10-QPeriod: Q1 FY2003

Monster Beverage Corp Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 15, 2003For Securities:MNST

Summary

Hansen Natural Corporation (now Monster Beverage Corp.) reported a strong first quarter for 2003, demonstrating significant growth in net sales and profitability. Net sales increased by 18.8% to $22.1 million compared to the prior year's quarter, driven by the successful introduction and sales of new products like the Monster energy drink and Hansen's Diet Red Energy, alongside continued growth in core product lines. The company also managed to improve its gross profit margin to 37.6% from 36.6%, attributed to a favorable product and customer mix. The company's operational efficiency appears to be improving, as evidenced by a substantial increase in operating income by 43.3% to $1.1 million. Net income grew by an impressive 54.2% to $633,071. The balance sheet shows a healthy increase in cash and cash equivalents, more than doubling to $2.2 million from $537,920 at the end of the previous year, supported by robust operating cash flows which significantly improved to $2.8 million from $157,505 in the same period last year. Management expresses confidence in the company's liquidity and ability to fund operations and future growth initiatives.

Key Highlights

  • 1Net sales for the first quarter of 2003 increased by 18.8% to $22.1 million compared to $18.6 million in the first quarter of 2002.
  • 2Gross profit margin improved to 37.6% from 36.6% year-over-year, driven by product and customer mix changes.
  • 3Net income rose by 54.2% to $633,071 in Q1 2003, up from $410,645 in Q1 2002.
  • 4Operating income saw a significant increase of 43.3% to $1.1 million, reflecting improved operational performance.
  • 5Cash and cash equivalents increased substantially to $2.2 million as of March 31, 2003, from $537,920 at the end of 2002.
  • 6Net cash provided by operating activities surged to $2.8 million in Q1 2003, a significant improvement from $157,505 in Q1 2002.
  • 7The company launched successful new products, including Monster energy drink (introduced April 2002) and Hansen's Diet Red Energy (introduced October 2002), contributing to sales growth.

Frequently Asked Questions

Sales growth in Q1 2003 was primarily driven by the introduction and strong performance of new products, specifically the Monster energy drink launched in April 2002 and Hansen's Diet Red Energy launched in October 2002. Increased sales of Natural Sodas, Junior Juice, Apple Juice, and juice blends also contributed to the overall increase.

Profitability saw significant improvement. Gross profit increased by 21.9% to $8.3 million, leading to a higher gross profit margin of 37.6% compared to 36.6% in the prior year. Operating income rose by 43.3% to $1.1 million, and net income grew by 54.2% to $633,071.

The company's liquidity position improved significantly. Cash and cash equivalents more than tripled to $2.2 million by the end of Q1 2003, up from $537,920 at year-end 2002. This was supported by a substantial increase in cash generated from operating activities, which surged to $2.8 million in the quarter. Management believes its cash resources, including its credit facility, are sufficient for its working capital needs and future growth.

Key accounting policies include inventory valuation at FIFO, depreciation of property and equipment using the straight-line method, and the capitalization and amortization of trademarks over 1-25 years, with amortization of indefinite-lived trademarks discontinued per SFAS No. 142. A critical accounting estimate is the impairment of long-lived assets, particularly trademarks, which requires subjective assumptions about future cash flows. Market risks include fluctuations in commodity prices and interest rates on variable rate debt; a 1% increase in interest rates would have impacted pre-tax earnings by approximately $25,000 in the quarter.