statements of Income.
New Accounting Pronouncements
On January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and
SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that the Company
recognize all derivative instruments as either current or non-current assets or
liabilities at fair value. The adoption of SFAS No. 133 did not have a
significant impact on the financial position, results of operations or cash
flows of the Company.
During 2000 and 2001, the Financial Accounting Standards Board's ("FASB")
EITF addressed various issues related to the income statement classification of
certain promotional payments, including consideration from a vendor to a
reseller or another party that purchases the vendor's products. EITF No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer or Reseller of the
Vendor's Products, was issued in November 2001 and codified earlier
pronouncements. The consensus requires certain sales promotions and customer
allowances currently classified as selling, general and administrative expenses
to be classified as a reduction of net sales. The Company is currently
evaluating the impact of EITF No. 01-9 on its financial statements and will
comply with its provisions beginning in the first quarter of 2002.
In June 2001, the FASB approved SFAS No. 141, Business Combinations, and
SFAS No. 142. SFAS No. 141 prospectively prohibits the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
SFAS No. 142 eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and the impairment testing and recognition for
goodwill and intangible assets on an annual basis or on an interim basis if an
event occurs or circumstances change that would reduce the fair value of a
reporting unit below its carrying value. SFAS No. 142 will apply to goodwill and
intangible assets arising from transactions completed before and after the
effective date of June 30, 2001. The adoption of SFAS No. 141 and SFAS No. 142
is required for the Company on January 1, 2002. The adoption of SFAS 142 is
expected to reduce the trademark amortization expense currently recognized by
the Company.
In December 1999, the Securities Exchange Commission staff issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. 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 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.
26
In accordance with EITF 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, 2001, 2000 and 1999, freight-out costs amounted to $4.2 million, $4.1
million, and $3.8 million, respectively, and have been recorded in selling,
general and administrative expenses in the accompanying consolidated statements
of income
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company believes that
the adoption of SFAS No. 143 will not have a material impact on its results of
operations or financial position and will adopt such standards on January 1,
2003, as required.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supersedes previous guidance on
financial accounting and reporting for the impairment or disposal of long-lived
assets and for segments of a business to be disposed of. Adoption of SFAS No.
144 is required no later than the beginning of fiscal 2002. Management does not
expect the adoption of SFAS No. 144 to have a significant impact on the
Company's financial position or results of operations. However, future
impairment reviews may result in charges against earnings to write down the
value of long-lived assets.
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:
27
o Company's ability to generate sufficient cash flows to support capital
expansion plans and general operating activities;
o Changes in consumer preferences;
o Changes in demand that are weather related, particular in areas outside of
California;
o Competitive products and pricing pressures and the Company's ability to
gain or maintain share of sales in the marketplace as a result of actions
by competitors;
o The introduction of new products;
o Laws and regulations, and/or any changes therein, including changes in
accounting standards, taxation requirements (including tax rate changes,
new tax laws and revised tax law interpretations) and environmental laws as
well as the Federal Food Drug and Cosmetic Act, the Dietary Supplement
Health and Education Act, and regulations made thereunder or in connection
therewith, especially those that may affect the way in which the Company's
products are marketed 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 Energy and functional drinks in 8.3-ounce slim cans, Smoothies in
11.5-ounce cans, E20 Energy Water, Energade and other products.
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 of beverages are expressed in unit case volume. A "unit case" means a
unit of measurement equal to 192 U.S. fluid ounces of finished beverage
(twenty-four 8-ounce servings) or concentrate sold that will yield 192 U.S.
fluid ounces of finished beverage. Unit case volume of the Company means the
number of unit cases (or unit case equivalents) of beverages directly or
indirectly sold by the Company. Sales of food bars and cereals are expressed in
actual cases. A case of food bars and cereals is defined as follows:
A fruit and grain bar and functional nutrition bar case equals ninety 1.76-ounce
bars.
A natural cereal case equals ten 13-ounce boxes measured by volume.
An active nutrition bar case equals thirty two 1.4 ounce bars.
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
28
mitigated; however, such fluctuations may be more pronounced as the distribution
of Hansen's products expands outside of California. The Company has not had
sufficient 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."
Unit Case Volume / Case Sales (in Thousands)
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- -----------
Quarter 1 3,091 2,451 2,287 1,733 1,281
Quarter 2 4,171 3,323 2,817 2,159 2,058
Quarter 3 4,271 3,157 3,148 2,625 2,453
Quarter 4 3,583 2,859 2,645 1,796 1,913
---------- ---------- ---------- ---------- -----------
Total 15,116 11,790 10,897 8,313 7,705
========== ========== ========== ========== ===========
Net Revenues (in Thousands)
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- -----------
Quarter 1 $18,769 $15,978 $15,229 $11,265 $ 7,120
Quarter 2 25,715 22,667 19,142 13,950 11,496
Quarter 3 26,180 22,702 20,491 16,589 13,439
Quarter 4 21,616 18,386 17,441 12,062 11,002
---------- ---------- ---------- ---------- -----------
Total $92,280 $79,733 $72,303 $53,866 $43,057
========== ========== ========== ========== ===========
Inflation
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed to are
fluctuations in commodity prices, affecting the cost of raw materials, and
changes in interest rates on the Company's long term debt. The Company is
subject to market risk with respect to the cost of commodities because its
ability to recover increased costs through higher pricing may be limited by the
competitive environment in which it operates.
