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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
-----------
Commission File No. 000-24337
HORIZON ORGANIC HOLDING CORPORATION
(a Delaware Corporation)
I.R.S. Employer Identification Number 84-1405007
6311 Horizon Lane
Longmont, Colorado 80503
(303) 530-2711
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 requirement for the past 90 days. Yes _X_. No ___.
As of April 30, 2001, the registrant had outstanding 9,946,098 shares
of its common stock, $.001 par value per share.
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HORIZON ORGANIC HOLDING CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations and Comprehensive Income (Loss) 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 11-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share amounts)
As of March 31, 2001 (unaudited) and December 31, 2000
ASSETS 2001 2000
-------------- -------------
Current Assets:
Cash and cash equivalents $ 2,310 2,438
Trade accounts receivable, less allowance for doubtful accounts
of $201 in 2001 and $216 in 2000 18,087 18,580
Inventories 21,942 22,410
Asset held for sale 1,813 1,812
Deferred income tax assets 440 439
Prepaid and other current assets 3,308 3,280
-------------- -------------
Total current assets 47,900 48,959
-------------- -------------
Property, Equipment and Cattle:
Cattle, net 13,254 13,965
Property and equipment, net 23,596 23,186
-------------- -------------
Total property, equipment and cattle 36,850 37,151
-------------- -------------
Other Assets:
Intangible assets, net of accumulated amortization of $5,073 in
2001 and $4,332 in 2000 42,127 44,348
Other assets, net 1,695 1,706
-------------- -------------
Total other assets 43,822 46,054
-------------- -------------
Total Assets $ 128,572 132,164
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6,253 6,752
Trade accounts payable 11,411 11,500
Other accrued expenses 5,564 6,993
-------------- -------------
Total current liabilities 23,228 25,245
-------------- -------------
Long-Term Liabilities:
Long-term debt, less current portion 45,967 45,685
Deferred income tax liabilities 2,583 2,590
-------------- -------------
Total long-term liabilities 48,550 48,275
-------------- -------------
Total liabilities 71,778 73,520
-------------- -------------
Stockholders' Equity:
Preferred stock, $.001 par value, authorized 5,000,000 shares;
no shares issued or outstanding -- --
Common stock, $.001 par value; authorized 30,000,000 shares;
9,911,098 and 9,899,880 shares issued and outstanding in
2001 and 2000, respectively 10 10
Additional paid-in capital 58,926 58,884
Accumulated other comprehensive loss - foreign currency
translation adjustment (1,942) (286)
Retained earnings (deficit) (200) 36
-------------- -------------
Total stockholders' equity 56,794 58,644
-------------- -------------
Total Liabilities and Stockholders' Equity $ 128,572 132,164
============== =============
See accompanying notes to the unaudited consolidated financial statements.
