What drove the revenue and profit growth in 2004?

Growth was led by Monster Energy, introduced in April 2002, including its lo-carb version, and by Lost energy drinks, which launched in early 2004. Apple juice, apple grape juice, private label beverages, and Energade also contributed. Gross profit rose $39.7 million, which far outpaced the $15.6 million increase in SG&A expenses, producing much higher operating leverage.

Is the company financially stable, and does it need to raise capital?

The company appears financially stable. It had $21.0 million in cash, $41.6 million in working capital, $58.6 million in equity, and only about $0.58 million in total debt at year-end. It had no borrowings under its Comerica credit line, which was expanded to $7.8 million in March 2005. Management said cash from operations and the credit line should cover working capital, purchase commitments, and capital needs through 2005.

What are the biggest operational risks for investors to watch?

The main risks are supply and production. The company outsources all manufacturing to third-party bottlers and co-packers, many on month-to-month terms, and some key products have few alternative packers. Its sucralose supplier has capped 2005 purchases, and the company is reformulating some products. Rising aluminum can, PET, and glass costs could also pressure margins, and a large share of revenue is concentrated in a few customers and distributors.

Are there governance or legal concerns?

Ownership is concentrated: CEO Rodney Sacks and CFO Hilton Schlosberg, through direct holdings and Brandon Limited Partnerships, control roughly 44% of outstanding shares. Both have employment agreements through 2008. The company also disclosed a September 2004 motion by Barrington Capital/Sandburg Financial to add Hansen and its subsidiaries as judgment debtors on a 1996 default judgment against an unrelated company, which management says lacks merit. The company also has related-party transactions with a law firm and a promotional materials supplier that are partly owned by directors and officers.

MNST 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 16, 2005. Cited figures are marked; the original filing is the authoritative source.

This 10-K, signed March 15, 2005 and filed for fiscal 2004, is from Hansen Natural Corporation (NASDAQ SmallCap: HANS), which later became Monster Beverage Corp (MNST).

The company reported a breakout year. Net sales rose 63.4% to $180.3 million^a, gross profit rose 90.7% to $83.5 million, and gross margin expanded to 46.3% from 39.7%. Operating income reached $33.9 million (18.8% of net sales) versus $9.8 million in 2003, and net income climbed to $20.4 million, or $1.73 per diluted share, from $5.9 million, or $0.55.

Growth was driven mainly by the Monster Energy drink (launched April 2002) and the Lost energy drink (launched early 2004), along with apple juice, private label, and Energade sales. Sales outside California rose to 56%^b of the total, and sales to full-service distributors made up 52% of revenue. The balance sheet strengthened considerably.

Cash rose to $21.0 million^c from $1.1 million, working capital reached $41.6 million, shareholders' equity was $58.6 million, and operating cash flow was $20.1 million. Debt is minimal, with total long-term obligations of about $0.58 million including current maturities, and the company had no borrowings under its $6.0 million Comerica revolving line at year-end. The Comerica facility was increased to $7.8 million in March 2005.

The company paid no dividends and reinvested cash in sales and marketing, which grew about 75%^d in 2004. Key risks include dependence on a few co-packers and single-source suppliers, rising aluminum can and PET bottle costs that pressure gross margins, a sucralose supply cap in 2005 that management is addressing through reformulation, and concentration in the energy drink category, which faces many competitors.

The company disclosed a Barrington Capital/Sandburg Financial motion seeking to add Hansen as a judgment debtor on a 1996 default judgment against an unrelated company, which management called without merit. Insiders Rodney Sacks and Hilton Schlosberg control about 44% of shares through direct holdings and Brandon Limited Partnerships, so governance is concentrated.

02—Key points

Key Highlights

Record 2004 results: net sales up 63.4% to $180.3 million, net income up 243.8% to $20.4 million, and diluted EPS of $1.73 versus $0.55 in 2003.
Gross margin expanded to 46.3% from 39.7%, mainly from higher-margin Monster Energy and Lost energy drink sales, partly offset by higher promotional allowances.
Monster Energy and Lost energy drinks drove growth; unit case volume rose to 29.8 million cases from 20.4 million (+46%).
Balance sheet improved sharply: cash of $21.0 million (up from $1.1 million), working capital of $41.6 million, and nearly no funded debt.
Operating cash flow of $20.1 million, up 266% from 2003, while the company expanded its national sales force and marketing spend by about 75%.
Risk factors include co-packer and single-source supply dependence, rising aluminum and PET costs, a 2005 sucralose supply cap, and a Barrington/Sandburg judgment-debtor motion management considers meritless.
Shares rose sharply during 2004, with the stock trading between $7.92 and $36.41 in the bid quotes, and insiders holding roughly 28% of shares as a group.

03—Questions

Frequently Asked Questions

What drove the revenue and profit growth in 2004?
Growth was led by Monster Energy, introduced in April 2002, including its lo-carb version, and by Lost energy drinks, which launched in early 2004. Apple juice, apple grape juice, private label beverages, and Energade also contributed. Gross profit rose $39.7 million, which far outpaced the $15.6 million increase in SG&A expenses, producing much higher operating leverage.
Is the company financially stable, and does it need to raise capital?
The company appears financially stable. It had $21.0 million in cash, $41.6 million in working capital, $58.6 million in equity, and only about $0.58 million in total debt at year-end. It had no borrowings under its Comerica credit line, which was expanded to $7.8 million in March 2005. Management said cash from operations and the credit line should cover working capital, purchase commitments, and capital needs through 2005.
What are the biggest operational risks for investors to watch?
The main risks are supply and production. The company outsources all manufacturing to third-party bottlers and co-packers, many on month-to-month terms, and some key products have few alternative packers. Its sucralose supplier has capped 2005 purchases, and the company is reformulating some products. Rising aluminum can, PET, and glass costs could also pressure margins, and a large share of revenue is concentrated in a few customers and distributors.
Are there governance or legal concerns?
Ownership is concentrated: CEO Rodney Sacks and CFO Hilton Schlosberg, through direct holdings and Brandon Limited Partnerships, control roughly 44% of outstanding shares. Both have employment agreements through 2008. The company also disclosed a September 2004 motion by Barrington Capital/Sandburg Financial to add Hansen and its subsidiaries as judgment debtors on a 1996 default judgment against an unrelated company, which management says lacks merit. The company also has related-party transactions with a law firm and a promotional materials supplier that are partly owned by directors and officers.

04—Continue

← View all 10-K filings