At December 31, 2001, the majority of the Company's debt consisted of
variable rate debt. The amount of variable rate debt fluctuates during the year
based on the Company's cash requirements. If average interest rates were to
increase one percent for the year ended December 31, 2001, the net impact on the
Company's pre-tax earnings would have been approximately $71,000.
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-20.
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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
November 2002.
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 (52) - 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 (49) - 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 (51) - 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 Winston & 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 (61) - 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. (62) - 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
30
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.
Mark S. Vidergauz (48) - 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, 2001, 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 $100,000 during the year ended December 31, 2001.
These amounts reflect total cash compensation paid by the Company and its
subsidiaries to these individuals during the years December 31, 1999 through
2001.
31
SUMMARY COMPENSATION TABLE
Long Term
Compensation (4)
ANNUAL COMPENSATION Awards (5)
- ----------------------------------------- ------------------------------------------------ -----------------
Other Securities
Bonus (2) Annual underlying
Name and Principal Positions Year Salary (1) ($) ($) Compensation ($) Options/SARs (#)
- ----------------------------- ----------- --------------- ----------- -------------------- -----------------
Rodney C. Sacks 2001 194,400 8,000 7,314 (3)
Chairman, CEO 2000 194,400 10,000 6,262 (3)
and Director 1999 180,000 25,000 6,088 (3) 100,000
- ----------------------------- ----------- --------------- ----------- -------------------- -----------------
Hilton H. Schlosberg 2001 194,400 8,000 7,314 (3)
Vice-Chairman, CFO 2000 194,400 10,000 6,263 (3)
President, Secretary and 1999 180,000 25,000 6,088 (3) 100,000
Director
- ----------------------------- ----------- --------------- ----------- -------------------- -----------------
Mark J. Hall 2001 160,000 8,000 7,349 (3)
Senior Vice President 2000 160,000 20,000 8,061 (3)
Distributor Division 1999 150,000 40,000 7,551 (3) 30,000
- ----------------------------- ----------- --------------- ----------- -------------------- -----------------
Kirk S. Blower 2001 115,000 3,000 7,364 (3)
Senior Vice President 2000 115,000 4,000 7,316 (3)
Juice Division 1999 110,000 16,800 7,099 (3) 12,500
- ----------------------------- ----------- --------------- ----------- -------------------- -----------------
Steven B. Edgar 2001 107,000 21,400 86,160 (6)
Vice President 2000 102,250 8,000 10,114 (3)
Sales 1999 98,000 20,000 2,593 (3) 10,000
- ----------------------------- ----------- --------------- ----------- -------------------- -----------------
1 SALARY - Pursuant to employment agreement, .Messrs. Sacks and Schlosberg are
entitled to an annual base salary of $209,952, $194,400 and $180,000 for 2001,
2000 and 1999 respectively. During 2001, Messrs. Sacks and Schlosberg received
salaries of $194,400 respectively.
2 BONUS - Payments made in 2002, 2001 and 2000 are for bonuses accrued in 2001,
2000 and 1999 respectively.
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 $75,257 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
$10,903 for automobile expense reimbursement.
ALL OTHER COMPENSATION - none paid
OPTION/SAR GRANTS FOR THE YEAR ENDED DECEMBER 31, 2001
None.
32
AGGREGATED OPTION/SAR EXERCISES DURING THE YEAR ENDED
DECEMBER 31, 2001 AND OPTION/SAR VALUES AT DECEMBER 31, 2001
Number of Value of
underlying unexercised
unexercised in-the-money
options/SARs at options/SARs at
December 31, 2001 December 31, 2001
(#) ($)
---------------------- ---------------------
Shares acquired Value Exercisable/ Exercisable/
Name on exercise (#) Realized ($) Unexercisable Unexercisable
- ----------------------------- ------------------- --------------------- ---------------------- ---------------------
Rodney C. Sacks - - 94,000/43,500 (1) 97,875/0
- ----------------------------- ------------------- --------------------- ---------------------- ---------------------
Hilton H. Schlosberg - - 94,000/43,500 (1) 97,875/0
- ----------------------------- ------------------- --------------------- ---------------------- ---------------------
Mark J. Hall - - 92,000/24,000 (2) 278,280/75,360
- ----------------------------- ------------------- --------------------- ---------------------- ---------------------
Kirk S. Blower - - 5,000/7,500 (3) 0/0
- ----------------------------- ------------------- --------------------- ---------------------- ---------------------
Steven B. Edgar 47,332 128,743 4,000/6,000 (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, 2001, 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 56,500 are exercisable at December 31, 2001,
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 72,000 are exercisable at December 31, 2001, 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, 2001, 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 5,000 are exercisable at December 31, 2001, granted pursuant to a Stock
Option Agreement dated February 2, 1999 between the Company and Mr. Blower.
4 Includes options to purchase 10,000 shares of common stock at $4.25 per share
of which 4,000 are exercisable at December 31, 2001, granted pursuant to a Stock
Option Agreement dated February 1, 1999 between the Company and Mr. Edgar.