3
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
For the three months ended March 31, 2001 and 2000
(unaudited)
2001 2000
----------- -----------
Net sales $ 37,598 26,336
Cost of sales 26,543 17,935
----------- -----------
Gross profit 11,055 8,401
----------- -----------
Operating expenses:
Selling 7,641 5,443
General and administrative 1,925 1,948
Goodwill amortization 824 374
----------- -----------
Total operating expenses 10,390 7,765
----------- -----------
Operating income 665 636
----------- -----------
Other income (expense), net:
Interest income 42 131
Interest expense, net of interest capitalized of $60
in 2001 (1,046) (222)
Other, net (40) (25)
----------- -----------
Total other expense, net (1,044) (116)
----------- -----------
Income (loss) before income taxes (379) 520
Income tax benefit (expense) 144 (213)
----------- -----------
Net income (loss) $ (235) 307
=========== ===========
Net income (loss) per basic and diluted share $ (.02) .03
=========== ===========
Weighted average shares outstanding:
Basic 9,901 9,753
Diluted 9,901 10,025
Comprehensive income (loss):
Net income (loss) $ (235) 307
Foreign currency translation adjustment (1,656) (1)
----------- -----------
Comprehensive income (loss) $ (1,891) 306
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
4
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
For the three months ended March 31, 2001 and 2000
(unaudited)
2001 2000
------------- ------------
Cash flows from operating activities:
Net income (loss) $ (235) 307
Adjustments to reconcile net income to net cash
from operating activities:
Provision for doubtful accounts 12 49
Depreciation and amortization 1,850 1,176
Loss on sale of cattle and equipment 519 705
Deferred income tax 7 (18)
Noncash payments for director services 6 5
Change in operating assets and liabilities:
Trade accounts receivable 272 (693)
Inventories 414 (1,942)
Prepaid and other current assets (75) 23
Other assets 5 --
Trade accounts payable 73 (1,577)
Other accrued expenses (1,196) 35
Income taxes payable (145) 45
------------- ------------
Net cash provided by (used in) operating activities 1,507 (1,885)
------------- ------------
Cash flows from investing activities:
Sale of marketable securities -- 3,249
Purchases of property and equipment (1,071) (2,172)
Proceeds from equipment sales 19 1
Purchases of cattle (1,353) (2,361)
Proceeds from cattle sales 1,066 543
Other assets (58) (118)
------------- ------------
Net cash used in investing activities (1,397) (858)
------------- ------------
Cash flows from financing activities:
Proceeds from long-term line of credit 1,035 --
Proceeds from long-term debt, other than line of credit 273 --
Repayments of long-term debt, other than line of credit (1,517) (184)
Proceeds from exercise of stock options and warrants 35 81
------------- ------------
Net cash used in financing activities (174) (103)
Effect of exchange rate changes on cash (64) --
------------- ------------
Net decrease in cash and cash equivalents (128) (2,846)
Cash and cash equivalents at beginning of period 2,438 3,693
------------- ------------
Cash and cash equivalents at end of period $ 2,310 847
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,329 86
============= ============
Cash paid during the period for income taxes $ 1 --
============= ============
Noncash investing and financing activities:
Additional capital lease obligations $ 273 --
============= ============
Common stock issued to outside directors $ 6 5
============= ============
See accompanying notes to the unaudited consolidated financial statements.
5
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared by Horizon Organic Holding Corporation (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally accompanying financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. In management's opinion, all adjustments necessary for a fair
presentation of the results of operations for the periods presented have been
made and are of a normal and recurring nature. Operating results for the
three months ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001.
These consolidated financial statements and accompanying notes
should be read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of
financial condition and results of operations, contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
2. TRANSLATION OF FOREIGN CURRENCIES
The accounts of the Company's subsidiaries in the United Kingdom are
measured using the local currency, which has been designated as the
functional currency. Assets and liabilities are translated at the exchange
rate in effect at the end of the period. Revenue and expenses are translated
at the average exchange rate for the period. Translation adjustments arising
from the use of differing exchange rates from period to period are included
in comprehensive income (loss) in stockholders' equity.
3. ACQUISITIONS
On June 1, 2000, the Company acquired all of the outstanding and
issued common stock of Meadow Farms Limited ("Meadow Farms"), a private
company incorporated in England and Wales, for approximately $24.2 million in
cash plus acquisition costs of approximately $1.7 million. The acquisition
included Meadow Farms' wholly owned subsidiary, Organic Dairies Limited,
which operates a processing and packaging plant that produces fluid milk
which is marketed and sold by Meadow Farms. The acquisition was accounted for
as a purchase and the excess of cost over the fair value of acquired net
tangible assets of approximately $24.4 million is recognized as intangible
assets and is being amortized on a straight-line basis generally over 15
years. The Meadow Farms acquisition was financed with a $25 million Senior
Secured Term Note. Operating results of Meadow Farms have been included in
the Company's consolidated statement of income beginning June 1, 2000.
