Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (07-20-08 02:14 AM)

The Daily Magic Formula Stock for 07/19/2008 is Hansen Natural Corp. According to the Magic Formula Investing Web Site, the ebit yield is 12% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Overview



Hansen Natural Corporation was incorporated in Delaware on April 25, 1990. Our principal place of business is at 550 Monica Circle, Suite 201, Corona, California 92880 and our telephone number is (951) 739-6200. When this report uses the words “Hansen”, “HBC”, “the Company”, “we”, “us”, and “our”, these words refer to Hansen Natural Corporation and our subsidiaries other than Monster LDA Company (“MLDA”), unless the context otherwise requires.



We are a holding company and carry on no operating business except through our wholly owned subsidiaries, Hansen Beverage Company (“HBC”) which was incorporated in Delaware on June 8, 1992, MLDA, formerly known as Hard e Beverage Company, and previously known as Hard Energy Company and as CVI Ventures, Inc., which was incorporated in Delaware on April 30, 1990 and Monster Energy UK Limited (“Monster UK”), a direct wholly owned subsidiary of HBC, which was incorporated in the United Kingdom on October 9, 2007. HBC generates all of our operating revenues.



We develop, market, sell and distribute “alternative” beverage category natural sodas, fruit juices and juice drinks, energy drinks and energy sports drinks, fruit juice smoothies and “functional drinks,” non-carbonated ready-to-drink iced teas, children’s multi-vitamin juice drinks, Junior Juice® juices and flavored sparkling beverages under the Hansen’s® brand name. We also develop, market, sell and distribute energy drinks under the following brand names: Monster Energy®, Lost® Energy™, Joker Mad Energy™, Unbound Energy® and Ace™ brand names as well as Rumba™ brand energy juice. We also market, sell and distribute the Java Monster™ line of non-carbonated dairy based coffee drinks, natural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters, sports drinks and energy drinks under the Blue Sky® brand name. Our fruit juices for toddlers are marketed under the Junior Juice® brand name. We also market, sell and distribute vitamin and mineral drink mixes in powdered form under the Fizzit™ brand name.



We have two reportable segments, namely Direct Store Delivery (“DSD”), whose principal products comprise energy drinks, and Warehouse (“Warehouse”), whose principal products comprise juice based and soda beverages. The DSD segment develops, markets and sells products primarily through an exclusive distributor network whereas the Warehouse segment develops, markets and sells products primarily directly to retailers.



Corporate History



In the 1930’s, Hubert Hansen and his three sons started a business to sell fresh non-pasteurized juices in Los Angeles, California. This business eventually became Hansen’s Juices, Inc., which subsequently became known as The Fresh Juice Company of California, Inc. (“FJC”). FJC retained the right to market and sell fresh non-pasteurized juices under the Hansen trademark. In 1977, Tim Hansen, one of the grandsons of Hubert Hansen, perceived a demand for pasteurized natural juices and juice blends that are shelf stable and formed Hansen Foods, Inc. (“HFI”). HFI expanded its product line from juices to include Hansen’s Natural Sodas®. California Co-Packers Corporation (d/b/a/ Hansen Beverage Company) (“CCC”) acquired certain assets of HFI, including the right to market the Hansen’s® brand name, in January 1990. On July 27, 1992, HBC acquired the Hansen’s® brand natural soda and apple juice business from CCC. Under our ownership, the Hansen beverage business has significantly expanded and includes a wide range of beverages within the growing “alternative” beverage category, including in particular, energy drinks. In September 1999, we acquired all of FJC’s rights to manufacture, sell and distribute fresh non-pasteurized juice products under the Hansen’s® trademark together with certain additional rights. In 2000, HBC, through its wholly-owned subsidiary, Blue Sky Natural Beverage Co. (“Blue Sky”), which was incorporated in Delaware on September 8, 2000, acquired the natural soda business previously conducted by Blue Sky Natural Beverage Co., a New Mexico corporation (“BSNBC”), under the Blue Sky® trademark. In 2001, HBC, through its wholly-owned subsidiary Hansen Junior Juice Company, (“Junior Juice”), which was incorporated in Delaware on May 7, 2001, acquired the Junior Juice business previously conducted by Pasco Juices, Inc. (“Pasco”) under the Junior Juice® trademark.



Industry Overview



The alternative beverage category combines non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single serve juices and fruit beverages, ready-to-drink dairy and coffee drinks, energy drinks, sports drinks, and single-serve still water (flavored, unflavored and enhanced) with “new age” beverages, including sodas that are considered natural, sparkling juices and flavored sparkling beverages. The alternative beverage category is the fastest growing segment of the beverage marketplace according to Beverage Marketing Corporation. According to Beverage Marketing Corporation, wholesale sales in 2007 for the alternative beverage category of the market are estimated at $25.5 billion representing a growth rate of approximately 11.4% over the estimated wholesale sales in 2006 of approximately $22.9 billion.



Reportable Segments



We have two reportable segments, namely DSD, whose principal products comprise energy drinks and Warehouse, whose principal products comprise juice based and soda beverages. The DSD segment develops, markets and sells products primarily through an exclusive distributor network whereas the Warehouse segment develops, markets and sells products primarily direct to retailers. Corporate and unallocated amounts that do not relate to the DSD or Warehouse segments specifically have been allocated to “Corporate & Unallocated.”



For financial information about our reporting segments and geographic areas, refer to Note 14 of Notes to the Consolidated Financial Statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” of this report, incorporated herein by reference. For certain risks with respect to our energy drinks see “Part I, Item 1A – “Risk Factors” below."



Products



Natural Sodas. Hansen’s Natural Sodas® have been a leading natural soda brand in Southern California for the past 25 years. In 2007, according to Information Resources, Inc.'s Analyzer Reports for California, our natural sodas recorded the highest sales among comparable carbonated new age category beverages measured by unit volume in the California market. Our natural sodas are available in eleven regular flavors consisting of mandarin lime, key lime, grapefruit, raspberry, ginger ale, creamy root beer, vanilla cola, cherry vanilla creme, orange mango, kiwi strawberry and pomegranate. In early 2001, we introduced a new line of diet sodas using Splenda® sweetener as the primary sweetener. We initially introduced this line in four flavors: peach, black cherry, tangerine lime, and kiwi strawberry, and have since added four additional flavors: ginger ale, creamy root beer, grapefruit and pomegranate. Our natural sodas contain no preservatives, sodium, caffeine or artificial coloring and are made with high quality natural flavors and citric acid. We are currently in the process of converting the sweeteners used in our natural sodas from high fructose corn syrup to cane sugar. Our diet sodas are sweetened with Splenda® and Acesulfame-K. We package our natural sodas in 12-ounce aluminum cans. In 2002, we introduced a line of natural mixers in 8-ounce aluminum cans comprising club soda, tonic water and ginger ale .