33
Performance Graph
The following graph shows a five-year comparison of cumulative total
returns: (1)
TOTAL SHAREHOLDER RETURNS
ANNUAL RETURN PERCENTAGES
For the years ended December 31,
Company Name/Index 1997 1998 1999 2000 2001
- ---------------------- -------- -------- -------- -------- --------
HANSEN NAT CORP 70.62 196.63 (19.77) (10.14) 8.39
S&P SMALLCAP 600 INDEX 25.58 (1.31) 12.40 11.80 6.54
PEER GROUP 34.05 (43.03) 9.15 17.06 47.15
INDEXED RETURNS
For the years ended December 31,
Base
Period
Company Name/Index 1996 1997 1998 1999 2000 2001
- ---------------------- ------ -------- -------- -------- -------- --------
HANSEN NAT CORP 100 170.62 506.12 406.07 364.88 395.48
S&P SMALLCAP 600 INDEX 100 125.58 123.95 139.32 155.76 165.94
PEER GROUP 100 134.05 76.37 83.36 97.58 143.58
1 Annual return assumes reinvestment of dividends. Cumulative total return
assumes an initial investment of $100 on December 31, 1996. 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., Cott Corporation, Northland Cranberries and Jones Soda Co.
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, Triarc
Companies, Inc., which sold their beverage business in October 2000 and Jones
Soda Co., which started trading in August 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
34
$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.
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, Harold C. Taber,
Jr. and Mark S. Vidergauz earned director's fees of $8,000 and Benjamin M. Polk
earned director's fees of $7,500 for the one-year period ended December 31,
2001.
Employee Stock Option Plan
The Company has a stock option plan (the "Plan") that provided 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.
During 2001, the Company adopted the Hansen Natural Corporation 2001 Stock
Option Plan ("2001 Option Plan"). The 2001 Option Plan provides for the grant of
options to purchase up to 2,000,000 shares of the common stock of the Company to
certain key employees of the Company and its subsidiaries. Options granted under
the 2001 Stock Option Plan may be incentive stock options under Section 422 of
the Internal Revenue Code, as amended (the "Code"), nonqualified stock options,
or stock appreciation rights.
The Plan and the 2001 Option Plan are administered by the Compensation
Committee of the Board of Directors of the Company, comprised of directors who
satisfy the "non-employee" director requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 and the "outside director" provision of Section
162(m) of the Code. Grants under the Plan and the 2001 Option 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;
35
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).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table sets forth information, as of March 11,
2002, 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) 3,987,989 (4) 39.7%
Hilton H. Schlosberg (5) 3,949,086 (6) 39.3%
Kevin Douglas, Douglas Family
Trust and James Douglas and
Jean Douglas Irrevocable
Descendents' Trust(7)
706,911 (8) 7.0%
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 76,500 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 114,000
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, a trust for the benefit of his children
and a limited partnership for the benefit of Mr. Sacks and his children and of
which he is the general partner; 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, a trust for the benefit of his children and a limited
partnership for the benefit of Mr. Sacks and his children and of which he is the
general partner.
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
36
Company and Mr. Schlosberg; and options presently exercisable to purchase 76,500
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
114,000 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.
7 The mailing address of this reporting person is 1101 Fifth Avenue, Suite 360,
San Rafael, California 94906.
8 Includes 252,682 shares of common stock owned by Kevin Douglas; 226,409 shares
of common stock owned by James Douglas and Jean Douglas Irrevocable Descendants'
Trust; and 227,820 shares of common stock owned by Douglas Family Trust. Kevin
Douglas, Douglas Family Trust and James Douglas and Jean Douglas Irrevocable
Descendants' Trust are deemed members of a group that shares voting and
dispositive power over the shares.
(b) The following table sets forth information as to the ownership
of shares of common stock, as of March 11, 2002, 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 3,987,989 (1) 39.2%
Hilton H. Schlosberg 3,949,086 (2) 38.8%
Harold C. Taber, Jr. 107,419 (3) 1.1%
Mark S. Vidergauz 12,000 (4) * %
Officers and Directors as a group (6 members: 4,570,005 shares or 44.4% 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 76,500 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 114,000
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, a trust for the benefit of his children
and a limited partnership for the benefit of Mr. Sacks and his children and of
which he is the general partner; 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, a trust for the benefit of his children and a limited
partnership for the benefit of Mr. Sacks and his children and of which he is the
general partner.
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 76,500
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.
37
Mr. Schlosberg disclaims beneficial ownership of all shares deemed beneficially
owned by him hereunder except: (i) 348,597 shares of common stock, (ii) the
114,000 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 12,000 shares of common
stock 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Benjamin M. Polk is a partner in Winston & Strawn, a law firm (together
with its predecessors) that has been retained by the Company since 1992.
Rodney C. Sacks is currently 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 2001, 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 2001, 2000 and 1999 were $164,638,
$115,520 and $121,289 respectively. The Company continues to purchase
promotional items from IFM Group, Inc. in 2002.
The preceding descriptions of agreements are qualified in their
entirety by reference to such agreements, which have been filed as exhibits to
this Report.