Also on June 1, 2000, the Company acquired all of the outstanding
and issued common stock of Organic Matters Limited ("Organic Matters"), a
private company incorporated in England and Wales, for approximately $2.1
million in cash. The acquisition was accounted for as a purchase and the
excess of cost over the fair value of acquired net assets of $2.1 million is
recognized as intangible assets and is being amortized on a straight-line
basis over 15 years. Operating results of Organic Matters have been included
in the Company's consolidated statement of income beginning June 1, 2000.
The following unaudited pro forma financial information presents the
combined results of operations of the Company, Meadow Farms and Organic
Matters as if the acquisitions had occurred at the beginning of 2000, after
giving effect to certain adjustments including amortization of intangible
assets, interest expense, reduction of milk bonus
6
payments and income taxes. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had
the Company, Meadow Farms and Organic Matters constituted a single entity
during such period.
(dollars in thousands, except per share amounts) THREE MONTHS ENDED MARCH 31,
------------------------------------
2001 2000
----------------- --------------
Net sales $ 37,598 33,391
================= ==============
Net loss $ (235) (99)
================= ==============
Net loss per basic and diluted share $ (.02) (.01)
================= ==============
4. LONG-TERM DEBT
On May 31, 2000 the Company entered into a $25.0 million Senior
Secured Term Loan with US Bank National Association (U.S. Bank) to finance
the Meadow Farms acquisition. The note has a due date of May 31, 2005 and
bears interest at LIBOR plus a varying margin spread of 1.65% to 2.5% (7.78%
at March 31, 2001) with quarterly principal payments. Interest payments are
made in conjunction with LIBOR pricing maturity dates.
The Company also increased its credit line facility with US Bank
from $20.0 million to $25.0 million. The credit line has a May 31, 2003 due
date and bears interest at LIBOR plus a varying margin spread of 1.65% to
2.5% (7.78% at March 31, 2001). At March 31, 2001, the Company has borrowed
$17.1 million against the credit line facility. The availability of the $25
million line of credit is reduced by outstanding letters of credit of $7.4
million. Total availability under the line of credit is $.5 million. Both
loans are secured by substantially all of the assets of the Company and
contain certain covenants that, among other things, limit the Company's
ability to incur additional debt, create liens, pay dividends or enter into
certain other transactions, and which require the Company to meet certain
financial covenants.
7
5. REPORTABLE SEGMENTS
The Company has three segments of business, the marketing company,
the dairy farm operations and international. The marketing company is
responsible for acquiring, processing and marketing organic fluid milk,
organic dairy products and organic non-dairy products. The dairy farm
operations are responsible for producing farm milk for use by the marketing
company in the production of its products. International is the United
Kingdom entities responsible for acquiring, processing and marketing organic
fluid milk and organic dairy products. The following table sets forth
selected segment data for the three months ended March 31, 2001 and 2000 (in
thousands):
FOR THE THREE MONTHS ENDED MARCH 31, 2001
---------------------------------------------------------------------------------------------------------------
U.S. AND INTERNATIONAL
DAIRY FARM U.S. U.S. U.S. INTERNATIONAL ELIMINATIONS
MARKETING OPERATIONS ELIMINATIONS ADJUSTMENTS SUBTOTAL INTERNATIONAL SUBTOTAL WITH U.S. TOTAL
---------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Total net sales $ 29,632 6,287 (6,287) -- 29,632 7,966 37,598 -- 37,598
Cost of goods sold 20,895 3,658 (3,658) (574) 20,321 6,222 26,543 -- 26,543
---------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Gross margin 8,737 2,629 (2,629) 574 9,311 1,744 11,055 -- 11,055
Operating expenses 8,619 2,087 (2,087) 32 8,651 1,738 10,390 -- 10,390
---------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Operating income 118 542 (542) 542 660 6 665 -- 665
Interest income 454 7 (420) -- 42 -- 42 -- 42
Interest expense (540) (296) 420 -- (417) (629) (1,046) -- (1,046)
Other (40) -- -- -- (40) -- (40) -- (40)