In January 1999, we introduced a premium line of Signature Sodas in unique proprietary 14-ounce glass bottles. This line was marketed under the Hansen’s® brand name, primarily through our distributor network, in six flavors. In early 2003, we repositioned this line into lower cost 12-ounce glass packaging to market our repositioned Signature Soda line at lower price points directly to our retail customers such as grocery chains, club stores, specialty retail chains and mass merchandisers and to the health food sector through specialty and health food distributors (collectively referred to as our “direct retail customers”). Signature Soda was available in 12-ounce glass bottles in four flavors: orange crème, vanilla crème, ginger beer and sarsaparilla. We are in the process of discontinuing this product.



In September 2000, we acquired the Blue Sky® natural soda business from BSNBC. Our Blue Sky® product line comprises natural sodas, premium sodas, organic natural sodas, seltzer water, energy drinks, tea sodas and isotonic sports drinks. Blue Sky® natural sodas are available in twelve regular flavors consisting of lemon lime, grapefruit, cola, root beer, raspberry, cherry vanilla creme, Jamaican ginger ale, black cherry, orange creme, Dr. Becker, grape and cream soda. We also offer a premium line of Blue Sky® natural sodas which contain supplements such as ginseng. This line is available in four flavors consisting of ginseng cola, ginseng root beer, ginseng ginger ale and ginseng pomegranate. During 1999, Blue Sky® introduced a line of organic natural sodas, which are available in six flavors consisting of lemon lime, new century cola, orange divine, ginger ale, black cherry cherish, and root beer. We also market a seltzer water under the Blue Sky® label in three flavors: natural, lime and lemon. In 2002, we introduced a lightly carbonated Blue Sky® energy drink in an 8.3-ounce slim can. In 2006, we introduced a 16-ounce size of Blue Energy as well as both an 8.3-ounce and 16-ounce size of Blue Sky Juiced Energy, which is lightly carbonated and contains 50% juice. In 2004, we introduced a new line of Blue Sky® natural tea sodas in four flavors consisting of Imperial Lime Green Tea, Peach Mist Green Tea, Pomegranate White Tea and Raspberry Red Tea. We have since discontinued the Raspberry Red Tea flavor. The Blue Sky® products contain no preservatives, sodium or caffeine (other than the energy drink) or artificial coloring and are made with high quality natural flavors. Blue Sky® natural sodas, seltzer waters and tea sodas are all packaged in 12-ounce aluminum cans and are marketed primarily to direct retail customers. In March 2005, we introduced a new light line of Blue Sky® sodas using natural sweeteners in four flavors: cherry vanilla crème, creamy root beer, Jamaican ginger ale and wild raspberry in 12-ounce cans. We have since discontinued the wild raspberry flavor. In the third quarter of 2005, we introduced a new line of Blue Sky® natural sodas with real sugar in 12-ounce cans in four flavors: cherry vanilla crème, cola, ginger ale and root beer. In December 2005, we introduced a new line of Blue Sky® isotonic sports drinks in 16-ounce polyethylene terephthalate (“PET”) plastic bottles in three flavors: orange, lemon lime, fruit punch and have subsequently added a fourth flavor, blue sky pomegranate. We are currently in the process of converting the sweeteners used in those Blue Sky® products that contain high fructose corn syrup to cane sugar.



In 2006, we introduced a new line of Hansen’s green tea sodas under the Hansen® brand name in 16-ounce aluminum cans that contain no preservatives, sodium, caffeine or artificial colors, in four flavors; ginger, lemon mint, tangerine and pomegranate. We also introduced a diet version that contains no carbohydrates or sugar in three flavors: tangerine, lemon mint, ginger and in 2007, introduced an additional diet flavor, pomegranate.



In 2007, we introduced a new line of Hansen’s natural flavored sparkling beverages under the Hansen® brand name in contemporary 10.5-ounce sleek cans in four flavors: blueberry pomegranate, cranberry grapefruit, valencia orange and dragonfruit. We also introduced a sparkling green tea line in contemporary 10.5-ounce sleek cans in two flavors: tangerine and pomegranate. These sparkling beverages are available in 90 calorie per can versions, sweetened with cane sugar; as well as in sugar free versions, sweetened with Splenda® and Acesulfame-K.



Hansen’s® Energy Drinks. In 1997, we introduced a lightly carbonated citrus flavored Hansen's® energy drink in 8.3-ounce cans in 4 packs. Our energy drink competes in the “functional” beverage category, namely, beverages that provide a real or perceived benefit in addition to simply delivering refreshment. We also offered additional functional energy drinks as well as other functional drinks including a ginger flavored d-stress® drink, an orange flavored b-well™ drink, a guarana berry flavored stamina® drink, a grape flavored power drink, and a berry flavored “slim-down” drink that contained no calories, in the same size cans. We have since discontinued sales of such additional functional products. Our energy drinks contain vitamins, minerals, nutrients, herbs and supplements (collectively “supplements”). In 2004, we offered our Hansen’s® energy drink in 16-ounce cans which has subsequently been discontinued. From 2006, we marketed our Hansen’s brand energy drinks through the Warehouse segment and introduced Hansen’s® Energy Pro™ 8.3-ounce cans in four packs. In 2001, we introduced Energade®, a non-carbonated energy sports drink in 23.5-ounce cans. We are currently reevaluating the Energade® line. In 2001, we also introduced E 2 O Energy Water®, a non-carbonated lightly flavored water, in 24-ounce blue PET plastic bottles which has subsequently been discontinued. At the end of 2002, we introduced a lightly carbonated diet energy drink in 8.3-ounce cans under the Hansen’s Diet Red Energy® brand name. Our Diet Red Energy® energy drink is sweetened with Splenda® and Acesulfame-K.