38
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, 2001 and 2000 F-3
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements for the years ended
December 31, 2001, 2000 and 1999 F-8
(b) Financial Statement Schedules
Valuation and Qualifying Accounts for the years ended
December 31, 2001, 2000 and 1999 F-20
(c) Reports on Form 8-K
None
39
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 29, 2002
-----------------------
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 29, 2002
- -------------------------- and Chief Executive Officer
Rodney C. Sacks (Principal Executive Officer)
/s/ HILTON H. SCHLOSBERG Vice Chairman of the Board of March 29, 2002
- -------------------------- Directors, President, Chief
Hilton H. Schlosberg Operating Officer, Chief Financial
Officer and Secretary
/s/ BENJAMIN M. POLK Director March 29, 2002
- --------------------------
Benjamin M. Polk
/s/ NORMAN C. EPSTEIN Director March 29, 2002
- --------------------------
Norman C. Epstein
/s/ HAROLD C. TABER, JR. Director March 29, 2002
- --------------------------
Harold C. Taber, Jr.
/s/ MARK S. VIDERGAUZ Director March 29, 2002
- --------------------------
Mark S. Vidergauz
40
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
- ----------------- --------------------------------------------------------------------------------------------
10(bb) Hansen/Taber Agreement dated July 27, 1992 by and among Hansen and Taber. 8
- ----------------- --------------------------------------------------------------------------------------------
41
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
- ----------------- --------------------------------------------------------------------------------------------
42
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
- ----------------- --------------------------------------------------------------------------------------------
43
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
- ----------------- --------------------------------------------------------------------------------------------
10.2 Asset Purchase Agreement among Hansen Junior Juice Company, as Purchaser and Pasco Juices,
Inc. as Seller and Hansen Beverage Company dated as of May 25, 2001.
- ----------------- --------------------------------------------------------------------------------------------
21 Subsidiaries 5
- ----------------- --------------------------------------------------------------------------------------------
23 Independent Auditors' Consent
- ----------------- --------------------------------------------------------------------------------------------
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.
44
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, 2001 and 2000 F-3
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements for the years ended
December 31, 2001, 2000 and 1999 F-8
Valuation and Qualifying Accounts for the years ended
December 31, 2001, 2000 and 1999 F-20
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, 2001 and 2000,
and the related consolidated statements of income, shareholders' equity and cash
flows for the years ended December 31, 2001, 2000, and 1999. 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 this 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, 2001 and 2000, and the results of their
operations and their cash flows for the years ended December 31, 2001, 2000, and
1999 in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic 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 22, 2002
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
- ----------------------------------------------------------------------------------------------------------------------------------
2001 2000
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 247,657 $ 130,665
Accounts receivable (net of allowance for doubtful
accounts, sales returns and cash discounts of $625,270
in 2001 and $486,462 in 2000 and promotional allowances
of $2,981,556 in 2001 and $2,370,260 in 2000) 4,412,422 6,797,314
Inventories, net (Note 3) 11,956,680 10,907,895
Prepaid expenses and other current assets 974,155 823,387
Deferred income tax asset (Note 7) 949,176 881,618
----------------- -----------------
Total current assets 18,540,090 19,540,879
PROPERTY AND EQUIPMENT, net (Note 4) 1,945,146 1,863,044
INTANGIBLE AND OTHER ASSETS:
Trademark license and trademarks (net of accumulated amortization
of $3,873,846 in 2001 and $3,366,358 in 2000) 17,350,221 16,887,914
Deposits and other assets 725,825 665,731
----------------- -----------------
18,076,046 17,553,645
----------------- -----------------
$ 38,561,282 $ 38,957,568
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,919,741 $ 3,894,784
Accrued liabilities 871,841 607,443
Accrued compensation 432,896 281,629
Current portion of long-term debt (Note 5) 337,872 234,655
Income taxes payable (Note 7) 878,266
----------------- -----------------
Total current liabilities 5,562,350 5,896,777
LONG-TERM DEBT, less current portion (Note 5) 5,851,105 9,731,956
DEFERRED INCOME TAX LIABILITY (Note 7) 1,814,278 1,274,139
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY: (Note 8)
Common stock - $0.005 par value; 30,000,000 shares
authorized; 10,251,764 shares issued, 10,045,003 outstanding
in 2001; 10,148,882 shares issued, 9,942,121
outstanding in 2000 51,259 50,744
Additional paid-in capital 11,926,604 11,667,619
Retained earnings 14,170,231 11,150,878
Common stock in treasury, at cost; 206,761 in 2001 and 2000 (814,545) (814,545)
----------------- -----------------
Total shareholders' equity 25,333,549 22,054,696
----------------- -----------------
$ 38,561,282 $ 38,957,568
================= =================
See accompanying notes to consolidated financial statements.
