01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
This FY2009 Form 10-K is from Hansen Natural Corporation (Nasdaq: HANS), which was later renamed Monster Beverage Corporation (MNST).
Hansen reported record 2009 results, with gross sales of $1,309.3 milliona (up 10.7%) and net sales of $1,143.3 million (up 10.6%). Growth was driven mainly by volume in Monster Energy drinks, which make up the bulk of the Direct Store Delivery (DSD) segment (91.9% of net sales). Gross margin improved to 53.6% from 52.1%, helped by lower apple juice concentrate and packaging costs.
Operating expenses fell 26.7% to $275.0 millionb, mostly because distributor termination costs dropped by $116.2 million after the heavy 2008 restructuring. As a result, operating income rose 106% to $337.3 million (29.5% of net sales), and net income rose 93% to $208.7 million, or $2.21 per diluted share versus $1.11 in 2008. Some of the Q4 2009 sales strength came from advance customer purchases ahead of a 2010 marketing program and the SAP system transition, which the company estimates added about 1% to 2009 sales.
The balance sheet remains strong, with $328.3 millionc in cash and equivalents and $99.3 million in short- and long-term investments. Operating cash flow fell to $156.2 million from $199.5 million, mainly because of distributor receivable and termination-liability swings. The company repurchased $86.2 million of stock in 2009 and has $10.2 million left under its $200 million authorization.
It carries essentially no debt. Auction rate securities remain a risk: the company holds $96.4 milliond face value (fair value $84.3 million) after a $12.1 million impairment, and the auction failures limit near-term liquidity for those holdings. Key risks include concentration: Coca-Cola Enterprises accounted for about 27% of net sales and Wal-Mart about 9%.
The company also faces a securities class action and a shareholder derivative suit over statements about the Anheuser-Busch distribution relationship and 2007 sales, both of which the company is contesting. It is also defending a Canadian consumer class action seeking roughly CDN$25 million, and the 2008 TCCC and CCE distribution realignment continues to shape the distribution network. Management describes the financial position as sound and expects capital expenditures below $20 million through 2010.
02—Key points
Key Highlights
- Record gross sales of $1,309.3M (+10.7%) and net sales of $1,143.3M (+10.6%), driven by Monster Energy volume growth (case sales up 7.1% to 110.0M cases).
- Operating income more than doubled to $337.3M (+106%), with operating margin expanding to 29.5% from 15.8%, largely because 2008 distributor termination costs ($118.1M) did not recur (only $1.9M in 2009).
- Net income of $208.7M (+93%) and diluted EPS of $2.21 versus $1.11 in 2008; gross margin improved to 53.6% of net sales.
- Strong liquidity: $328.3M in cash and equivalents plus $99.3M in investments, with essentially no debt; operating cash flow was $156.2M, down from $199.5M.
- Ongoing shareholder returns: $86.2M of stock repurchased in 2009 and $10.2M remaining under the $200M authorization; no cash dividends paid or planned.
- Concentration risk: Coca-Cola Enterprises ~27% of net sales, Wal-Mart ~9%, and DSD energy drinks ~92% of net sales.
- Legal and investment risks: securities and derivative suits, a Canadian class action (CDN$20M general plus CDN$5M punitive damages sought), and $84.3M fair value of auction rate securities after a $12.1M impairment.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Monster Beverage kept $0.18.
- Revenue$1.14B100.0%
- Cost of revenue−$531.0M46.4%
- Gross profit$612.3M53.6%
- Operating costs−$275.0M24.1%
- Operating income$337.3M29.5%
- Interest, other & tax−$128.6M11.2%
- Net income$208.7M18.3%
Where FY2009 revenue went
$1.14B- Cost of revenue: $531.0M, 46% of revenue
- Operating costs: $275.0M, 24% of revenue
- Net income: $208.7M, 18% of revenue
- Interest, other & tax: $128.6M, 11% of revenue
Kept 18% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $1.14B$1.03B | +10.6% |
| Cost of Revenue | $530.98M$494.99M | +7.3% |
| Gross Profit | $612.32M$538.79M | +13.6% |
| Operating Expenses | $275.01M$375.20M | −26.7% |
| Operating Income | $337.31M$163.59M | +106.2% |
| Net Income | $208.72M$108.03M | +93.2% |
| EPS (Basic) | $0.10$0.05 | +98.3% |
| EPS (Diluted) | $0.09$0.05 | +99.1% |
| Shares Outstanding (Basic) | 2.16B2.22B | −2.8% |
| Shares Outstanding (Diluted) | 2.27B2.34B | −3.0% |
05—Questions
Frequently Asked Questions
How much did revenue and profitability grow in 2009?
Net sales grew 10.6% to $1,143.3M and gross sales grew 10.7% to a record $1,309.3M. Operating income rose 106% to $337.3M and net income rose 93% to $208.7M, or $2.21 per diluted share. Much of the profit jump came from lower distributor termination costs, which fell from $118.1M in 2008 to $1.9M in 2009.
How dependent is the company on energy drinks and a few large customers?
Very dependent. The DSD segment, which is mainly energy drinks, produced 91.9% of 2009 net sales. Coca-Cola Enterprises (CCE) accounted for about 27% of net sales and Wal-Mart (including Sam's Club) about 9%. The company's own risk factors warn that a decision by any large customer to reduce purchases or stop carrying its products could materially hurt results.
Is the company's cash position at risk from its investments?
Partly. Cash and equivalents were $328.3M and investments were $99.3M at year-end. However, about $84.3M of the investments are auction rate securities with a face value of $96.4M. Auctions for these securities have failed, so they cannot be sold readily. The company recorded a $12.1M impairment, of which $3.9M went through earnings, and it may need to record more if credit conditions worsen. It is pursuing arbitration with Citigroup and Oppenheimer to recover losses.
What legal risks could affect the stock?
The company faces a federal securities class action and a shareholder derivative suit alleging false statements about its Anheuser-Busch distribution arrangements and 2007 sales, including insider selling. It also faces a Canadian class action over Monster Energy labeling and a California class action over Blue Sky labeling. Management believes the allegations are without merit and plans to defend vigorously, but the outcomes are uncertain and unquantified.
Was 2009's growth sustainable, or was it boosted by one-time factors?
Some growth was boosted by timing. Customers made advance purchases in Q4 2009 ahead of a per-case marketing contribution program starting January 2010 and the SAP system transition, which management estimates added about 1% to 2009 gross and net sales. Growth rates also slowed from 15.3% in 2008 to 10.7% in 2009, which management attributed to a slower energy drink category and weaker economic conditions.
06—Continue