---------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Income (loss)
before income
taxes (9) 253 (542) 542 244 (623) (379) -- (379)
Income tax benefit
(expense) 3 (96) -- -- (93) 237 144 -- 144
---------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Net income
(loss) $ (6) 157 (542) 542 151 (386) (235) -- (235)
========== ========== ============ =========== ======== ============= ========= ============= ========
Segment assets $ 121,357 43,336 (38,533) -- 126,160 35,803 161,963 (33,392) 128,572
========== ========== ============ =========== ======== ============= ========= ============= ========
The following additional supplemental information is already included in cost of
goods sold or in operating expenses above:
Depreciation and
amortization $ 473 825 -- -- 1,298 553 1,850 -- 1,850
Loss on sale of
cattle and
equipment -- 519 -- -- 519 -- 519 -- 519
8
FOR THE THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------------------------------------------------------------------------
U.S. AND INTERNATIONAL
DAIRY FARM U.S. U.S. U.S. INTERNATIONAL ELIMINATIONS
MARKETING OPERATIONS ELIMINATIONS ADJUSTMENTS SUBTOTAL INTERNATIONAL SUBTOTAL WITH U.S. TOTAL
--------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Total net sales $ 24,776 6,192 (6,192) -- 24,776 1,560 26,336 -- 26,336
Cost of goods sold 17,796 3,620 (3,620) (835) 16,961 974 17,935 -- 17,935
--------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Gross margin 6,980 2,572 (2,572) 835 7,815 586 8,401 -- 8,401
Operating expenses 7,069 1,769 (1,769) 32 7,101 663 7,765 -- 7,765
--------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Operating income (89) 803 (803) 803 714 (77) 636 -- 636
Interest income 384 5 (295) -- 95 37 131 -- 131
Interest expense (118) (317) 295 -- (141) (83) (222) -- (222)
Other (25) -- -- -- (25) -- (25) -- (25)
--------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Income (loss)
before income
taxes 152 491 (803) 803 643 (123) 520 -- 520
Income tax benefit
(expense) (73) (190) -- -- (263) 50 (213) -- (213)
--------- ---------- ------------ ----------- -------- ------------- --------- ------------- --------
Net income (loss) $ 79 301 (803) 803 380 (73) 307 -- 307
========= ========== ============ =========== ======== ============= ========= ============= ========
Segment assets $ 79,200 40,623 (37,534) -- 82,289 5,140 87,429 (4,157) 83,273
========= ========== ============ =========== ======== ============= ========= ============= ========
The following additional supplemental information is already included in cost of
goods sold or in operating expenses above:
Depreciation and
amortization $ 413 724 -- -- 1,137 39 1,176 -- 1,176
Loss on sale of
cattle and
equipment -- 705 -- -- 705 -- 705 -- 705
9
6. EARNINGS PER SHARE
Basic income (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding. Diluted
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding increased for
potentially dilutive common shares outstanding during the period. The
dilutive effect of stock options, warrants, and their equivalents are
calculated using the treasury stock method. Excluded from the dilutive
calculation are 1,200,351 options outstanding as antidilutive as of March 31,
2001. The following table sets forth the calculation of earnings (loss) per
share for the three months ended March 31, 2001 and 2000 (in thousands,
except per share amounts):
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
----------- ----------
Net income (loss) $ (235) 307
Common and common equivalent shares outstanding:
Historical common shares outstanding at beginning of period 9,900 9,743
Weighted average common equivalent shares issued during period 1 10
----------- ----------
Weighted average common shares - basic 9,901 9,753
Weighted average common equivalent shares outstanding during period - 272
----------- ----------
Weighted average common shares - diluted 9,901 10,025
=========== ==========
Net income (loss) per basic and diluted share $ (.02) .03
=========== ==========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements and accompanying
notes included herein and the Company's Annual Report on Form 10-K for the year
ended December 31, 2000. Except for the historical information contained herein,
the discussion in this Quarterly Report on Form 10-Q contains certain
forward-looking statements that involve risks and uncertainties. Future events
may differ materially from those discussed herein, due to a number of factors.