Monster Energy ® Drinks. In 2002, we launched a new carbonated energy drink under the Monster Energy® brand name, in 16-ounce cans, which was almost double the size of our regular energy drinks in 8.3-ounce cans and of the vast majority of competitive energy drinks on the market at that time. Our Monster Energy® drink contains different types and levels of supplements than our Hansen’s® energy drinks and is marketed through our full service distributor network. In 2003, we introduced a low carbohydrate (“Lo-Carb”) version of our Monster Energy® energy drink. In 2004, we introduced 4-packs of our Monster Energy® energy drinks including our Lo-Carb version and, towards the end of 2004, we launched a new Monster Energy® Assault™ energy drink in 16-ounce cans. During the first half of 2005, we introduced our Monster Energy® drinks and Lo-Carb Monster Energy® in 24-ounce size cans as well as Monster Energy®, Lo-Carb Monster Energy® and Monster Energy® Assault™ in 8.3-ounce size cans. In September 2005, we introduced a new Monster Energy® Khaos™ energy drink in 16-ounce cans. Monster Energy® Khaos™ is lightly carbonated and contains 50% juice. In 2006, we introduced our Monster Energy® Assault™ and Monster Energy® Khaos™ energy drinks in 24-ounce size cans. Also in 2006, we introduced Monster Energy® Khaos™ energy drinks in 8.3-ounce size cans. During the first quarter 2007, we introduced Monster Energy® energy drinks in 8-packs and in September 2007, we introduced Monster Energy® energy drinks in 32-ounce cans. In March 2007 we introduced a new Monster M-80™ energy drink in 16-ounce size cans and added 8.3-ounce and 24-ounce sized cans of this drink in October 2007. Monster M-80™ energy drinks are lightly carbonated and contain 80% juice. In November 2007, we introduced a new Monster Heavy Metal™ energy drink in 32-ounce size cans. In December 2007, we introduced a new Monster MIXXD™ energy drink in 8.3-ounce, 16-ounce and 24-ounce size cans. Monster MIXXD™ energy drinks are lightly carbonated and contain 30% juice.



Lost ® Energy™ Drinks. In 2004, we launched a new carbonated energy drink under the Lost® brand name, in 16-ounce cans and have subsequently added an 8.3-ounce version. Towards the end of 2005, we introduced a lo-carb version of Lost® under the Perfect 10™ brand name as well as a new Lost® Five-O™ energy drink, all in 16-ounce cans. Lost® Five-O™ contains 50% juice and is lightly carbonated. In December 2005, we introduced Lost® and Lost® Five-O™ in 24-ounce size cans. In November 2007, we introduced a new Lost® Cadillac™ energy drink in 16-ounce cans. The Lost® brand name is owned by Lost International LLC and the drinks are produced, sold and distributed by us under exclusive license from Lost International LLC.



Rumba™ Energy Juice. In December 2004, we launched a new non-carbonated energy juice under the Rumba™ brand name in 15.5-ounce cans. Rumba™ energy juice is a 100% juice product that targets male and female morning beverage consumers and is positioned as a substitute for coffee, caffeinated sodas and 100% orange or other juices.



Joker Mad Energy ™ Drinks. In the first quarter of 2005, we introduced Joker Mad Energy™ energy drinks in 16-ounce cans. Joker Mad Energy™ energy drinks come in regular, lo-carb and juice versions in 16-ounce cans.



Ace™ Energy Drinks. In August 2006, we introduced Ace™ energy drinks in 16-ounce cans. Ace™ energy drinks come in regular, lo-carb and juice versions in 16-ounce cans.



Unbound Energy® Drinks. In October 2006, we acquired the Unbound Energy® trademark and assumed the production, marketing and sale of Unbound Energy ® energy drinks in 16-ounce cans. We subsequently introduced lo-carb and juice versions in 16-ounce cans.

Java Monster™ Coffee Drinks . In May 2007, we launched a new line of non-carbonated dairy based coffee drinks under the Java Monster™ brand name in 15-ounce cans. We initially introduced this line in three flavors: Big Black™ (since renamed Originale), Loca Moca™ and Mean Bean™, and have since added five additional flavors: Russian™, Irish Blend™, Chai Hai™, Nut Up™ and Lo-Ball™.



Juice Products and Smoothies . Our fruit juice product line includes Hansen's® Natural Apple Juice, which is packaged in 64-ounce PET plastic bottles and 128-ounce polypropylene bottles and White Grape, White Grape Peach, Purple Grape, Orange, Pomegranate, Apple Strawberry and Apple Grape juice blends, in 64-ounce PET plastic bottles. These Hansen's® juice products contain 100% juice (except Pomegranate which contains 27% juice) as well as Vitamin C. Hansen's® juice products compete in the shelf-stable juice category. We also offer juice cocktails (cranberry raspberry, apple white grape, apple berry and apple) in 32-ounce PET plastic bottles.



In March 1995, we introduced a line of fruit juice smoothie drinks in 11.5-ounce aluminum cans. Certain flavors were subsequently offered in glass and PET plastic bottles. We have since discontinued offering smoothies in glass and PET plastic bottle packages. Hansen’s fruit juice smoothies have a smooth texture that is thick but lighter than a nectar. In 2006, we reformulated Hansen’s smoothies by adding more fruit purees. Hansen’s smoothies in 11.5-ounce aluminum cans now contain approximately 25% juice. Our fruit juice smoothies provide 100% of the recommended daily intake for adults of Vitamins A, C & E and represented Hansen's entry into what is commonly referred to as the “functional” beverage category. Hansen's® fruit juice smoothies are available in seven flavors: strawberry banana, peach berry, mango pineapple, guava strawberry, pineapple coconut, whipped orange and Island Energy Blast. We have discontinued our lo-carb smoothie line.



We market the above juice and smoothie products to our direct retail customers.



Iced Teas. In 2006, we introduced a new line of iced teas in sleek 16-ounce wide mouth PET plastic bottles. This line is sweetened with cane sugar and includes green tea, peach green tea, lychee black tea and pomegranate green tea. In addition, we offer sugar free peach green tea, pomegranate green tea and acai black tea which are all sweetened with sucralose as well as an unsweetened black tea.