F-3
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
NET SALES $ 92,279,711 $ 79,732,709 $ 72,303,186
COST OF SALES 51,455,207 42,646,677 38,776,532
------------------- ------------------- -------------------
GROSS PROFIT 40,824,504 37,086,032 33,526,654
OPERATING EXPENSES:
Selling, general and administrative 34,766,159 29,814,609 25,337,374
Amortization of trademark license and trademarks 507,488 371,073 307,823
Other operating expenses 380,378
------------------- ------------------- -------------------
Total operating expenses 35,273,647 30,185,682 26,025,575
------------------- ------------------- -------------------
OPERATING INCOME 5,550,857 6,900,350 7,501,079
NONOPERATING EXPENSE (INCOME):
Interest and financing expense 527,594 382,152 170,506
Interest income (8,992) (12,914) (118,413)
------------------- ------------------- -------------------
Net nonoperating expense 518,602 369,238 52,093
------------------- ------------------- -------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 5,032,255 6,531,112 7,448,986
PROVISION FOR INCOME TAXES (Note 7) 2,012,902 2,615,986 2,971,118
------------------- ------------------- -------------------
NET INCOME $ 3,019,353 $ 3,915,126 $ 4,477,868
=================== =================== ===================
NET INCOME PER COMMON SHARE:
Basic $ 0.30 $ 0.39 $ 0.45
=================== =================== ===================
Diluted $ 0.29 $ 0.38 $ 0.43
=================== =================== ===================
NUMBER OF COMMON SHARES USED
IN PER SHARE COMPUTATIONS:
Basic 10,036,547 9,957,743 9,964,778
=================== =================== ===================
Diluted 10,314,904 10,405,703 10,510,604
=================== =================== ===================
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, 2001, 2000 AND 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock Additional Treasury stock Total
----------------------- paid-in Retained ----------------------- shareholders'
Shares Amount capital earnings Shares Amount equity
------------ --------- -------------- -------------- ---------- ----------- --------------
Balance,
January 1, 1999 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
Issuance of common stock 102,882 515 258,985 259,500
Net income 3,019,353 3,019,353
------------ --------- -------------- -------------- ---------- ----------- --------------
Balance,
December 31, 2001 10,251,764 $ 51,259 $ 11,926,604 $ 14,170,231 (206,761) $(814,545) $ 25,333,549
============ ========= ============== ============== ========== =========== ==============
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, 2001, 2000 AND 1999
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,019,353 $ 3,915,126 $ 4,477,868
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of trademark license and trademarks 507,488 371,073 307,824
Depreciation and other amortization 436,459 314,662 258,343
(Gain) / loss on disposal of plant and equipment (15,072) 52,786 15,569
Compensation expense related to the exercise of stock options 230,879 73,026
Deferred income taxes 472,581 (89,386) (75,554)
Effect on cash of changes in operating assets and liabilities:
Accounts receivable 2,384,892 (3,046,056) (1,912,674)
Inventories (1,048,785) (1,013,481) (4,683,337)
Prepaid expenses and other current assets (150,768) (269,698) (309,371)
Accounts payable 24,957 (2,042,089) 4,066,620
Accrued liabilities 67,721 261,649 (58,070)
Accrued compensation 151,267 (180,656) (13,716)
Income taxes payable (878,266) 603,230 (828,571)
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities 5,202,706 (1,122,840) 1,317,957
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (529,905) (1,191,762) (258,543)
Proceeds from sale of property and equipment 26,416 12,433 81,963
Increase in trademark license and trademarks (118,651) (6,490,494) (1,072,900)
Decrease in note receivable from director 20,861
Increase in deposits and other assets (60,094) (181,343) (272,485)
---------------- ---------------- ----------------
Net cash used in investing activities (682,234) (7,851,166) (1,501,104)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt 9,204,471 431,250
Principal payments on long-term debt (4,432,101) (1,551,049) (2,072,818)
Issuance of common stock 28,621 256,639 27,781
Purchases of common stock, held in treasury (814,545)
---------------- ---------------- ----------------
Net cash (used in) provided by financing activities (4,403,480) 7,095,516 (1,613,787)
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH 116,992 (1,878,490) (1,796,934)
CASH AND CASH EQUIVALENTS, beginning of year 130,665 2,009,155 3,806,089
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of year $ 247,657 $ 130,665 $ 2,009,155
================ ================ ================
SUPPLEMENTAL INFORMATION Cash paid during the year for:
Interest $ 573,029 $ 315,876 $ 184,891
================ ================ ================
Income taxes $ 2,445,957 $ 2,067,337 $ 3,908,586
================ ================ ================
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 2001, the Company assumed long-term debt of $654,467, net of
discount of $95,533, and accrued liabilities of $196,677 in connection
with the acquisition of the Junior Juice trademark.
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 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.
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, 2001, 2000 AND 1999
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).
During 2001, HBC, through its wholly-owned subsidiary, Hansen Junior Juice
Company ("Junior Juice"), which was incorporated on May 7, 2001, acquired full
ownership of the Junior Juice trademark. The Junior Juice trademark was
previously owned by Pasco Juices, Inc.
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 and soy Smoothies, Energy drinks, Energade energy sports
drinks, E2O energy water, "functional drinks", non-carbonated ready-to-drink
iced teas, lemonades and juice cocktails, sparkling lemonades and orangeades,
children's multi-vitamin juice products and still water under the Hansen's(R)
brand name, as well as nutrition bars and cereals also under the Hansen's(R)
brand name, natural sodas under the Blue Sky(R) brand name, juices under the
Junior Juice(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, Blue
Sky and Junior Juice 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 2001 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).
F-8
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 ten 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.
Trademark License and Trademarks - Trademark license represents the Company's
exclusive world-wide right to use the Hansen's(R) trademark in connection with
the manufacture, sale and distribution of carbonated beverages and waters, shelf
stable fruit juices and drinks containing fruit juices on a royalty free basis
and other non-carbonated beverages and water and non-beverage products in
consideration of royalty payments. In September 1999, HBC entered into an
Assignment and Agreement with the Fresh Juice Company of California, Inc.