These factors are discussed more fully in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000, in Part I Item 1 under the
heading "Risk Factors".
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001, COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
NET SALES. Net sales include product sales and royalties, less returns
and allowances. Net sales increased 43% to $37.6 million for the three months
ended March 31, 2001 from $26.3 million for the comparable period in 2000. Of
this total net sales increase of $11.3 million, increased net sales from US
operations were $4.9 million and increased net sales from international
operations were $6.4 million. The increase in US net sales was primarily due to
the increased sales of existing products to existing accounts and the continued
expansion of conventional grocery distribution channels. Milk sales increased
22%, or $3.8 million, for the three months compared to the comparable period in
2000. The primary reason for growth was significant distribution expansion of
ultra-pasteurized (UP) milk. This led to UP growth of 150%, or $5.1 million, for
the three months compared to the comparable period in 2000. Fresh milk sales
decreased by 9%, or $1.3 million, in comparison of the same two periods. Dairy
sales, driven by re-staging the cheese line as well as increased industrial
sales, increased 10%, or $.6 million, during the three month period compared to
the comparable period in 2000. The Company's juice sales increased 33% to $2.1
million for the three months from $1.6 million for the comparable period in
2000. The increase in international net sales was primarily due to operations
from the acquisition of Meadow Farms Limited (Meadow Farms) and Organic Matters
Limited (Organic Matters) in the United Kingdom on June 1, 2000. The Company's
international sales of branded milk increased by 30% since it converted from the
Organic Matters brand to the Horizon Organic brand in late 2000.
GROSS PROFIT. Gross profit consists of net sales, less cost of sales.
Cost of sales includes the cost of raw materials, processing fees, inbound
freight, milk pooling charges, losses of organic premiums and operating income
or loss before goodwill amortization from farm operations. Gross profit
increased 32% to $11.1 million for the three months ended March 31, 2001 from
$8.4 million for the comparable period in 2000. As a percentage of net sales,
gross profit decreased for the three months to 29.4% from 31.9% for the
comparable period in 2000. This decrease was due primarily to an increase of
$6.4 million in lower margin private label international sales. In the three
months ended March 31, 2001 international sales had gross margins of 21.9%
overall compared to 37.6% in the comparable period in 2000. The lower
international gross margins reflect the results of a change in product mix to
primarily private label products as a result of the Meadow Farms acquisition.
The Company launched Horizon Organic branded milk sales in its international
operations in late 2000. The Company expects the branded milk sales will
increase the gross margin percentage in time. The US gross profit margins were
31.4% for the three months ended March 31, 2001 compared to 31.5% for the
comparable period in 2000. Company wide efficiencies in processing and milk
sourcing costs nearly offset increased cost of goods sold associated with the
increased product mix of UP milk sales and $.3 million less farm contribution
from the comparable period in 2000. This decrease in farm contribution was due
to a short term decrease in milk production per milk cow.
SELLING EXPENSES. Selling expenses include direct selling, marketing
and distribution costs. Selling expenses for the three months ended March 31,
2001 increased 40% to $7.6 million from $5.4 million for the comparable period
in 2000. As a percentage of net sales, selling expenses decreased for the three
months to 20.3% from 20.7% for the comparable period in 2000. This decrease was
due primarily to the international selling expenses decreasing to 10.3% for the
three months from 15.4% for the comparable period in 2000 as a result of lower
selling costs associated with private label products. The US selling costs
increased to 23.0% for the three months from 21.0% for the comparable
11
period in 2000 as a result of national promotions with natural foods customers
and increased fuel costs, partially offset by efficiencies gained from
warehouse consolidation and direct delivery shipments.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses include operations and corporate support. General and administrative
expenses for the three months ended March 31, 2001 were $1.9 million, virtually
unchanged from the comparable period in 2000. As a percentage of net sales,
general and administrative expenses decreased to 5.1% from 7.4%. This decrease
in the percentage of general and administrative expenses to net sales was due to
improved productivity in the US as well as decreased overhead charges resulting
from United Kingdom acquisitions. The US general and administrative expenses as
a percentage of net sales decreased to 5.1% for the three months from 6.4% for
the comparable period in 2000. The international general and administrative
expenses as a percentage of net sales decreased to 5.3% for the three months
from 24.4% for the comparable period in 2000 due to the increased leverage of
general and administrative expenses over a larger revenue base.