Juices for Children. In 1999, we introduced two new lines of children's multi-vitamin juice drinks in 8.45-ounce aseptic boxes, which were subsequently transitioned to 6.75-ounce versions. Each drink contains eleven essential vitamins and six essential minerals. We introduce new flavors in place of existing flavors from time to time. One of these two lines is a dual-branded 100% juice line named Juice Blast® which was launched in conjunction with Costco Wholesale Corporation (“Costco”) and is sold through Costco stores. The other line was a 10% juice line named “Hansen’s Natural Multi-Vitamin Juice Slam®”, which was available to all of our customers. During 2000, we repositioned that latter line as a 100% juice line under the Juice Slam® name, which we market to grocery store chain customers, the health food trade, and other customers. Both the Juice Blast® and Juice Slam® lines are marketed in 6.75-ounce aseptic boxes. The Juice Slam® line has four flavors and the Juice Blast® line has three flavors.



In 2003, we further extended our fruit juice product line by introducing a 100% apple juice in 6.75-ounce aseptic pouches under the Apple Blasters™ brand. In 2006 we discontinued our Apple Blasters™ product and repositioned our pouch line by introducing two Juice Slam® organic pouches in organic apple and organic fruit punch flavors with 100% juice.



In May 2001, we acquired the Junior Juice® beverage business. The Junior Juice® product line is comprised of seven flavors of 100% juice in 4.23-ounce aseptic packages and is targeted at toddlers. Six flavors of the Junior Juice® line have calcium added and all flavors have vitamin C added. The current flavors in the Junior Juice® line are apple, apple berry, orange twist, apple grape, mixed fruit, fruit punch and white grape.

In 2006, we extended the Junior Juice® line by adding organic apple and organic berry medley juice products in 4.23-ounce aseptic boxes. Each of our organic Junior Juice® products have 100% juice and contain 100% of the daily recommended allowance of vitamin C and 10% of the daily recommended allowance of calcium.



Bottled Water. Our still water products were introduced in 1993 and are primarily sold in 0.5-liter plastic bottles to the food service trade. Sales of this product line are very limited.



Fizzit™ Powdered Drink Mixes. In December 2005, we introduced a new line of vitamin and mineral drink mixes in powdered form under the Fizzit™ brand name in both functional and vitamin and mineral formulas. The functional formulas are offered in raspberry (joint formula), orange (immune support formula), strawberry (immune support formula) and cranberry (women’s health formula). The vitamin and mineral formula is offered in lemon lime and strawberry flavors.



During 2007, we continued to expand our existing product lines and further develop our markets. In particular, we continued to focus on developing and marketing beverages that fall within the category generally described as the “alternative” beverage category, with particular emphasis on energy type drinks.



Other Products



We continue to evaluate and, where considered appropriate, introduce additional flavors and other types of beverages to complement our existing product lines. We will also evaluate, and may, where considered appropriate, introduce functional foods/snack foods that utilize similar channels of distribution and/or are complementary to our existing products and/or to which our brand names are able to add value.



We also develop and supply, on a limited basis, selected beverages in different formats to a limited number of customers with the objective of solidifying our relationship with those customers.



Manufacture and Distribution



We do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and contract packers.



We purchase concentrates, juices, flavors, supplements, cans, bottles, aseptic boxes, aseptic pouches, caps, labels, trays, boxes and other ingredients for our beverage products which are delivered to our various third party bottlers and co-packers. Depending on the product, the third party bottlers or packers add filtered water and/or sucrose, or cane sugar, or high fructose corn syrup or Splenda® brand sweetener, Acesulfame-K and/or citric acid or other ingredients and supplements for the manufacture and packaging of the finished products into Hansen approved containers in accordance with our formulas. In the case of sodas and other carbonated beverages, the bottler/packer adds carbonation to the products as part of the production process.



We are generally responsible for arranging for the purchase of and delivery to our third party bottlers and co-packers of the containers in which our beverage products are packaged.



All of our beverage products are manufactured by various third party bottlers and co-packers situated throughout the United States under separate arrangements with each of such parties. The majority of our co-packaging arrangements are on a month-to-month basis. However, certain of our co-packing arrangements are described below:



(a) Our agreement with Gluek Brewing Company (“Gluek”) pursuant to which Gluek packages certain of our energy drinks. This contract continues until May 2008 and is automatically renewed for one year periods thereafter. Either party is entitled at any time to terminate the agreement upon 180 days prior written notice to the other party.



(b) Our agreement with Seven-Up/RC Bottling Company of Southern California, Inc. (“Seven-Up”) pursuant to which Seven-Up packages certain of our energy drinks. This contract continues until March 31, 2008. Upon termination prior to such time we are entitled to recover certain equipment we have purchased and installed at Seven-Up’s facility.



(c) Our agreement with Nor-Cal Beverage Co., Inc. (“Nor-Cal”) pursuant to which Nor-Cal packages certain of our Hansen’s® juices in PET plastic bottles. This contract continues until August 2008 and is automatically renewed for one year periods thereafter unless terminated by HBC not less than 90 days before the end of the then current term.



(d) Our agreement with Dr. Pepper Bottling Co. (“Dr. Pepper”) pursuant to which Dr. Pepper packages certain of our energy drinks. This contract continues until December 31, 2009 and is automatically renewed for one year periods thereafter, unless terminated by either party with not less than 30 days notice.



(e) Our agreement with Lucerne Foods, Inc. (“Safeway-Norwalk”) pursuant to which Safeway-Norwalk packages certain of our energy drinks and Hansen’s Natural Sodas®. This contract continues until March 31, 2009 and is renewable annually thereafter unless terminated by either party on not less than 6 months notice.



(f) Our agreement with Pri-Pak, Inc. (“Pri-Pak”) pursuant to which Pri-Pak packages certain of our energy drinks. This contract continues indefinitely but may be terminated at any time by either party upon ninety (90) days prior written notice to the other.



(g) Our agreement with Carolina Beer & Beverage pursuant to which Carolina Beer & Beverage packages certain of our energy drinks. This contract continues until April 10, 2009 and is automatically renewable for one year periods thereafter, unless terminated by either party on not less than 180 days notice.