("FJC"), pursuant to which HBC acquired exclusive ownership of the Hansen's(R)
trademark and trade names and its obligation to pay royalties on certain product
lines fell away. The Company also owns in its own right, a number of other
trademarks in the United States as well as in a number of countries around the
world. The Company also owns the Blue Sky(R) trademark, which was acquired in
September 2000, and the Junior Juice(R) trademark, which was acquired in May
2001 (Note 2). The Company amortizes its trademark license and trademarks over
40 years. The adoption of SFAS No. 142, as described below, is expected to
reduce the trademark amortization expense currently recognized by the Company.
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, 2001,
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 ("EITF") 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,
2001, 2000, and 1999, freight-out costs amounted to $4.2 million, $4.1 million,
and $3.8 million, respectively, and have been recorded in selling, general and
administrative expenses in the accompanying consolidated statements of income.
Advertising and Promotional Allowances - 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 $4.3 million, $5.6 million and $5.7 million
for the years ended December 31, 2001, 2000 and 1999, respectively. In addition,
the Company supports its customers, including distributors, with promotional
allowances, a portion of which is utilized for marketing and indirect
advertising by them. Promotional allowances amounted to $12.2 million, $8.3
million and $6.3 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
The Company includes its promotional allowances in selling, general and
administrative expenses. Effective the first quarter of 2002, the Company will
comply with the provisions of the Financial Accounting Standards Board's
("FASB") EITF No. 01-9, which addresses various issues related to the income
statement classification of certain promotional payments, including
consideration from a vendor to a reseller or another party that purchases the
F-9
vendor's products. EITF No. 01-9 Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendor's Products, was issued in November
2001 and codified earlier pronouncements.
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 (raw
materials and/or co-packing services) from a limited number of sources. A
disruption in the supply 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.
One customer accounted for approximately 18%, 23% and 25% of the Company's sales
for the years ended December 31, 2001, 2000 and 1999, 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 historically, 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, 2001, 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, 2001
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 - On January 1, 2001, the Company adopted SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that the
Company recognize all derivative instruments as either current or non-current
assets or liabilities at fair value. The adoption of SFAS No. 133 did not have a
significant impact on the financial position, results of operations or cash
flows of the Company.
F-10
During 2000 and 2001, the EITF addressed various issues related to the income
statement classification of certain promotional payments, including
consideration from a vendor to a reseller or another party that purchases the
vendor's products. EITF No. 01-9, Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendor's Products, was issued in November
2001 and codified earlier pronouncements. The consensus requires certain sales
promotions and customer allowances currently classified as selling, general and
administrative expenses to be classified as a reduction of net sales. The
Company is currently evaluating the impact of EITF No. 01-9 on its financial
statements and will comply with its provisions beginning in the first quarter of
2002.
In June 2001, the FASB approved SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 prospectively
prohibits the pooling of interests method of accounting for business
combinations initiated after June 30, 2001. SFAS No. 142 eliminates the current
requirement to amortize goodwill and indefinite-lived intangible assets,
addresses the amortization of intangible assets with a defined life and the
impairment testing and recognition for goodwill and intangible assets on an
annual basis or on an interim basis if and event occurs or circumstances change
that would reduce the fair value of a reporting unit below its carrying value.
SFAS No. 142 will apply to goodwill and intangible assets arising from
transactions completed before and after the effective date of June 30, 2001. The
adoption of SFAS No. 141 and SFAS No. 142 is required for the Company on January
1, 2002. The adoption of SFAS No. 142 is expected to reduce the trademark
amortization expense currently recognized by the Company.
In December 1999, the Securities Exchange Commission staff issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. 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 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 June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company believes that
the adoption of SFAS No. 143 will not have a material impact on its results of
operations or financial position and will adopt such standards on January 1,
2003, as required.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supersedes previous guidance on financial
accounting and reporting for the impairment or disposal of long-lived assets and
for segments of a business to be disposed of. Adoption of SFAS No. 144 is
required no later than the beginning of fiscal 2002. Management does not expect
the adoption of SFAS No. 144 to have a significant impact on the Company's
financial position or results of operations. However, future impairment reviews
may result in charges against earnings to write down the value of long-lived
assets.
2. ACQUISITIONS
On September 20, 2000, the Company acquired through its wholly-owned 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. On May 25, 2001, the Company acquired
through its subsidiary Junior Juice, the Junior Juice beverage business of Pasco
Juices, Inc., including the Junior Juice(R) trademarks and assumption of certain
F-11
liabilities for a purchase price of $946,677. The Junior Juice(R) products are
comprised of 100% juices targeted at toddlers.
The acquisitions have been accounted for as purchases in accordance with
Accounting Principles Board ("APB") Opinion No. 16, Business Combinations.
Accordingly, the purchase prices, inclusive of certain acquisition costs, were
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 for
the acquisition of Blue Sky, inclusive of certain acquisition costs, was
financed through the Company's credit facility (Note 5). The purchase price for
the acquisition of Junior Juice was financed by the issuance of a note payable
to Pasco Juice, Inc., payable over five years and the assumption of certain
liabilities (Note 5).
Trademarks acquired are amortized on a straight-line basis over 40 years. The
operating results of Blue Sky and Junior Juice have been included in the
Company's results of operations since the respective dates of acquisition.
