<PAGE>
- --------------------------------------------------------------------------------
__________________________________________
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 September 30, 1999
___________
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 requirements for the past 90 days. Yes X. No .
-- ---
As of November 1, 1999, the registrant had outstanding 9,735,213 shares of
its common stock, $.001 par value per share.
- --------------------------------------------------------------------------------
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION
Form 10-Q
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets............................................... 3
Consolidated Statements of Operations..................................... 4-5
Consolidated Statements of Cash Flows..................................... 6
Notes to Consolidated Financial Statements................................ 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 9-11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders....................... 12
Item 6. Exhibits and Reports on Form 8-K.......................................... 12
SIGNATURE............................................................................... 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financials Statements
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of September 30, 1999 (unaudited) and December 31, 1998
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
----------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 1,528 $14,384
Marketable securities............................................................. 10,579 9,923
Trade accounts receivable, net.................................................... 9,195 4,873
Inventories....................................................................... 8,649 5,466
Deferred income tax assets........................................................ 99 281
Other current assets.............................................................. 1,339 563
------------------- -----------------
Total current assets.......................................................... 31,389 35,490
Property, Equipment and Cattle
Cattle, net....................................................................... 11,907 9,725
Property and equipment, net....................................................... 17,725 15,534
------------------- -----------------
Total property, equipment and cattle.......................................... 29,632 25,259
Other Assets:
Intangible assets, net............................................................ 21,081 8,132
Other assets, net................................................................. 503 475
------------------- -----------------
Total other assets............................................................ 21,584 8,607
------------------- -----------------
Total assets.................................................................. $82,605 $69,356
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable............................................................ $ 5,550 $ 4,693
Current portion of long-term debt................................................. 2,323 434
Other accrued expenses............................................................ 3,291 1,978
Income taxes payable.............................................................. 218 87
------------------- -----------------
Total current liabilities..................................................... 11,382 7,192
Long-Term Liabilities:
Long-term debt, less current portion.............................................. 11,461 4,923
Deferred income tax liabilities................................................... 1,349 1,271
------------------- -----------------
Total long-term liabilities..................................................... 12,810 6,194
------------------- -----------------
Total liabilities............................................................. 24,192 13,386
Stockholders' Equity:
Preferred stock, $.001 par value, authorized 2,000,000 shares; no shares issued
or outstanding................................................................ --- ---
Common stock, $.001 par value, authorized 30,000,000 shares, issued and
outstanding 9,692,463 and 9,656,368 shares in 1999 and 1998, respectively 10 10
Additional paid-in capital........................................................ 58,322 57,845
Accumulated earnings (deficit).................................................... 43 (1,885)
Other comprehensive income........................................................ 38 ---
------------------- -----------------
Total stockholders' equity.................................................... 58,413 55,970
------------------- -----------------
Total liabilities and stockholders' equity.................................... $82,605 $69,356
=================== =================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended September 30, 1999 and 1998
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Net sales..................................................................... $22,798 $12,762
Cost of sales................................................................. 14,655 8,155
----------------- -----------------
Gross profit............................................................... 8,143 4,607
----------------- -----------------
Operating expenses:
Selling.................................................................... 4,887 2,967
General and administrative................................................. 1,919 906
----------------- -----------------
Total operating expenses............................................... 6,806 3,873
----------------- -----------------
Operating income............................ ................................. 1,337 734
----------------- -----------------
Other income (expense):
Interest income (expense).................................................. (31) 142
Other income (expense), net................................................ (38) (2)
----------------- -----------------
Total other income (expense)........................................... (69) 140
----------------- -----------------
Income before income taxes............................................. 1,268 874
Income tax expense............................................................ (507) (352)
----------------- -----------------
Income before extraordinary item....................................... 761 522
Extraordinary item - loss on early extinguishment of debt, net of income tax
benefit of $253........................................................ --- (414)
----------------- -----------------
Net income............................................................. $ 761 $ 108
================= =================
Income (loss) per common share - basic and diluted:
Income (loss) before extraordinary item.................................... $.08 $.05
Extraordinary item......................................................... --- (.04)
----------------- -----------------
Net income per share....................................................... $.08 $.01
================= =================
Weighted average shares outstanding, basic................................. 9,719 9,557
Weighted average shares outstanding, diluted............................... 10,093 10,046
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1999 and 1998
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Net sales..................................................................... $59,811 $34,657
Cost of sales................................................................. 38,914 23,218
---------------- ----------------
Gross profit............................................................... 20,897 11,439
---------------- ----------------
Operating expenses:
Selling.................................................................... 12,828 7,537
General and administrative................................................. 4,952 2,274
---------------- ----------------
Total operating expenses............................................... 17,780 9,811
---------------- ----------------
Operating income.............................................................. 3,117 1,628
---------------- ----------------
Other income (expense):
Interest income (expense).................................................. 212 (992)
Other income (expense), net................................................ (115) (37)
---------------- ----------------
Total other income (expense)........................................... 97 (1,029)
---------------- ----------------
Income before income taxes............................................. 3,214 599
Income tax expense............................................................ (1,286) (286)
---------------- ----------------
Income before extraordinary item....................................... 1,928 313
Extraordinary item - loss on early extinguishment of debt, net of income tax --- (414)
benefit of $253........................................................
