<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 June 30, 2000
-----------
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 July 31, 2000, the registrant had outstanding 9,783,839 shares of
its common stock, $.001 par value per share.
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HORIZON ORGANIC HOLDING CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets........................................................ 3
Consolidated Statements of Operations and Comprehensive Income .................... 4-5
Consolidated Statements of Cash Flows.............................................. 6
Notes to Consolidated Financial Statements......................................... 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 10-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................ 13
Item 6. Exhibits and Reports on Form 8-K................................................... 13
SIGNATURE................................................................................... 14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIALS STATEMENTS
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ..................................................... $ 2,692 $ 3,693
Marketable securities ......................................................... -- 8,218
Trade accounts receivable, net ................................................ 17,455 10,168
Inventories ................................................................... 16,347 8,935
Deferred income tax assets .................................................... 334 334
Other current assets .......................................................... 1,782 1,313
--------- ---------
Total current assets ...................................................... 38,610 32,661
Property, Equipment and Cattle
Cattle, net ................................................................... 13,802 12,737
Property and equipment, net ................................................... 22,013 18,076
--------- ---------
Total property, equipment and cattle ...................................... 35,815 30,813
Other Assets:
Intangible assets, net ........................................................ 46,306 20,651
Other assets, net ............................................................. 921 487
--------- ---------
Total other assets ........................................................ 47,227 21,138
--------- ---------
Total Assets ......................................................... $ 121,652 $ 84,612
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ........................................................ $ 12,132 $ 7,756
Current portion of long-term debt ............................................. 4,924 2,323
Other accrued expenses ........................................................ 7,444 4,016
Income taxes payable .......................................................... 442 130
--------- ---------
Total current liabilities ................................................. 24,942 14,225
Long-Term Liabilities:
Long-term debt, less current portion and other accrued liabilities ............ 36,780 11,337
Deferred income tax liabilities ............................................... 1,139 1,162
--------- ---------
Total long-term liabilities ............................................... 37,919 12,499
--------- ---------
Total liabilities .................................................... 62,861 26,724
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; 9,786,189 and 9,743,659 shares in 2000 and 1999, respectively 10 10
Additional paid-in capital .................................................... 58,543 58,392
Accumulated other comprehensive loss - cumulative foreign currency
translation adjustment .................................................... (100) (31)
Retained earnings (deficit) ................................................... 338 (483)
--------- ---------
Total stockholders' equity ................................................ 58,791 57,888
--------- ---------
Total Liabilities and Stockholders' Equity ........................... $ 121,652 $ 84,612
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
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HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHESIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net sales ............................................. $ 29,692 $ 20,590
Cost of sales ......................................... 19,463 13,358
-------- --------
Gross profit .................................... 10,229 7,232
-------- --------
Operating expenses:
Selling ......................................... 6,370 4,357
General and administrative ...................... 2,600 1,749
-------- --------
Total operating expenses ..................... 8,970 6,106
-------- --------
Operating income ...................................... 1,259 1,126
-------- --------
Other income (expense):
Interest income (expense), net .................. (385) 24
Other expense, net............................... (15) (40)
-------- --------
Total other expense .......................... (400) (16)
-------- --------
Income before income taxes ................... 859 1,110
Income tax expense .................................... (345) (444)
-------- --------
Net income ................................... $ 514 $ 666
======== ========
Basic and diluted earnings per share .................. $ .05 $ .07
======== ========
Weighted average shares outstanding, basic ...... 9,777 9,692
Weighted average shares outstanding, diluted .... 10,048 10,129
Comprehensive Income:
Net income ...................................... $ 514 $ 666
Foreign currency translation adjustment ......... (68) 23
-------- --------
Comprehensive Income ......................... $ 446 $ 689