3. INVENTORIES
Inventories consist of the following at December 31:
2001 2000
------ ------
Raw materials $ 4,742,102 $ 4,704,363
Finished goods 7,615,345 6,371,941
------------- -------------
12,357,447 11,076,304
Less inventory reserves (400,767) (468,409)
------------- -------------
$11,956,680 $10,907,895
============= =============
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
2001 2000
------ ------
Leasehold improvements $ 283,103 $ 153,812
Furniture and office equipment 707,025 662,481
Equipment and vehicles 2,450,257 1,555,008
Machinery in progress 569,432
------------- -------------
3,440,385 2,940,733
Less accumulated depreciation
and amortization (1,495,239) (1,077,689)
------------- -------------
$ 1,945,146 $ 1,863,044
============= =============
5. LONG-TERM DEBT
In 1997, HBC 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. 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 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. Interest on borrowings under the line of credit is based on the
bank's base (prime) rate, plus an additional percentage of up to 0.5% or the
F-12
LIBOR rate, plus an additional percentage of up to 2.5%, depending upon certain
financial ratios of the Company.
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 provide additional
working capital. The Company's outstanding borrowings on the line of credit at
December 31, 2001 were $5.0 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,
2001, 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, 2001 and 2000, the assets
acquired under capital leases had a net book value of $402,387 and $519,688, net
of accumulated depreciation of $184,120 and $66,819, respectively.
Long-term debt consists of the following at December 31:
2001 2000
------ ------
Line of credit to Comerica, collateralized by substantially
all of HBC's assets, at an effective interest rate of
4.5% as of December 31, 2001 $4,978,000 $9,164,884
Note payable to Pasco Juices, Inc., collateralized by the Junior
Juice trademark, payable in quarterly installments of varying amounts
through May 2006, net of unamortized discount based on imputed
interest rate of 4.5% of $77,976 643,806
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, 2002 143,750 287,500
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 423,421 514,227
------------ ------------
6,188,977 9,966,611
Less: current portion of long-term debt (337,872) (234,655)
------------ ------------
$5,851,105 $9,731,956
============ ============
Long-term debt is payable as follows:
Year ending December 31:
2002 $ 337,872
2003 235,241
2004 250,463
2005 5,218,641
2006 146,760
------------
$6,188,977
============
F-13
Interest expense amounted to $520,160, $380,651 and $168,131, for the years
ended December 31, 2001, 2000 and 1999, respectively.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases its warehouse facility and corporate
offices under a 10 year lease beginning October 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 $644,454, $416,505 and $391,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
Future minimum rental payments at December 31, 2001 under the leases referred to
above are as follows:
Year ending December 31:
2002 $ 623,729
2003 644,918
2004 647,726
2005 645,266
2006 660,468
Thereafter 2,539,485
------------
$5,761,592
============
Employment and Consulting Agreements - On January 1, 1999, the Company entered
into an employment agreement with Rodney C. Sacks and Hilton H. Schlosberg
pursuant to which Mr. Sacks and Mr. Schlosberg render services to the Company as
its Chairman and Chief Executive Officer, and its Vice Chairman, President and
Chief Financial Officer respectively. The agreements provide 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 as
well as 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.
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.
7. 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.
F-14
Components of the income tax provision are as follows:
Year Ended December 31,
2001 2000 1999
------ ------ ------
Current income taxes:
Federal $ 1,248,119 $ 2,106,316 $ 2,409,512
State 292,202 599,056 637,160
------------- ------------- -------------
1,540,321 2,705,372 3,046,672
Deferred income taxes:
Federal 373,217 (57,309) (97,681)
State 99,364 (32,077) 22,127
------------- ------------- -------------
472,581 (89,386) (75,554)
------------- ------------- -------------
$ 2,012,902 $ 2,615,986 $ 2,971,118
============= ============= =============
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,
2001 2000 1999
------ ------ ------
Income tax provision using the
statutory rate $1,710,967 $2,220,578 $2,532,655
State taxes, net of federal tax benefit 293,602 380,945 434,604
Permanent differences 31,423 31,865 3,859
Other (23,090) (17,402)
------------ ------------ ------------
$2,012,902 $2,615,986 $2,971,118
============ ============ ============
Major components of the Company's deferred tax assets (liabilities) at December
31 are as follows:
2001 2000
------ ------
Reserves for returns $ 180,048 $ 130,642
Reserves for bad debts 65,885 51,910
Reserves for obsolescence 171,689 72,146
Reserves for marketing development fund 159,327 221,319
Capitalization of inventory costs 115,783 136,284
State franchise tax 230,343 243,328
Accrued compensation 26,101 25,989
Amortization of trademark license (1,924,778) (1,421,415)
Amortization of graphic design 229,094 151,844
Depreciation (118,594) (4,568)
-------------- -------------
$ (865,102) $ (392,521)
============== =============
8. STOCK OPTIONS AND WARRANTS
The Company has three stock option plans, the Hansen Natural Corporation 2001
Stock Option Plan ("2001 Option Plan"), the Employee Stock Option Plan ("the
Plan") and the Outside Directors Stock Option Plan ("Directors Plan").
During 2001, the Company adopted the 2001 Stock Option Plan which provides for
the grant of options to purchase up to 2,000,000 shares of the common stock of
the Company to certain key employees of the Company and its subsidiaries.
F-15
Options granted under the 2001 Option Plan may be incentive stock options under
Section 422 of the Internal Revenue Code, as amended (the "Code"), nonqualified
stock options, or stock appreciation rights. 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. As of December 31, 2001, options to purchase 37,000 shares of Hansen
common stock had been granted under the 2001 Option Plan and options to purchase
1,963,000 shares of Hansen common stock remain available for grant under the
Plan.