---------------- ----------------
Net income (loss)...................................................... $ 1,928 $ (101)
=============== ===============
Income (loss) per common share - basic
Income before extraordinary item........................................... $ .20 $ .05
Extraordinary item......................................................... --- (.06)
---------------- ----------------
Net income (loss) per share................................................ $ .20 $ (.01)
================ ================
Income (loss) per common share - diluted
Income before extraordinary item........................................... $ .19 $ .05
Extraordinary item......................................................... --- (.06)
--------------- ---------------
Net income (loss) per share................................................ $ .19 $ (.01)
=============== ===============
Weighted average shares outstanding, basic................................. 9,692 6,573
Weighted average shares outstanding, diluted............................... 10,084 6,573
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Net cash provided by operating activities....................................... $ 148 $ 2,025
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired............................... (5,592) (2,140)
Purchases of marketable securities, net...................................... (656) (8,873)
Purchases of equipment....................................................... (1,880) (1,693)
Purchases and costs of cattle................................................ (6,032) (4,353)
Proceeds from equipment sales................................................ 116 184
Proceeds from cattle sales................................................... 1,601 553
Other, net................................................................... 76 (120)
---------------- ---------------
Net cash used in investing activities.................................... (12,367) (16,442)
---------------- ---------------
Cash flows from financing activities:
Borrowings under long-term lines of credit................................... --- 25,691
Payments on long-term lines of credit........................................ --- (32,644)
Repayments of long-term debt, other than lines of credit..................... (970) (6,603)
Proceeds from long-term debt, other than lines of credit..................... --- 500
Repayment of Loan to Aurora Dairy Corp....................................... --- 250
Proceeds from issuance of common stock....................................... --- 46,276
Proceeds from the exercise of warrants....................................... 137 ---
Proceeds from the issuance of stock under ESPP............................... 55 ---
Proceeds from the exercise of options........................................ 141 ---
---------------- ---------------
Net cash provided by (used in) financing activities...................... (637) 29,470
---------------- ---------------
Net increase (decrease) in cash and cash equivalents............................ (12,856) 15,053
Cash and cash equivalents at beginning of period................................ 14,384 404
---------------- ---------------
Cash and cash equivalents at end of period...................................... $ 1,528 $ 15,457
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................................... $ 262 $ 1,115
================ ===============
Cash paid during the period for income taxes................................. $ 863 $ ---
================ ===============
Non-cash investing and financing activities:
Note payable issued for acquisition.......................................... $ 8,451 $ ---
================ ===============
Common stock issued for services............................................. $ --- $ 26
================ ===============
Common stock issued to directors............................................. $ 21 $ 5
================ ===============
Additional capital lease obligations......................................... $ --- $ 50
================ ===============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
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 period ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999.
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 fiscal year ended December 31, 1998.
2. Translation of Foreign Currencies
The accounts of the Company's subsidiary 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. Revenues 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 other comprehensive income
in stockholders' equity.