GOODWILL AMORTIZATION. Goodwill amortization includes amortization
of the excess purchase price of the businesses acquired and the related
transaction costs over the net tangible assets acquired. Goodwill
amortization for the three months ended March 31, 2001 was $.8 million, an
increase of $.4 million, or 100%, from $.4 million during the comparable
period in 2000. This increase in goodwill amortization was due to
amortization of intangible assets associated with the acquisitions of Meadow
Farms and Organic Matters on June 1, 2000.
OTHER INCOME (EXPENSE), NET. Other income (expense), net for the three
months ended March 31, 2001 was an expense of $1.0 million compared to expense
of $.1 million during the comparable period in 2000. This change was due to a
reduced cash position as a result of the acquisitions of Meadow Farms, Organic
Matters, increases in accounts receivable and inventories and other capital
expenditures. Additionally, this change was due to the increased interest
expense associated with the $25 million term note used to finance the Meadow
Farms and Organic Matters acquisitions and the increase in amounts outstanding
under the Company's line of credit.
INCOME TAX BENEFIT (EXPENSE). Income tax benefit for the three months
ended March 31, 2001 was $.1 million, or 38% of loss before income taxes, a
decrease of $.3 million from $.2 million income tax expense, or 41% of income
before taxes, for the comparable period in 2000. The relationship between the
expected income tax expense computed by applying the United States federal
statutory rate of 34% to income before income taxes and actual income tax
expense results primarily because of (i) foreign income tax expense provided on
foreign earnings, (ii) state and local income taxes and (iii) amortization of
certain goodwill not deductible for United States tax purposes.
NET INCOME (LOSS). The Company generated a net loss of $.2 million for
the three months ended March 31, 2001, a decrease of $.5 million compared to net
income of $.3 million for the comparable period in 2000. The decrease in net
income was primarily due to increased goodwill amortization and interest expense
associated with the acquisitions of Meadow Farms and Organic Matters and with
working capital costs.
COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) decreased to a
loss of $1.9 million for the three months ended March 31, 2001 from $.3 million
in income during the comparable period in 2000. This decrease was primarily due
to the translation of the Company's investment in its United Kingdom (U.K.)
subsidiaries to U.S. dollars from pound sterling ($1.7 million). The Company
translates its U.K. assets and liabilities at the exchange rate in effect at the
end of the period. At March 31, 2001 and December 31, 2000, U.K. pound sterling
translated to U.S. dollars at approximately 1.417 and 1.494 dollars to the pound
sterling, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY (USED IN) OPERATIONS. Cash provided by operations
during the three months ended March 31, 2001 was $1.5 million, an increase of
$3.4 million from cash used by operations of $1.9 million during the comparable
period in 2000. The increase in cash provided by operations was due primarily to
$.4 million decrease in inventories and $.3 million decrease in accounts
receivable during the three months compared to $1.9 million increase in
inventories and $.7 million increase in trade accounts receivable during the
comparable period in 2000.
12
CASH USED IN INVESTING ACTIVITIES. Cash used in investing activities
during the three months ended March 31, 2001 totaled $1.4 million, compared to
$.9 million for the corresponding period in 2000. The increase was due to the
lack of sales of marketable securities to offset the routine cattle and
equipment purchases during the three months compared to $3.2 million of
marketable securities sold during the comparable period in 2000.