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
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HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHESIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net sales ............................................. $ 56,027 $ 37,013
Cost of sales ......................................... 37,397 24,259
-------- --------
Gross profit .................................... 18,630 12,754
-------- --------
Operating expenses:
Selling ......................................... 11,813 7,941
General and administrative ...................... 4,921 3,033
-------- --------
Total operating expenses ..................... 16,734 10,974
-------- --------
Operating income ...................................... 1,896 1,780
-------- --------
Other income (expense):
Interest income (expense), net .................. (491) 244
Other expense, net .............................. (25) (78)
-------- --------
Total other income (expense) ................. (516) 166
-------- --------
Income before income taxes ................... 1,380 1,946
Income tax expense .................................... (559) (778)
-------- --------
Net income ................................... $ 821 $ 1,168
======== ========
Basic and diluted earnings per share .................. $ .08 $ .12
======== ========
Weighted average shares outstanding, basic ...... 9,765 9,679
Weighted average shares outstanding, diluted .... 10,037 10,116
Comprehensive Income:
Net income ...................................... $ 821 $ 1,168
Foreign currency translation adjustment ......... (69) 23
-------- --------
Comprehensive Income ......................... $ 752 $ 1,191
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
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HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net cash (used in) provided by operating activities ............................ $ (3,302) $ 1,858
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired of $32 ................... (27,319) (5,592)
Sale (purchases) of marketable securities, net ........................... 8,218 (2,610)
Purchases of equipment ................................................... (3,197) (1,308)
Purchases and costs of cattle ............................................ (4,826) (3,050)
Proceeds from equipment sales ............................................ 10 54
Proceeds from cattle sales ............................................... 1,663 616
Other, net ............................................................... (104) (60)
-------- --------
Net cash used in investing activities ................................. (25,555) (11,950)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt, other than lines of credit ................. (2,263) (815)
Proceeds from long-term debt ............................................. 25,000 --
Proceeds from long-term line of credit ................................... 5,275 --
Proceeds from the exercise of warrants ................................... 28 137
Proceeds from the issuance of stock under ESPP ........................... 58 55
Proceeds from the exercise of options .................................... 53 29
-------- --------
Net cash provided by (used in) financing activities ................... 28,151 (594)
-------- --------
Effect of exchange rate changes on cash ........................................ (295) 24
Net decrease in cash and cash equivalents ...................................... (1,001) (10,662)
Cash and cash equivalents at beginning of period ............................... 3,693 14,384
-------- --------
Cash and cash equivalents at end of period ..................................... $ 2,692 $ 3,722
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................................. $ 819 $ 85
Cash paid during the period for income taxes ............................. $ 11 $ 522
Non-cash investing and financing activities -
Note issued for acquisition .............................................. $ -- $ 8,514
Common stock issued to directors ......................................... $ 12 $ 17
Acquisition of Rachels Dairy Ltd. Assets acquired and liabilities assumed
were as follows:
Fair value of assets acquired .............................. $ -- $ 4,511
Cash paid for common stock ................................. -- (2,802)
Debt assumed ............................................... -- (947)
-------- --------
Liabilities assumed .................................. $ -- $ 762
======== ========
Acquisition of Meadow Farms and Organic Matters. Assets acquired
and liabilities assumed were as follows:
Fair value of assets acquired ............................. $ 32,795 $ --
Cash paid for common stock ................................ 27,319 --
-------- --------
Liabilities assumed ................................ $ 5,476 $ --
======== ========
</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 three and six months ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
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, 1999.
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 other
comprehensive income in stockholders' equity.
3. ACQUISITIONS
In April 1999, the Company acquired all of the assets and
liabilities of Rachel's Dairy, Limited. ("Rachels"), a private company
incorporated in England and Wales, for approximately $2.4 million in cash
plus acquisition costs of $.4 million. The acquisition was accounted for as a
purchase and the excess of cost over the fair value of acquired net assets of
$2.5 million is recognized as intangible assets and is being amortized on a
straight-line basis over 15 years. The results of operations of Rachels has
been included in the Company's consolidated statement of operations beginning
April 1, 1999.