3. Acquisition of Rachels Dairy, Ltd.
In April 1999, the Company acquired all the assets and liabilities of
Rachels Dairy, Ltd. ("Rachels"), a United Kingdom company for $2.4 million in
cash plus acquisition costs of $.4 million. The excess of cost over the fair
value of acquired net assets of $2.5 million is recognized in tangible assets
and is being amortized on a straight-line basis over 15 years.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Rachels as if the acquisition
had occurred at the beginning of 1999 and 1998, after giving effect to certain
adjustments including amortization of goodwill and income taxes. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the Company and Rachels constituted a single entity
during such periods.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -----------------------------
1999 1998 1999 1998
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 22,798 13,729 $ 61,017 37,395
============ ============= ============ ============
Net income (loss) $ 761 110 $ 1,947 (70)
============ ============= ============ ============
Net loss per basic share $ .08 .01 $ .20 (.01)
============ ============= ============ ============
Net loss per diluted share $ .08 .01 $ .19 (.01)
============ ============= ============ ============
</TABLE>
7
<PAGE>
4. Reportable Segments
The Company has three segments of business, the marketing company, the
dairy farm operations and the international operations. 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 and for sales to third parties. The dairy farms sell
organic farm milk to the marketing company at an inter-company transfer price
that approximates fair value. International represents operations in the United
Kingdom that was acquired in the second quarter of 1999. The following table
sets forth selected segment data for the periods ended September 30, 1999 and
1998:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
Sales by Segment
Marketing $ 21,301 12,743 $ 56,874 34,597
Dairy farm operations 5,263 4,430 15,100 12,544
International 1,497 -- 2,937 --
------------ ------------- -------------- ------------
Total net sales 28,061 17,173 74,911 47,141
Intersegment sales (5,263) (4,411) (15,100) (12,484)
------------ ------------- -------------- ------------
Net sales $ 22,798 12,762 $ 59,811 34,657
============ ============= ============== ============
Income from Operations
Marketing $ 404 488 $ 1,205 1,424
Dairy farm operations 868 246 1,717 204
International 65 -- 195 --
------------ ------------- -------------- ------------
Income from operations 1,337 734 3,117 1,628
Interest and other income (expense), net (69) 140 97 (1,029)
------------ ------------- -------------- ------------
Income (loss) before income taxes $ 1,268 874 $ 3,214 $ 599
============ ============= ============== ============
</TABLE>
5. Earnings Per Share
Basic earnings per share is computed by dividing income (loss) available to
common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing income (loss) available to
common stockholders 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 equivalent is
calculated using the treasury stock method. The following table sets forth the
calculation of earnings (loss) per share for the three and nine months ended
September 30, 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ 761 108 $ 1,928 (101)
Common and common equivalent shares outstanding:
Historical common shares outstanding at
beginning of period 9,697 5,056 9,656 5,052
Weighted average common shares
issued during period 22 4,501 36 1,521
------------ ------------ -------------- -----------
Weighted average common shares - basic 9,719 9,557 9,692 6,573
Weighted average common equivalent shares
outstanding during period 374 489 392 --
------------ ------------ -------------- -----------
Weighted average common shares - diluted 10,093 10,046 10,084 6,573
============ ============ ============== ===========
Net income (loss) per basic share $ .08 .01 $ .20 (.01)
============ ============ ============== ===========
Net income (loss) per diluted share $ .08 .01 $ .19 (.01)
============ ============ ============== ===========
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This 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 fiscal year
ended December 31, 1998. 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,
including uncertainties related to the charges the Company has to pay as a
result of government regulation. These factors are more fully discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, under the headings "Risk Factors - Possibility of Adverse Effects
Resulting from United States Dairy Support Program and Federal Milk Market Order
Program." In addition, the Company's results could also be affected by a number
of other risks and uncertainties which are more fully discussed under the
headings "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
Results of Operations
Three months ended September 30, 1999, Compared to Three months ended September
30, 1998
Net Sales. Net sales for the three months ended September 30, 1999 were
$22.8 million, an increase of $10.0 million, or 79%, from $12.8 million for the
comparable period in 1998. This increase was due to the acquisition of the
Organic Cow brand in the northeast U.S. and Rachels Dairy, Ltd. (Rachels Dairy)
in the United Kingdom, as well as, increased sales of existing products to
existing accounts, continued development of conventional grocery food channels,
and the introduction of several new products, including organic citrus juices.
Gross Profit. Gross profit for the three months ended September 30, 1999
was $8.1 million, an increase of $3.5 million, or 77%, from $4.6 million for the
comparable period in 1998. As a percentage of net sales, gross profit decreased
to 35.7% from 36.1%. This decrease is due primarily to reduced income from the
sale of excess conventional milk due to lower prices in 1999 as compared to 1998
offset by continued improvements in operations at the Company's organic dairy
farm in southern Idaho (the" Idaho Dairy").
Selling Expenses. Selling expenses for the three months ended September
30, 1999 were $4.9 million, an increase of $1.9 million, or 65%, from $3.0
million for the comparable period in 1998. The increase in selling expenses was
due primarily to increased levels of marketing expenditures as well as increased
costs for expanded distribution. As a percentage of net sales, selling expenses
decreased to 21.4% from 23.2% for the comparable period in 1998. The decrease
in selling expenses as a percentage of net sales was due primarily to increased
leverage of selling expenses over a larger revenue base offset by increased
levels of marketing expenditures and increased costs for expanded distribution.
General and Administrative Expenses. General and administrative expenses
for the three months ended September 30, 1999 were $1.9 million, an increase of
$1.0 million, or 112%, from $.9 million during the comparable period in 1998.