(h) Our agreement with Southeast Atlantic Beverage Corporation (“Southeast”) pursuant to which Southeast packages certain of our energy drinks. This contract continues until July 23, 2008 and is automatically renewable for one year periods thereafter, unless terminated by either party not less than 180 days prior to the end of the then current term.



(i) Our agreement with Dairy Farmers of America, Inc. (“DFA”) pursuant to which DFA packages certain of our energy drinks. This contract continues until March 1, 2010 and is automatically renewable annually thereafter, unless either party provides notice of cancellation at least 90 calendar days prior to the end of the initial term.



(j) Our agreement with Portland Bottling Company (“Portland Bottling”) pursuant to which Portland Bottling packages certain of our energy drinks. This contract continues until March 31, 2008 and is automatically renewable for one year periods. Either party is entitled, at any time, to terminate the agreement upon 90 days prior written notice to the other party.



(k) Our agreement with O-AT-KA Milk Products Cooperative (“O-AT-KA”) pursuant to which O-AT-KA packages certain of our energy drinks. This contract continues until September 30, 2010 and is automatically renewable annually thereafter, unless either party provides notice of cancellation at least 90 days prior to the end of the initial term.



(l) Our agreement with Giumarra & Associates Beverage Company (“Giumarra”) pursuant to which Giumarra packages certain of our energy drinks and in due course, juices. This contract continues until June 28, 2009 and is automatically renewable annually thereafter, unless either party provides notice of cancellation at least 180 days prior to the end of the current term.



In certain instances, equipment is purchased by us and installed at the facilities of our co-packers to enable them to produce certain of our products. In general, such equipment remains our property and is to be returned to us upon termination of the packing arrangements with such co-packers or is amortized over a pre-determined number of cases that are to be produced at the facilities concerned.



We pack certain products outside of the West Coast region to enable us to produce products closer to the markets where they are sold and thereby reduce freight costs. As volumes in markets outside of California grow, we continue to secure additional packing arrangements closer to such markets to further reduce freight costs.



Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials including, but not limited to, glass, PET/plastic bottles, aseptic boxes, cans, labels, flavors or supplement ingredients or certain sweeteners, or packing arrangements, we might not be able to satisfy demand on a short-term basis.



Although our production arrangements are generally of short duration or are terminable upon request, we believe a short disruption or delay would not significantly affect our revenues since alternative packing facilities in the United States with adequate capacity can usually be obtained for many of our products at commercially reasonable rates and/or within a reasonably short time period. However, there are limited packing facilities in the United States with adequate capacity and/or suitable equipment for many of our products, including Hansen’s® brand energy drinks in 8.3-ounce cans, aseptic juice products, teas in 16-ounce PET/plastic bottles, Monster Energy®, Lost® Energy ™ , Rumba TM , Joker Mad Energy TM , Ace™, Unbound Energy® energy drinks in 8.3-ounce, 16-ounce, 24-ounce and 32-ounce cans and the Java Monster™ line of non-carbonated dairy based coffee drinks in 15-ounce cans. A disruption or delay in production of any of such products could significantly affect our revenues from such products as alternative co-packing facilities in the United States with adequate capacity may not be available for such products either at commercially reasonable rates and/or within a reasonably short time period, if at all. Consequently, a disruption in production of such products could affect our revenues. We continue to seek alternative and/or additional co-packing facilities in the United States or Canada with adequate capacity for the production of our various products to minimize the risk of any disruption in production.



On April 28, 2006, HBC entered into a distribution agreement with Cadbury Bebidas, S.A. de C.V. (“Cadbury Bebidas”), for exclusive distribution by Cadbury Bebidas throughout Mexico, excluding Baja California, of our Monster Energy® and Lost® Energy TM energy products.



On May 8, 2006, HBC entered into the Monster Beverages Off-Premise Distribution Coordination Agreement and the Allied Products Distribution Coordination Agreement (jointly, the “Off-Premise Agreements”) with Anheuser-Busch, Inc., a Missouri corporation (“AB”). Under the Off-Premise Agreements, select Anheuser-Busch distributors (the “AB Distributors”) distribute and sell, in markets designated by HBC, HBC’s Monster Energy® and Lost® Energy TM brands non-alcoholic energy drinks, Rumba™ brand energy juice and Unbound Energy® brand energy drinks, as well as additional products that may be agreed between the parties. We intend to continue building our national distributor network primarily with select AB distributors as well as with our sales force throughout 2008 to support and grow the sales of our products.

CEO BACKGROUND

Rodney C. Sacks – Chairman of the Board of Directors of the Company, Chief Executive Officer and director of the Company from November 1990 to the present. Member of the Executive Committee of the Board of Directors of the Company since October 1992. Chairman and a director of Hansen Beverage Company (“HBC”) from June 1992 to the present.



Hilton H. Schlosberg – Vice Chairman of the Board of Directors of the Company, President, Chief Operating Officer, Secretary, and a director of the Company from November 1990 to the present and Chief Financial Officer of the Company since July 1996. Member of the Executive Committee of the Board of Directors of the Company since October 1992. Vice Chairman, Secretary and a director of HBC from July 1992 to the present.

Benjamin M. Polk – Director of the Company from November 1990 to the present. Assistant Secretary of HBC since October 1992 and a director of HBC since July 1992. Partner with Schulte Roth & Zabel LLP 1 since May 2004 and previously a partner with Winston & Strawn LLP where Mr. Polk practiced law with that firm and its predecessors, from August 1976 to May 2004.



Norman C. Epstein – Director of the Company and member of the Compensation Committee of the Board of Directors of the Company since June 1992 and member of the Nominating Committee of the Board of Directors of the Company since September 2004. Member and Chairman of the Audit Committee of the Board of Directors of the Company since September 1997. Director of HBC since July 1992. Director of Integrated Asset Management Limited, a company listed on the London Stock Exchange since June 1998. Managing Director of Cheval Property Finance PLC, a mortgage finance company based in London, England. Partner with Moore Stephens, an international accounting firm, from 1974 to December 1996 (senior partner beginning 1989 and the managing partner of Moore Stephens, New York from 1993 until 1995).



Sydney Selati – Director of the Company and member of the Audit Committee of the Board of Directors since September 2004 and member of the Compensation Committee of the Board of Directors since March 2007. Mr. Selati was a director of Barbeques Galore Ltd. From 1997 to 2005 and was Chairman of the Board of Directors of Barbeques Galore USA from 1988 to 2005. Mr. Selati was president of Sussex Group Limited from 1984 to 1988.