Also on June 1, 2000, the Company acquired all of the outstanding
and issued stock of Meadow Farms Limited ("Meadow Farms"), a private company
incorporated in England and Wales, for approximately $23.9 million in cash
plus acquisition costs of approximately $1.3 million. The acquisition
included Meadow Farm's 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
assets of approximately $24.2 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 has been included in the Company's
consolidated statement of operations beginning June 1, 2000.
On June 1, 2000, the Company acquired all of the outstanding and
issued 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 has been included in the
Company's consolidated statement of operations beginning June 1, 2000.
7
<PAGE>
The following unaudited pro forma financial information presents the
combined results of operations of the Company, Rachels and Meadow Farms as if
the acquisitions had occurred at the beginning of 1999, 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, Rachels and Meadow
Farms constituted a single entity during such periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(unaudited, dollars in thousands) JUNE 30, JUNE 30,
------------------------- ------------------------
2000 1999 2000 1999
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 34,396 20,590 $ 67,787 38,219
========== =========== ========== ==========
Net income $ 243 666 $ 144 1,187
========== =========== ========== ==========
Net income per basic and diluted share $ .02 .12 $ .01 .07
========== =========== ========== ==========
</TABLE>
4. LONG-TERM DEBT
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% (9.15% at June 30, 2000) with quarterly principal and interest
payments. 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% (9.15% at June 30, 2000). At June 30, 2000, the Company has borrowed
$5.3 million against the credit line facility. The availability of the $25
million line of credit is reduced by outstanding letters of credit of $6.5
million. Total availability under the line of credit is $13.2 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.
5. 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 the operations in the
United Kingdom that were acquired in the second quarter of 1999 and in June
2000. The following table sets forth selected segment data for the three and six
months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES BY SEGMENT
Marketing $ 25,601 19,150 $ 50,396 35,573
Dairy farm operations 6,862 5,083 13,054 9,837
International 4,091 1,440 5,631 1,440
-------- -------- -------- --------
Total net sales 36,554 25,673 69,081 46,850
Intersegment sales (6,862) (5,083) (13,054) (9,837)
-------- -------- -------- --------
Net sales $ 29,692 20,590 $ 56,027 37,013
======== ======== ======== ========
INCOME (LOSS) FROM OPERATIONS
Marketing $ (107) 402 $ (302) 801
Dairy farm operations 1,167 594 1,971 849
International 199 130 227 130
-------- -------- -------- --------
Income from operations 1,259 1,126 1,896 1,780
Interest and other income (expense), net (400) (16) (516) 166
-------- -------- -------- --------
Income before income taxes $ 859 1,110 $ 1,380 1,946
======== ======== ======== ========
</TABLE>
8
<PAGE>
The following table sets forth selected segment data as of June 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
<S> <C> <C>
TOTAL ASSETS BY SEGMENT
Marketing $ 109,182 $ 79,623
Dairy farm operations 40,834 38,471
International 39,601 4,764
--------- ---------
Total assets including intersegment assets 189,617 122,858
Intersegment assets (67,965) (38,246)
--------- ---------
Total assets $ 121,652 $ 84,612
========= =========
</TABLE>
6. EARNINGS PER SHARE
Basic income per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding. Diluted income per share is computed by dividing income
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 equivalents are calculated using the treasury stock
method. Excluded from the dilutive calculation is 188,750 options outstanding
as antidilutive. The following table sets forth the calculation of earnings
per share for the three and six months ended June 30, 2000 and 1999 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 514 666 $ 821 1,168
Common and common equivalent shares outstanding:
Historical common shares outstanding
at beginning of period 9,776 9,692 9,744 9,656
Weighted average common equivalent shares
Issued during period 1 -- 21 23
------- ------- ------- -------
Weighted average common shares - basic 9,777 9,692 9,765 9,679
Weighted average common equivalent
shares outstanding during period 271 437 272 437
------- ------- ------- -------
Weighted average common shares - diluted 10,048 10,129 10,037 10,116
Net income per basic and diluted share $ .05 .07 $ .08 .12
======= ======= ======= =======
</TABLE>
9
<PAGE>
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, 1999. 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 is required 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, 1999, under the headings "Risk
Factors - Possibility of Adverse Effects Resulting from United States Dairy
Support Program and Federal Milk Marketing 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
year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000, COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES. Net sales for the three months ended June 30, 2000 were
$29.7 million, an increase of $9.1 million, or 44%, from $20.6 million for
the comparable period in 1999. This increase was primarily due to the
increased sales of existing products to existing accounts and the continued
development of conventional grocery food channels. Also, this increase was
partially due to the June operations from the Meadow Farms and Organic
Matters acquisitions in the United Kingdom in addition to three months of
operations in 2000 for The Organic Cow brand in the northeastern U.S. and
Rachels Dairy, Limited ("Rachels") in the United Kingdom compared to only two
months in 1999.