As a percentage of net sales, general and administrative expenses increased to
8.4% from 7.1%. This increase is due primarily to the development of corporate
infrastructure to support the Company's growth, increased amortization of
intangible assets and the increased costs associated with becoming a public
company.
Other Income (Expense), Net. Other income (expense), net for the three
months ended September 30, 1999 was expense of $69,000 compared to income of
$140,000 during the comparable period in 1998. This change is primarily
attributable to a reduction in interest earnings due to cash utilized to
purchase Rachels Dairy combined with interest expense on the note payable issued
in connection with the acquisition of The Organic Cow brand in the second
quarter of 1999.
Extraordinary Item. The extraordinary item in the third quarter 1998
relates to the early extinguishment of certain senior subordinated promissory
notes and is comprised of the write off of unaccreted discount of $.7 million.
The write off was charged to expense and is classified as an extraordinary item
net of the associated tax benefit of $.3 million in the accompanying
Consolidated Statement of Operation for the three months ended September 30,
1998.
9
<PAGE>
Nine months ended September 30, 1999, Compared to Nine months ended September
30, 1998
Net Sales. Net sales for the nine months ended September 30, 1999 were
$59.8 million, an increase of $25.1 million, or 73%, from $34.7 million for the
comparable period in 1998. This increase was primarily due to increased sales of
existing products to existing accounts, continued development of conventional
grocery food channels, and the introduction of several new products, including
organic citrus juices. In addition, net sales increased due to the acquisition
of the Organic Cow brand in the northeast U. S. and Rachels Dairy, during the
second quarter of 1999.
Gross Profit. Gross profit for the nine months ended September 30, 1999
was $20.9 million, an increase of $9.5 million, or 83%, from $11.4 million for
the comparable period in 1998. As a percentage of net sales, gross profit
increased to 34.9% from 33%. This increase is due primarily to continued
improvements in operations at the Idaho Dairy, which were partially offset by
higher than normal charges under the Federal Milk Market Order Program during
the first quarter of 1999.
Selling Expenses. Selling expenses for the nine months ended September 30,
1999 were $12.8 million, an increase of $5.3 million, or 70%, from $7.5 million
for the comparable period in 1998. The increase in selling expenses was
primarily due to increased levels of marketing expenditures and increased costs
for expanded distribution. As a percentage of net sales, selling expenses were
essentially flat at 21.4% versus 21.7% for the comparable period in 1998. The
increased levels of marketing expenditures and increased costs for expanded
distribution were offset by increased leverage of selling expenses over a larger
revenue base.
General and Administrative Expenses. General and administrative expenses
for the nine months ended September 30, 1999 were $4.9 million, an increase of
$2.6 million, or 118%, from $2.3 million during the comparable period in 1998.
As a percentage of net sales, general and administrative expenses increased to
8.3% from 6.6%. This increase is due primarily to the development of corporate
infrastructure to support the Company's growth, increased amortization of
intangible assets and the increased costs associated with becoming a public
company.
Other Income (Expense), Net. Other income (expense), net for the nine
months ended September 30, 1999 was income of $97,000 compared to expense of
$1.0 million during the comparable period in 1998. This change is primarily
attributable to the reduction in interest expense due to the repayment of $22.0
million of indebtedness during the third quarter of 1998 combined with earnings
from investments in 1999 offset by interest expense incurred on the note payable
issued in connection with the acquisition of The Organic Cow brand in the second
quarter of 1999.
Extraordinary Item. The extraordinary item in the third quarter 1998
relates to the early extinguishment of the certain senior subordinated
promissory notes and is comprised of the write off of unaccreted discount of $.7
million. The write off was charged to expense and is classified as an
extraordinary item net of the associated tax benefit of $.3 million in the
accompanying Consolidated Statement of Operations for the nine months ended
September 30, 1998.
Liquidity and Capital Resources
Cash Provided by Operations. Cash provided by operations during the nine
months ended September 30, 1999 was $148,000 compared to $2.0 million in 1998.
This decrease is due primarily to increases in accounts receivable and inventory
offset partially by an increase in accrued liabilities.
Cash Used in Investing Activities. Cash used in investing activities during
the nine months ended September 30, 1999 totaled $12.4 million, as compared to
$16.4 million for the comparable period in 1998. This decrease was primarily due
to reduced investments in marketable securities and higher proceeds from cattle
sales partially offset by an increase in cash used for acquisitions and cattle
purchases.
Cash Provided by (Used in) Financing Activities. Cash used in financing
activities during the nine months ended September 30, 1999 totaled $637,000 as
compared to $29.4 million provided by financing activities for the comparable
period in 1998. The 1998 results include proceeds from an initial public
offering in the third quarter. Additionally the decrease is attributable to the
Company not utilizing its line of credit in 1999.