Harold C. Taber, Jr. – Director of the Company since July 1992. Member of the Audit Committee of the Board of Directors since April 2000 and member of the Nominating Committee of the Board of Directors of the Company since September 2004. President and Chief Executive Officer of HBC from July 1992 to June 1997. Consultant for The Joseph Company from October 1997 to March 1999 and for Costa Macaroni Manufacturing Company from July 2000 to January 2002. Director of Mentoring at Biola University from July 2002 to present.



Mark S. Vidergauz – Director of the Company and member of the Compensation Committee of the Board of Directors of the Company since June 1998. Member of the Audit Committee of the Board of Directors from April 2000 through May 2004. Managing Director and Chief Executive Officer of Sage Group LLC from April 2000 to present. Managing director at the Los Angeles office of ING Barings LLC, a diversified financial service institution headquartered in the Netherlands from April 1995 to April 2000.

MANAGEMENT DISCUSSION FROM LATEST 10K

Our Business



Overview



We develop, market, sell and distribute “alternative” beverage category natural sodas, fruit juices and juice drinks, energy drinks and energy sports drinks, fruit juice smoothies and “functional drinks,” non-carbonated ready-to-drink iced teas, children’s multi-vitamin juice drinks, Junior Juice® juices and flavored sparkling beverages under the Hansen’s® brand name. We also develop, market, sell and distribute energy drinks under the following brand names; Monster Energy®, Lost® Energy™, Joker Mad Energy™, Unbound Energy® and Ace™ brand names as well as Rumba™ brand energy juice. We also market, sell and distribute the Java Monster™ line of non-carbonated dairy based coffee drinks, natural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters, sports drinks and energy drinks under the Blue Sky® brand name. Our fruit juices for toddlers are marketed under the Junior Juice® brand name. We also market, sell and distribute vitamin and mineral drink mixes in powdered form under the Fizzit™ brand name.



We have two reportable segments, namely DSD, whose principal products comprise energy drinks, and Warehouse, whose principal products comprise juice based and soda beverages. The DSD segment develops, markets and sells products primarily through an exclusive distributor network, whereas the Warehouse segment develops, markets and sells products primarily direct to retailers.



Our sales and marketing strategy for all our beverages and drink mixes is to focus our efforts on developing brand awareness and trial through sampling both in stores and at events. We use our branded vehicles and other promotional vehicles at events where we sample our products to consumers. We utilize “push-pull” methods to achieve maximum shelf and display space exposure in sales outlets and maximum demand from consumers for our products, including advertising, in-store promotions and in-store placement of point-of-sale materials and racks, prize promotions, price promotions, competitions, endorsements from selected public and extreme sports figures, coupons, sampling and sponsorship of selected causes such as cancer research and SPCAs, as well as extreme sports teams such as the Pro Circuit – Kawasaki Motocross and Supercross teams, Kawasaki Factory Motocross and Supercross teams, Robby Gordon Racing Team, Kawasaki Factory International Moto GP Team, Kenny Bernstein Drag Racing Team, extreme sports figures and athletes, sporting events such as the Monster Energy® Supercross Series, the Monster Energy® Pro Pipeline surfing competition, Winter and Summer X-Games, marathons, 10k runs, bicycle races, volleyball tournaments and other health and sports related activities, including extreme sports, particularly supercross, motocross, freestyle, surfing, skateboarding, wakeboarding, skiing, snowboarding, BMX, mountain biking, snowmobile racing, etc., and we also participate in product demonstrations, food tasting and other related events. In store posters, outdoor posters, print, radio and television advertising, together with price promotions and coupons, may also be used to promote our brands.

We believe that one of the keys to success in the beverage industry is differentiation, such as making Hansen’s® products visually distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different, better and unique. The labels and graphics for many of our products are redesigned from time to time to maximize their visibility and identification, wherever they may be placed in stores, and we will continue to reevaluate the same from time to time.



During 2007, we continued to expand our existing product lines and further develop our markets. In particular, we continued to focus on developing and marketing beverages that fall within the category generally described as the “alternative” beverage category, with particular emphasis on energy type drinks.



During the second quarter of 2006, we entered into the Off-Premise Agreements with AB. Under the Off-Premise Agreements, select AB Distributors distribute and sell, in markets designated by HBC, HBC’s Monster Energy® and Lost® Energy TM brands non-alcoholic energy drinks, Rumba™ brand energy juice and Unbound Energy® brand energy drinks, as well as additional products that may be agreed between the parties. We intend to continue building our national distributor network primarily with select AB distributors as well as with our sales force throughout 2007 to support and grow the sales of our products.



On April 28, 2006, HBC entered into a distribution agreement with Cadbury Bebidas for exclusive distribution by Cadbury Bebidas throughout Mexico, excluding Baja California, of our Monster Energy® and Lost® Energy™ energy products.



On February 8, 2007, HBC entered into the On-Premise Agreement with AB. Under the On-Premise Agreement, AB will manage and coordinate the sales, distribution and merchandising of Monster Energy® energy drinks to on-premise retailers including bars, nightclubs and restaurants in territories approved by HBC.



On March 1, 2007, HBC entered into a distribution agreement with Pepsi Canada for the exclusive distribution by Pepsi Canada throughout Canada of our Monster Energy®, Lost® Energy™ and Hansen’s® energy products.



As discussed under Review of Historic Stock Option Granting Practices in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Form 10-K for the fiscal year ended December 31, 2006, and Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Form 10-Q for the quarter ended March 31, 2007, a special committee of our Board of Directors concluded its review of our stock option grants and granting practices. In connection with this review, related litigation and other related matters, we incurred professional service fees of $9.8 million (net of $2.5 million insurance reimbursements) and $3.8 million for the years ended December 31, 2007 and 2006, respectively. No related costs were incurred for the year ended December 31, 2005.



