10-QPeriod: Q2 FY2002

Monster Beverage Corp Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 14, 2002For Securities:MNST

Summary

Monster Beverage Corp (operating as Hansen Natural Corporation at the time of this filing) reported solid growth for the six months ended June 30, 2002, with net sales increasing by 13.8% year-over-year to $44.9 million. This growth was driven by the introduction of new products such as E2O Energy Water, Energade, and Monster energy drink, alongside continued strength in existing lines like Natural Sodas. While gross profit also increased, the gross profit margin saw a slight decrease due to a shift in product mix. Operating expenses rose, largely due to increased selling, general, and administrative costs associated with product launches and promotional activities, which slightly pressured operating income margins. The company's financial condition remains stable, with positive working capital and adequate liquidity. A significant factor impacting profitability was the adoption of SFAS No. 142, which eliminated the amortization of indefinite-lived intangible assets, leading to a decrease in amortization expense and a boost to net income. Despite increased operating expenses and a slight decline in operating income margin, the company demonstrated its ability to grow revenue and manage its debt, with management expressing confidence in its ability to meet future working capital and operational needs.

Key Highlights

  • 1Net sales increased by 13.8% to $44.9 million for the six months ended June 30, 2002, compared to the prior year.
  • 2Gross sales growth of 15.1% was driven by new product introductions like E2O Energy Water, Energade, and the recently launched Monster energy drink.
  • 3Gross profit increased by 13.3% to $16.6 million, though gross profit margin slightly decreased to 37.1% due to product mix changes.
  • 4Operating income grew by 8.8% to $3.0 million, but operating income margin declined to 6.6% due to increased SG&A expenses.
  • 5Adoption of SFAS No. 142 eliminated amortization for indefinite-lived intangible assets, positively impacting net income.
  • 6Net income rose by 17.4% to $1.7 million for the six-month period.
  • 7The company maintained compliance with all covenants under its revolving line of credit, which was renewed until September 2005.

Frequently Asked Questions

Revenue growth was primarily driven by the successful introduction and sales of new products, including E2O Energy Water, Energade energy sports drink, and the new Monster energy drink. Sales of existing products like Natural Sodas in cans, energy drinks in 8.3-ounce cans, apple juice, and children's multi-vitamin drinks also contributed to the increase.

The adoption of SFAS No. 142, effective January 1, 2002, discontinued the amortization of goodwill and indefinite-lived intangible assets. For Hansen Natural Corporation, this meant ceasing amortization for certain trademark licenses and trademarks. This change resulted in a decrease in amortization expense, which positively impacted net income by $134,253 for the six months ended June 30, 2002, or $0.01 per share.

As of June 30, 2002, the company reported working capital of $13.7 million, an increase from $13.0 million at the end of 2001. Net cash provided by operating activities was $1.2 million for the six months ended June 30, 2002. The company also had a renewed revolving line of credit available, and management believes its cash from operations and credit facility will be sufficient to meet its working capital, debt servicing, and expansion needs.

Increased discounts, allowances, and promotional payments, along with coupon promotions, partially offset the growth in gross sales, leading to a 13.8% increase in net sales for the six months compared to a 15.1% increase in gross sales. These promotional activities also contributed to an increase in selling, general, and administrative expenses, impacting operating margins.