10
<PAGE>
Company management believes that cash and cash equivalents, cash generated
from operations and the availability under the line of credit will be sufficient
to meet the Company's foreseeable operating and capital expenditure needs.
Long-term Debt. The Company has a revolving line of credit with U.S. Bank
with a maximum borrowing capacity of $20 million, interest at prime less .25%,
secured by substantially all the assets of the Company, due September 30, 2000.
The revolving line of credit contains 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 provisions. There were no amounts outstanding
under the line of credit at September 30, 1999.
In April, 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 annual installments over 4 years.
Year 2000. The Year 2000 issue refers to the fact that certain management
information systems use two digit data fields which recognize dates using the
assumption that the first two digits are "19 " (i.e., the number 99 is
recognized as the year 1999). When the year 2000 occurs, these systems could
interpret the year as 1900 versus 2000, which in turn, could result in system
failures or miscalculations causing disruptions of operations of the Company and
its suppliers and customers.
To address this issue, the Company has established a cross-functional team
from across the organization under the sponsorship of the Chief Financial
Officer. This team is implementing a multi-phase plan that includes;
inventorying computer systems, software and equipment to assess the impact of
the Year 2000; contacting third-party suppliers to ascertain their state of
readiness and or compliance; developing solution plans related to upgrading,
modifying or replacing affected systems; testing and certifying results; and
developing contingency plans as necessary.
The Company has completed its initial evaluation of computer systems at the
corporate location. The evaluation revealed that the Company's network hardware
and operating systems, e-mail system, and accounting software are the major
resources that are affected by the Year 2000 issue. All these systems have now
been either replaced or upgraded with Year 2000 versions.
The Company relies heavily on third-party suppliers and processors for many
products and services. As part of its Year 2000 plan, the Company has contacted
its significant suppliers to determine the extent to which the systems of such
suppliers are Year 2000 compliant. In addition, the Company is assessing the
extent to which it could be affected by the failure of such third parties to be
Year 2000 compliant. To date approximately sixty percent of the entities
contacted have responded with the majority of the respondents in some phase of
addressing Year 2000 issues. The Company will continue to contact its
significant suppliers and processors in an effort to minimize any potential Year
2000 compliance impact, however, it is not possible to guarantee their
compliance.
The total cost expended year to date for the Year 2000 plan has been under
$50,000. The Company anticipates spending will not exceed $50,000 to make all
systems Year 2000 compliant.
Management believes that it has an effective program in place to adequately
address the Year 2000 issue in a timely manner. Nevertheless, failure of third
parties upon whom the Company's business relies could result in disruption of
the Company's supply of product, late, missed or unapplied payments, temporary
disruptions in order processing and other general problems related to daily
operations. In addition, disruptions in the economy generally resulting from
Year 2000 issues could also adversely affect the Company. Although, the Company
believes its Year 2000 plan will adequately address the Company's internal
issues, the overall risks associated with the Year 2000 issue cannot be fully
identified until the Company receives more responses from significant suppliers.
Accordingly, the amount of potential liability and lost revenue, if any, cannot
be reasonably estimated at this time.
The Company expects to develop and implement, where necessary, a contingency
plan by the beginning of December 1999.
11
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27 Financial Data Schedule
Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended September 30, 1999.
12
<PAGE>
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: November 15, 1999 /s/ Don J. Gaidano
---------------------------------------------
Don J. Gaidano
Vice President, Finance and Administration,
Chief Financial Officer,
Treasurer and Assistant Secretary
(principal financial and accounting officer
of the Company)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,528
<SECURITIES> 10,579
<RECEIVABLES> 9,328
<ALLOWANCES> (133)
<INVENTORY> 8,649
<CURRENT-ASSETS> 31,389
<PP&E> 33,815
<DEPRECIATION> (4,183)
<TOTAL-ASSETS> 82,605
<CURRENT-LIABILITIES> 11,382
<BONDS> 13,784
0
0
<COMMON> 10
<OTHER-SE> 58,413
<TOTAL-LIABILITY-AND-EQUITY> 82,605
<SALES> 59,811
<TOTAL-REVENUES> 59,811
<CGS> 38,914
<TOTAL-COSTS> 38,914
<OTHER-EXPENSES> 17,780
<LOSS-PROVISION> 37
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> 3,214
<INCOME-TAX> (1,286)
<INCOME-CONTINUING> 1,928
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,928
<EPS-BASIC> .20
<EPS-DILUTED> .19
</TABLE>