The following table summarizes the selected items discussed above for the years ended December 31, 2007 and 2006:

As a result of the late filings of our Form 10-Q for the quarter ended September 30, 2006, our Form 10-K for the fiscal year ended December 31, 2006, and our Form 10-Q for the three-months ended March 31, 2007, we will be ineligible to register our securities on Form S-3 for sale by us or resale by others until we have been current in our reporting obligations for a period of approximately one year. We expect to be eligible to register our securities on Form S-3 after July 1, 2008. The inability to use Form S-3 could adversely affect our ability to raise capital during this period. However, we are still eligible to register our securities on Form S-1. If we fail to timely file a future periodic report with the SEC and our stock were to be delisted, it could severely impact our ability to raise future capital and could have an adverse impact on our overall future liquidity.



We again achieved record gross sales in 2007. The increase in gross sales in 2007 was primarily attributable to increased sales volume of certain of our existing products, particularly our Monster Energy® brand energy drinks and to sales by volume or our Java Monster TM line of non-carbonated dairy based coffee drinks. The percentage increase in gross sales was lower than the percentage increase in net sales, primarily due to a decrease in promotional and other allowances as a percentage of gross sales, which decreased from 13.0% to 11.8%. The actual amount of promotional and other allowances increased to $121.3 million from $90.5 million for the years ended December 31, 2007 and December 31, 2006, respectively.



A substantial portion of our gross sales are derived from our Monster Energy® brand energy drinks. Any decrease in sales of our Monster Energy® brand energy drinks could significantly adversely affect our future revenues and net income. Competitive pressure in the “energy drink” category could adversely affect our operating results. (See “Part I, Item 1A. - Risk Factors”)



During the fourth quarter of 2007, we announced a price increase for our Monster Energy® brand energy drinks and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that approximately 7% to 8% of our gross sales for the fourth quarter of 2007 were attributable to purchases made by our customers in advance of such price increases. We did not limit the amount of purchases our customers could execute at our existing 2007 fourth quarter prices. As a result, our future sales and operating results may be negatively impacted as a result of higher than normal distribution channel inventory levels. (See “Part I, Item 1A. - Risk Factors”)



Gross sales shipped outside of California represented 72.0%, 67.8% and 61.5% of our gross sales, for the years ended December 31, 2007, 2006 and 2005, respectively. Gross sales to customers outside the United States amounted to $41.0 million, $19.3 million and $5.6 million for the years ended December 31, 2007, 2006 and 2005, respectively. Such sales were approximately 4.0%, 2.8% and 1.3% of gross sales for the years ended December 31, 2007, 2006 and 2005, respectively.



Our customers are typically retail grocery and specialty chains, wholesalers, club stores, drug chains, mass merchandisers, convenience chains, full service beverage distributors, health food distributors and food service customers. Gross sales to our various customer types for 2007, 2006 and 2005 are reflected below. The allocations below reflect changes made by the Company to the categories historically reported.

Our customers include Cadbury Schweppes Bottling Group (formally known as Dr. Pepper Bottling/7UP Bottling Group), Wal-Mart, Inc. (including Sam’s Club), AB, Kalil Bottling Group, Trader Joe’s, John Lenore & Company, Pepsi Canada, Swire Coca-Cola, USA, Costco, The Kroger Co., Safeway Inc. and Albertsons. A decision by any large customer to decrease amounts purchased from the Company or to cease carrying our products could have a material negative effect on our financial condition and consolidated results of operations. Cadbury Schweppes Bottling Group, a customer of the DSD division, accounted for approximately 16%, 19% and 18% of our net sales for the years ended December 31, 2007, 2006 and 2005, respectively. Wal-Mart, Inc. (including Sam’s Club), a customer of both the DSD and Warehouse divisions, accounted for approximately 12% of the Company’s net sales for each of the years ended December 31, 2007 and 2006, respectively.



In October 2006, we acquired the Unbound Energy® trademark and assumed the production, marketing and sale of Unbound Energy ® energy drinks in 16-ounce cans. We subsequently introduced a lo-carb and juice version in 16-ounce cans.



During 2004, we entered into exclusive WIC Contracts with the State of California to supply 100% apple juice and 100% blended juice in 64-ounce PET plastic bottles. The WIC Contracts commenced on July 12, 2004 and were due to expire in July 2007. The parties mutually agreed to extend the WIC Contracts until July 11, 2008. WIC-approved items are stocked by the grocery trade and by WIC-only stores. Products are purchased by WIC consumers with vouchers given by the DHS to qualified participants. Due to significant cost increases mainly for apple juice concentrates and PET plastic bottles, we are currently negotiating a mutually acceptable earlier termination of the WIC Contracts with the State of California. We have been informed that future WIC contracts will not be granted on an exclusive basis and that certain manufacturers (including HBC) will be eligible to sell certain qualifying products to WIC participants. The Company is informed and believes that the WIC program intends reducing the total quantity of fruit juice products that will be available to WIC participants. We anticipate that as a consequence of the above, our revenue from these products is likely to be lower in the future. However, we do not believe that such reduction in revenue will have a material impact on our future operations. (See “Part I, Item 1. Business – Manufacture and Distribution”).

We continue to incur expenditures in connection with the development and introduction of new products and flavors.

Results of Operations for the Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006



Gross Sales.* Gross sales were $1,025.8 million for the year ended December 31, 2007, an increase of approximately $329.5 million or 47.3% higher than gross sales of $696.3 million for the year ended December 31, 2006. The increase in gross sales was primarily attributable to increased sales by volume of our Monster Energy® brand energy drinks, which include Monster Energy® drinks (introduced in April 2002), lo-carb Monster Energy® drinks (introduced in August 2003), Monster Energy® Assault TM energy drinks (introduced in September 2004) and Monster Energy® Khaos TM energy drinks (introduced in August 2005), as well as sales of certain new products such as the Java Monster™ line of non-carbonated dairy based coffee drinks (introduced in April 2007), Monster M-80 TM energy drinks (introduced in March 2007), Monster MIXXD™ energy drinks (introduced in December 2007) and Monster Heavy Metal™ energy drinks (introduced in November 2007). To a lesser extent, the increase in gross sales was attributable to increased sales by volume of apple juice and juice blends, aseptic juices, Unbound Energy ® energy drinks (introduced in October 2006) and Junior Juice® aseptic juices. The increase in gross sales was partially offset by decreased sales by volume of Lost Energy® drinks (introduced in January 2004), iced teas, Joker Mad Energy™ drinks (introduced in January 2005) and Hansen's® fruit juice smoothies. Changes in pricing did not have a material impact on the increase in gross sales for the year ended December 31, 2007. However, during the fourth quarter of 2007, we announced a price increase for our Monster Energy® brand energy drinks and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that approximately 7% to 8% of our gross sales for the fourth quarter of 2007 were attributable to purchases made by our customers in advance of such price increases. Promotional and other allowances were $121.3 million for 2007, an increase of $30.8 million or 34.0% higher than promotional and other allowances of $90.5 million for 2006. Promotional and other allowances as a percentage of gross sales decreased to 11.8% in 2007 from 13.0% in 2006. As a result, the percentage increase in gross sales in 2007 was lower than the percentage increase in net sales.