The Plan, as amended, provided for the granting of options to purchase not more
than 3,000,000 shares of Hansen common stock to key employees of the Company and
its subsidiaries through July 1, 2001. 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,
2001, options to purchase 2,184,700 shares of Hansen common stock had been
granted under the Plan, net of options that have expired.
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 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, 2001, 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, 2001, 2000, and 1999, the Company granted
122,500, 189,000, and 424,000 options to purchase shares under the Plan, the
2001 Option Plan, and Directors Plan at a weighted average grant date fair value
of $1.36, $2.26, and $2.52, respectively. Additional information regarding the
plans is as follows:
F-16
2001 2000 1999
------ ------ ------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
------------- ------------- ------------- -------------- -------------- -------------
Options outstanding,
beginning of year 1,134,400 $2.84 1,093,327 $2.60 833,900 $1.49
Options granted 122,500 $3.49 189,000 $4.15 424,000 $4.38
Options exercised (152,500) $1.59 (38,327) $1.49 (93,573) $1.35
Options canceled or
expired (51,000) $4.06 (109,600) $3.17 (71,000) $1.82
------------- ------------- ------------- -------------- -------------- -------------
Options outstanding,
end of year 1,053,400 $3.04 1,134,400 $2.84 1,093,327 $2.60
============= ============= ============= ============== ============== =============
Option price range $0.75 to $0.75 $0.75 to
end of year $5.25 to $5.25 $5.25
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation at fair value. The Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretation. 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 1999 through 2001
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:
2001 2000 1999
------ ------ ------
Net income, as reported $3,019,353 $3,915,126 $4,477,868
Net income, pro forma $2,721,707 $3,670,524 $4,176,799
Net income per common share,
as reported
Basic $0.30 $0.39 $0.45
Diluted $0.29 $0.38 $0.43
Net income per common share,
pro forma
Basic $0.27 $0.37 $0.42
Diluted $0.26 $0.35 $0.40
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:
Risk-Free
Dividend Yield Expected Volatility Interest Rate Expected Lives
-------------- ------------------- ------------- --------------
2001 0% 30% 4.6% 6 years
2000 0% 48% 6.0% 6 years
1999 0% 60% 4.8% 5 years
F-17
The following table summarizes information about fixed-price stock options
outstanding at December 31, 2001:
--------------------------------------------------- -------------------------------
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------
Weighted average Weighted Number Weighted
Number remaining average exercisable at average
Range of exercise outstanding at contractual exercise December 31, exercise
prices December 31, 2001 life (in years) price 2001 price
------------------ ---------------- --------------- ----------------- -------------
$0.75 to $1.13 264,000 1 $1.00 208,000 $0.99
$1.59 to $1.79 127,900 4 $1.63 125,400 $1.63
$3.02 to $3.95 188,500 5 $3.51 23,000 $3.61
$4.25 to $4.38 314,000 3 $4.26 155,000 $4.26
$4.44 to $5.25 159,000 4 $4.59 60,600 $4.57
----------- ---------
1,053,400 572,000
=========== =========
9. 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 $58,211, $49,323, and $37,274 for the
years ended December 31, 2001, 2000 and 1999 respectively.
10. 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, 2001, 2000 and 1999 were
$193,350, $180,954 and $414,932 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 year ended December 31, 1999 were
$30,000.
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, 2001, 2000 and 1999 were $164,638, $115,520 and $121,289, respectively.
F-18
11. QUARTERLY FINANCIAL DATA (Unaudited)
Net Gross Net Net Income per Common Share
Sales Profit Income Basic Diluted
-------------- -------------- ------------- ------- -------
Quarter ended:
March 31, 2001 $ 18,768,796 $ 8,250,325 $ 325,448 $0.03 $0.03
June 30, 2001 25,715,071 11,676,793 1,107,525 0.11 0.11
September 30, 2001 26,180,069 11,643,058 1,258,732 0.13 0.12
December 31, 2001 21,615,775 9,254,328 327,648 0.03 0.03
-------------- -------------- ------------- ------- -------
$ 92,279,711 $ 40,824,504 $ 3,019,353 $0.30 $0.29
============== ============== ============= ======= =======
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
============== ============== ============= ======= =======
Certain of the figures reported above may differ from previously reported
figures for individual quarters due to rounding.
F-19
HANSEN NATURAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
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:
2001 $486,462 3,187,101 (3,048,293) $ 625,270
2000 $415,305 2,171,731 (2,100,574) $ 486,462
1999 $378,641 1,478,889 (1,442,225) $ 415,305
Promotional allowances:
2001 $2,370,260 12,167,783 (11,556,487) $2,981,556
2000 $1,651,604 8,295,866 (7,577,210) $2,370,260
1999 $1,608,123 6,337,903 (6,294,422) $1,651,604
Inventory reserves:
2001 $168,409 262,187 (29,829) $ 400,767
2000 $163,048 249,067 (243,706) $ 168,409
1999 $268,233 151,091 (256,276) $ 163,048
F-20
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-92526, No. 333-41333 and No. 333-89123 of Hansen Natural Corporation on Form
S-8 of our report dated March 22, 2002, appearing in the Annual Report on Form
10-K of Hansen Natural Corporation for the year ended December 31, 2001.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 29, 2002