<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 March 31, 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 April 30, 2000, the registrant had outstanding 9,776,423 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 and Comprehensive Income............ 4
Consolidated Statements of Cash Flows..................................... 5
Notes to Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................... 10
SIGNATURE............................................................................... 11
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financials Statements
- -----------------------------
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of March 31, 2000 (unaudited) and December 31, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
March 31 December 31
2000 1999
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 847 $ 3,693
Marketable securities............................................................. 4,969 8,218
Trade accounts receivable, net.................................................... 10,813 10,168
Inventories....................................................................... 10,877 8,935
Deferred income tax assets........................................................ 334 334
Other current assets.............................................................. 1,289 1,313
------------ ------------
Total current assets.......................................................... 29,129 32,661
Property, Equipment and Cattle
Cattle, net....................................................................... 13,446 12,737
Property and equipment, net....................................................... 19,867 18,076
------------ ------------
Total property, equipment and cattle.......................................... 33,313 30,813
Other Assets:
Intangible assets, net............................................................ 20,247 20,651
Other assets, net................................................................. 584 487
------------ ------------
Total other assets............................................................ 20,831 21,138
Total Assets.............................................................. $ 83,273 $ 84,612
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable............................................................ $ 6,179 $ 7,756
Current portion of long-term debt................................................. 2,323 2,323
Other accrued expenses............................................................ 4,019 4,016
Income taxes payable.............................................................. 175 130
Total current liabilities..................................................... 12,696 14,225
Long-Term Liabilities:
Long-term debt, less current portion and other accrued liabilities................ 11,153 11,337
Deferred income tax liabilities................................................... 1,144 1,162
------------ ------------
Total long-term liabilities................................................... 12,297 12,499
Total liabilities......................................................... 24,993 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 and 8,000,000 shares, issued
and outstanding 9,776,339 and 9,743,659 shares in 2000 and 1999, respectively.... 10 10
Additional paid-in capital........................................................ 58,478 58,392
Accumulated other comprehensive loss - foreign currency translation adjustment.... (32) (31)
Accumulated deficit............................................................... (176) (483)
------------ ------------
Total stockholders' equity.................................................... 58,280 57,888
Total Liabilities and Stockholders' Equity................................ $ 83,273 $ 84,612
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
for the three months ended March 31, 2000 and 1999
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net sales..................................................................... $ 26,336 $ 16,423
Cost of sales................................................................. 17,935 10,901
Gross profit............................................................... 8,401 5,522
----------- -----------
Operating expenses:
Selling.................................................................... 5,443 3,584
General and administrative................................................. 2,321 1,284
Total operating expenses................................................. 7,765 4,868
Operating income.............................................................. 636 654
----------- -----------
Other income (expense):
Interest income (expense).................................................. (116) 182
Total other income (expense)............................................. (116) 182
----------- -----------
Income before income taxes............................................... 520 836
Income tax expense............................................................ (213) (334)
----------- -----------
Net income............................................................... $ 307 $ 502
=========== ===========
Income per basic and diluted share -
net income per share....................................................... $ .03 $ .05
=========== ===========
Weighted average shares outstanding, basic................................. 9,753 9,666
Weighted average shares outstanding, diluted............................... 10,025 10,099
Comprehensive Income:
Net income................................................................. 307 502
Impact of foreign currency translation adjustment.......................... (1) -
----------- -----------
Comprehensive Income....................................................... 306 502
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2000 and 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net cash (used in) provided by operating activities............................. $(1,885) $ 1,300
Cash flows from investing activities:
Sale (Purchases) of marketable securities, net............................... 3,249 (3,453)
Purchases of equipment....................................................... (2,172) (688)
Purchases and costs of cattle................................................ (2,361) (976)
Proceeds from equipment sales................................................ 1 47
Proceeds from cattle sales................................................... 543 213
Other, net................................................................... (118) (56)
------- -------
Net cash used in investing activities.................................... (858) (4,913)
------- -------
Cash flows from financing activities:
Repayments of long-term debt, other than lines of credit..................... (184) (184)
Proceeds from the exercise of warrants....................................... 28 137
Proceeds from the exercise of options........................................ 53 29
------- -------
Net cash used in financing activities.................................... (103) (18)
------- -------
Net of decrease in cash and cash equivalents.................................... (2,846) (3,631)
Cash and cash equivalents at beginning of period................................ 3,693 14,384
------- -------
Cash and cash equivalents at end of period...................................... $ 847 $10,753
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................................... $ 86 $ 85
======= =======
Cash paid during the period for income taxes................................. $ 0 $ 115
======= =======
Non-cash investing and financing activities -
common stock issued to directors............................................. $ 5 $ 9
======= =======
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<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 March 31,
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 fiscal year ended December 31, 1999.
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. 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. 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 as intangible 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, 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.