GROSS PROFIT. Gross profit for the three months ended June 30, 2000
was $10.2 million, an increase of $3.0 million, or 42%, from $7.2 million for
the comparable period in 1999. As a percentage of net sales, gross profit
decreased to 34.5% from 35.1%. This decrease in gross profit as a percentage
of net sales was due primarily to lower margins on and higher sales of ultra
pasteurized milk and higher costs of farm milk in the eastern United States.
SELLING EXPENSES. Selling expenses for the three months ended June
30, 2000 were $6.4 million, an increase of $2.0 million, or 45%, from $4.4
million for the comparable period in 1999. As a percentage of net sales,
selling expenses increased to 21.5% from 21.2%. This increase in selling
expenses was primarily due to increased delivery.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the three months ended June 30, 2000 were $2.6 million, an
increase of $.9 million, or 53%, from $1.7 million during the comparable
period in 1999. As a percentage of net sales, general and administrative
expenses increased to 8.8% from 8.5%. This increase was due to increased
amortization of intangible assets.
OTHER INCOME (EXPENSE), NET. Other income (expense), net for the
three months ended June 30, 2000 was an expense of $400,000 compared to
expense of $16,000 during the comparable period in 1999. This change was due
to a reduced cash position as a result of the acquisitions of The Organic
Cow, Rachels, Meadow Farms, Organic Matters 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.
SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET SALES. Net sales for the six months ended June 30, 2000 were
$56.0 million, an increase of $19.0 million, or 51%, from $37.0 million for
the comparable period in 1999. This increase was primarily due to the
increased sales of existing products to existing accounts and the continued
development of conventional grocery food channels. Also, this increase was
due in part to the acquisition of The Organic Cow brand in the northeastern
U.S. and the acquisitions of Rachels, Meadow Farms and Organic Matters in the
United Kingdom.
10
<PAGE>
GROSS PROFIT. Gross profit for the six months ended June 30, 2000
was $18.6 million, an increase of $5.9 million, or 46%, from $12.7 million
for the comparable period in 1999. As a percentage of net sales, gross profit
decreased to 33.3% from 34.5%. This decrease in gross profit as a percentage
of net sales was due primarily to lower margins on and higher sales of ultra
pasteurized milk and higher costs of farm milk in the eastern United States.
SELLING EXPENSES. Selling expenses for the six months ended June 30,
2000 were $11.8 million, an increase of $3.9 million, or 49%, from $7.9 million
for the comparable period in 1999. As a percentage of net sales, selling
expenses decreased to 21.1% from 21.5%. 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 logistics costs for
expanded distribution.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the six months ended June 30, 2000 were $4.9 million, an
increase of $1.9 million, or 63%, from $3.0 million during the comparable
period in 1999. As a percentage of net sales, general and administrative
expenses increased to 8.8% from 8.2%. This increase was due primarily to
costs associated with establishing international operations including
amortization of intangible assets.