CASH USED IN FINANCING ACTIVITIES. Cash used in financing activities
during the three months ended March 31, 2001 totaled $.2 million, compared to
$.1 million used in financing activities for the corresponding period in 2000.
This increase was primarily due to the Company servicing its $25.0 million term
loan with US Bank. Most of the debt service was offset by a $1.0 million draw on
the credit line.
Company management believes that cash and cash equivalents, cash
expected to be generated from operations and the availability of funds under the
line of credit will be sufficient to meet the Company's current operating and
capital expenditure needs.
LONG-TERM DEBT. On May 31, 2000 the Company entered into a $25.0
million Senior Secured Term Loan with US Bank to finance the Meadow Farms
acquisition. The note has a due date of May 31, 2005 and bears interest at LIBOR
plus a varying margin spread of 1.65% to 2.5% (7.78% at March 31, 2001) with
quarterly principal payments. Interest payments are made in conjunction with
LIBOR pricing maturity dates.
The Company also has a credit line facility with US Bank for $25.0
million. The credit line has a May 31, 2003 due date and bears interest at LIBOR
plus a varying margin spread of 1.65% to 2.5% (7.78% at March 31, 2001). At
March 31, 2001, the Company has borrowed $17.1 million against the credit line
facility. The availability of the $25 million line of credit is reduced by
outstanding letters of credit, which at March 31, 2001, were $7.4 million,
primarily associated with The Organic Cow acquisition. Total availability under
the line of credit is $.5 million at March 31, 2001. Both loans are secured by
substantially all of the assets of the Company and contain certain covenants
that, among other things, limit the Company's ability to incur additional debt,
create liens, pay dividends or enter into certain other transactions, and which
require the Company to meet certain financial covenants.
In conjunction with The Organic Cow acquisition, the Company issued an
$8.5 million promissory note payable to the seller, bearing interest at 5.3%,
and payable in four annual installments with a final maturity in 2003. At March
31, 2001, the balance of the note was $6.5 million and reduces the availability
of the line of credit with US Bank as noted above.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS. The Company occasionally enters into
forward financial instruments with a financial institution to manage and
reduce the impact of changes in foreign currency rates. Generally, these
instruments are marked-to-market at the end of each month and gains and
losses are recorded in the statement of operations.
INTEREST RATES. At December 31, 2000, the Company had approximately
$8.1 million of fixed rate long-term debt (including current maturities). The
fair value of long-term fixed interest rate debt is subject to interest rate
risk. Generally, among other factors including credit ratings, the fair value
of fixed interest rate debt will increase as interest rates fall and decrease
as interest rates rise. The estimated fair value of the Company's total fixed
rate long-term debt with fixed interest rate (including current portion) at
December 31, 2000 was $7.6 million, which was less than the carrying value by
$0.5 million. Fair values were determined primarily from quoted market rates.
A full percentage point decrease from prevailing interest rates at December
31, 2000, would result in an estimated increase in fair value of total fixed
interest rate long-term debt of approximately $0.4 million. Additionally at
March 31, 2001, the Company had approximately $44.3 million of floating rate
long-term debt (including current maturities) subject to interest rate risk.
A full percentage point fluctuation in interest rates would result in
decreasing or increasing interest expense by approximately $0.4 million over
a twelve month period.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
3.1+ Amended and Restated Certificate of Incorporation
3.2+ Amended and Restated Bylaws of the Company
4.1+ Reference is made to Exhibits 3.1 and 3.2
4.2+ Specimen Stock Certificate representing shares of common stock
of the Company
Exhibits identified above are incorporated by reference as follows:
+ Incorporated by reference to Registrant's Registration Statement on
Form S-1, No. 333-51465
B) REPORTS ON FORM 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HORIZON ORGANIC HOLDING CORPORATION
Date: May 15, 2001 /s/ Thomas P. Briggs
---------------------------------------------
Thomas P. Briggs
Senior Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Assistant Secretary
(principal financial and accounting officer
of the Company)
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