Three months ended
March 31,
------------------
1999
------------
Net sales 17,629
============
Net income 521
============
Net income per basic share .05
============
Net Income per diluted share .05
============
6
<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 the operation 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 March 31, 2000 and
1999:
Three months ended
March 31,
--------------------------
2000 1999
----------- ------------
Sales by Segment
Marketing $ 24,796 16,423
Dairy farm operations 6,192 4,754
International 1,540 -
----------- ------------
Total net sales 32,528 21,177
Intersegment sales (6,192) (4,754)
----------- ------------
Net sales $ 26,336 16,423
=========== ============
Income (loss) from Operations
Marketing $ (196) 399
Dairy farm operations 804 255
International 28 -
----------- ------------
Income from operations 636 654
Interest and other income (expense), net (116) 182
----------- ------------
Income before income taxes $ 520 836
=========== ============
5. Earnings Per Share
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings 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. The following table sets forth the
calculation of earnings per share for the three months ended March 31, 2000 and
1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income $ 307 502
Common and common equivalent shares outstanding:
Historical common shares outstanding at beginning of period 9,743 9,656
Weighted average common shares issued during period 10 10
------------ ------------
Weighted average common shares - basic 9,753 9,666
Weighted average common equivalent shares during period 272 433
------------ ------------
Weighted average common shares - diluted 10,025 10,099
============ ============
Net income per basic share $ .03 .05
============ ============
Net income per diluted share $ .03 .05
============ ============
</TABLE>
7
<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 31,1999. 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 fiscal year ended December 31, 1999.
Results of Operations
Three Months Ended March 31, 2000, Compared to Three Months Ended March 31, 1999
Net Sales. Net sales for the three months ended March 31, 2000 were $26.3
million, an increase of $9.9 million, or 60%, from $16.4 million for the
comparable period in 1999. 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 in 1999.
Gross Profit. Gross profit for the three months ended March 31, 2000 was
$8.4 million, an increase of $2.9 million, or 53%, from $5.5 million for the
comparable period in 1999. As a percentage of net sales, gross profit decreased
to 31.9% from 33.6%. This decrease was due primarily to lower margins
associated with the production of ultra pasteurized milk and higher costs of
farm milk in the eastern United States.
Selling Expenses. Selling expenses for the three months ended March 31,
2000 were $5.4 million, an increase of $1.8 million, or 50%, from $3.6 million
for the comparable period in 1999. As a percentage of net sales, selling
expenses decreased to 20.7% from 21.8%. 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 three months ended March 31, 2000 were $2.3 million, an increase of $1.0
million, or 77%, from $1.3 million during the comparable period in 1999. As a
percentage of net sales, general and administrative expenses increased to 8.8%
from 7.8%. This increase was due primarily to increased amortization of
intangible assets and increased costs associated with development of the
corporate infrastructure needed to support the Company's growth.
Other Income (Expense), Net. Other income (expense), net for the three
months ended March 31, 2000 was an expense of $116,000 compared to income of
$182,000 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
Dairy, and other capital expenditures.
Liquidity and Capital Resources
Cash Provided by (Used in) Operations. Cash used in operations during the
three months ended March 31, 2000 was $1.9 million, an increase of $3.2 million
from cash provided by operations of $1.3 million during the comparable period in
1999. The increase in cash used in operations was due primarily to increased
trade accounts receivable and inventories and a decrease in accounts payable.
8
<PAGE>
Cash Used in Investing Activities. Cash used in investing activities during
the three months ended March 31, 2000 totaled $858,000, compared to $4.9 million
for the corresponding period in 1999. The decrease was due primarily to the use
of cash from the sale of marketable securities in operations and for the
purchases of cattle and equipment for the Company's dairy farms during the first
quarter of 2000.
Cash Used in Financing Activities. Cash used in financing activities during
the three months ended March 31, 2000 totaled $103,000, compared to $18,000 used
in financing activities for the corresponding period in 1999. This increase was
due primarily to decreased proceeds from the exercise of outstanding stock
warrants.
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 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, and due June 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 conditions. There were no amounts outstanding
under the line of credit at March 31, 2000. The Company is in the process of
extending the terms of the line of credit.
Also, 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 4 annual installments with final maturity in 2003.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27.1 Financial Data Schedule
Reports on Form 8-K
During the period ending March 31, 2000, the Company, filed two reports on Form
8-K. The first Form 8-K was dated January 21, 2000, and reported the Company's
comments on anticipated fiscal 1999 fourth quarter and year-end financial
results, which included information that the Company's 1999 fourth quarter
earnings were to be lower than expected. The second Form 8-K was dated February
7, 2000 and reported that the Company's 1999 year end sales were 72% higher than
they were in 1998 and that the Company had posted record sales and profits in
fiscal 1999. The February 7, 2000 Form 8-K included a partial income statement
and selected balance sheet data, comparing fourth quarter 1998 to fourth quarter
1999.
10
<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: May 10, 2000 /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)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000, AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 847
<SECURITIES> 4,969
<RECEIVABLES> 10,986
<ALLOWANCES> (173)
<INVENTORY> 10,877
<CURRENT-ASSETS> 29,129
<PP&E> 38,570
<DEPRECIATION> (5,257)
<TOTAL-ASSETS> 83,273
<CURRENT-LIABILITIES> 12,696
<BONDS> 11,153
0
0
<COMMON> 10
<OTHER-SE> 58,270
<TOTAL-LIABILITY-AND-EQUITY> 83,273
<SALES> 26,336
<TOTAL-REVENUES> 26,336
<CGS> 17,935
<TOTAL-COSTS> 17,935
<OTHER-EXPENSES> 7,765
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> (116)
<INCOME-PRETAX> 520
<INCOME-TAX> (213)
<INCOME-CONTINUING> 307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