OTHER INCOME (EXPENSE), NET. Other income (expense), net for the six
months ended June 30, 2000 was an expense of $516,000 compared to income of
$166,000 during the comparable period in 1999. This change was due to a
reduced cash position as a result of the acquisitions of The Organic Cow,
Rachels, Meadow Farms, Organic Matters 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.
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY (USED IN) OPERATIONS. Cash used in operations
during the six months ended June 30, 2000 was $3.3 million, an increase of
$5.2 million from cash provided by operations of $1.9 million during the
comparable period in 1999. The increase in cash used in operations was due
primarily to increased trade accounts receivable and inventories.
CASH USED IN INVESTING ACTIVITIES. Cash used in investing activities
during the six months ended June 30, 2000 totaled $25.6 million, compared to
$11.9 million for the corresponding period in 1999. The increase was due
primarily to the acquisitions of Meadow Farms and Organic Matters in the United
Kingdom.
CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided by financing
activities during the six months ended June 30, 2000 totaled $28.2 million,
compared to $.6 million used in financing activities for the corresponding
period in 1999. This increase was primarily due to the Company entering into a
$25.0 million term loan with US Bank to finance the Meadow Farms acquisition.
Additionally, the Company began to utilize its line of credit with US Bank for
operating needs.
Company management believes that cash and cash equivalents, funds
generated from operations and the availability of funds under the line of credit
will be sufficient to meet the Company's foreseeable operating and capital
expenditure needs.
LONG-TERM DEBT. 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% (9.15% at June 30, 2000) with
quarterly principal and interest payments. 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% (9.15% at June 30, 2000). At June 30,
2000, the Company has borrowed $5.3 million against the credit line facility.
The availability of the $25 million line of credit is reduced by outstanding
letters of credit, which at June 30, 2000, were $6.5 million primarily
associated with The Organic Cow acquisition as discussed below. Total
availability under the line of credit is $13.2 million at June 30, 2000. 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.
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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 June 30, 2000, 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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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A) The Company held its Annual Meeting of Stockholders on Tuesday,
May 16, 2000.
B) No response is required.
C) In addition to electing directors, the stockholders also voted on the
following issues at the Annual Meeting:
1) Ratification of the selection of KPMG LLP as the independent
auditors of the Company for the fiscal year ending December
31, 2000. 7,695,254 votes were cast for this resolution and
there were no votes against or withheld, no stockholders
abstained and there were no Broker Non-votes.
2) Approval of the amendment to the Company's 1998 Equity
Incentive Plan to increase the number of shares available for
issuance under the Plan by 750,000 shares, to an aggregate of
1,500,000 shares. 7,695,254 votes were cast for this
resolution and there were no votes against or withheld, no
stockholders abstained and there were no Broker Non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<S> <C>
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
10.1++ Share Sale Agreement dated May 31, 2000
27.1 Financial Data Schedule
</TABLE>
Exhibits identified above are incorporated by reference as follows:
+ Incorporated by reference to the Registrant's Registration Statement on
Form S-1, No. 333-51465
++ Incorporated by reference to the Registrant's 8-K dated June 1, 2000
(b) REPORTS ON FORM 8-K
During the period ending June 30, 2000, the Company, filed one report on Form
8-K filed June 15, 2000. The Form 8-K reported the Company's acquisition,
through a wholly owned subsidiary, of all of the outstanding and issued stock
of Meadow Farms Limited. Meadow Farms Limited is a private company
incorporated in England and Wales, and is based in Devon, England. Meadow
Farms Limited is a leading processor and supplier of organic fluid milk in
the United Kingdom. The Form 8-K did not include any financial statements.
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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: August 11, 2000 /s/ Thomas P. Briggs
--------------------------------
Thomas P. Briggs
Vice President, Finance and
Administration, Chief Financial
Officer, Treasurer and Assistant
Secretary (principal financial
and accounting officer of the
Company)
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