*Gross sales – see definition above.

Net Sales. Net sales were $904.5 million for the year ended December 31, 2007, an increase of approximately $298.7 million or 49.3% higher than net sales of $605.8 million for the year ended December 31, 2006. The increase in net sales was primarily attributable to increased sales by volume of our Monster Energy® brand energy drinks, which include Monster Energy® drinks, lo-carb Monster Energy® drinks, Monster Energy® Assault™ energy drinks and Monster Energy® Khaos™ energy drinks, as well as sales of certain new products such as the Java Monster™ line of non-carbonated dairy based coffee drinks, Monster M-80™ energy drinks, Monster MIXXD™ energy drinks and Monster Heavy Metal™ energy drinks. To a lesser extent, the increase in net sales was attributable to increased sales by volume of apple juice and juice blends, aseptic juices, sodas and Junior Juice® aseptic juices. The increase in net sales was partially offset by decreased sales by volume of Lost Energy® drinks, iced teas, Joker Mad Energy™ drinks, smoothies in cans and Hansen’s® energy drinks. Changes in pricing did not have a material impact on the increase in net sales for the year ended December 31, 2007. However, during the fourth quarter of 2007, we announced a price increase to our Monster Energy® brand energy drinks and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that approximately 7% to 8% of our net sales for the fourth quarter of 2007 were attributable to purchases made by our customers in advance of such price increases.



Case sales, in 192-ounce case equivalents, were 98.5 million cases for the year ended December 31, 2007, an increase of 25.7 million cases or 35.3% higher than case sales of 72.7 million cases for the year ended December 31, 2006. The overall average net sales price per case increased to $9.19 for 2007 or 10.3% higher than the average net sales price per case of $8.33 for 2006. The increase in the average net sales prices per case was attributable to an increase in the proportion of case sales derived from higher priced products.

Net sales for the DSD segment were $809.8 million for year ended December 31, 2007, an increase of approximately $295.5 million or 57.5% higher than net sales of $514.3 million for the year ended December 31, 2006. The increase in net sales was primarily attributable to increased sales by volume of our Monster Energy® brand energy drinks, which include Monster Energy® drinks, lo-carb Monster Energy® drinks, Monster Energy® Assault TM energy drinks and Monster Energy® Khaos TM energy drinks, as well as sales of certain new products such as the Java Monster™ line of non-carbonated dairy based coffee drinks and Monster M-80 TM energy drinks. The increase in net sales was partially offset by decreased sales by volume of Lost Energy® drinks and Joker Mad Energy™ drinks. Changes in pricing within the DSD segment did not have a material impact on the increase in net sales for the year ended December 31, 2007. However, during the fourth quarter of 2007, we announced a price increase to our Monster Energy® brand energy drinks and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that approximately 7% to 8% of our net sales for the fourth quarter of 2007 were attributable to purchases made by our customers in advance of such price increases.



Net sales for the Warehouse segment were $94.7 million for the year ended December 31, 2007, an increase of approximately $3.2 million or 3.5% higher than net sales of $91.5 million for the year ended December 31, 2006. The increase in net sales was primarily attributable to increased sales by volume of apple juice and juice blends, aseptic juices, sodas and Junior Juice® aseptic juices. The increase in net sales was partially offset by decreased sales by volume primarily of iced teas, smoothies in cans and Hansen’s® energy drinks. Changes in pricing within the Warehouse segment did not have a material impact on the increase in net sales for the year ended December 31, 2007.



Gross Profit.** * Gross profit was $468.0 million for the year ended December 31, 2007, an increase of approximately $151.4 million or 47.8% higher than the gross profit of $316.6 million for the year ended December 31, 2006. Gross profit as a percentage of net sales was 51.7% for 2007 as compared to 52.3% for 2006. Increases in sales volumes contributed to the increase in gross profit dollars. The decrease in gross profit as a percentage of net sales was primarily due to an increase in the percentage of sales within the DSD segment of certain packages that have lower gross profit margins. To a lesser extent, the decrease in gross profit as a percentage of net sales was also attributable to an increase in the cost of certain raw materials including certain sweeteners, certain containers and packaging materials and certain juice concentrates and increased reserves for slow moving and obsolete inventory. Such decrease in gross profit as a percentage of net sales was partially offset by increased sales of DSD segment products which have higher gross profit margins than those in the Warehouse segment, a decrease in promotional and other allowances as a percentage of gross sales.



***Gross profit may not be comparable to that of other entities since some entities include all costs associated with their distribution process in cost of sales, whereas others exclude certain costs and instead include such costs within another line item such as operating expenses.



Operating Expenses . Total operating expenses were $237.0 million for the year ended December 31, 2007, an increase of approximately $79.0 million or 50.0% higher than total operating expenses of $158.0 million for the year ended December 31, 2006. Total operating expenses as a percentage of net sales was 26.2% for 2007, slightly higher than 26.1% for 2006. The increase in operating expenses in dollars was partially attributable to increased out-bound freight and warehouse costs of $8.7 million primarily due to increased volume of shipments, increased expenditures of $18.4 million for sponsorships and endorsements, increased expenditures of $10.3 million for commissions and royalties, increased expenditures of $4.9 million for sampling programs, increased payroll expenses of $12.1 million, increased expenditures of $8.6 million for professional services costs, including legal and accounting fees, and increased expenditures of $2.5 million relating to the costs associated with terminating existing distributors. Included in legal and accounting fees are costs of $9.8 million (net of $2.5 million insurance reimbursements) in connection with our special investigation of stock option grants and granting practices, related litigation and other related matters. Total operating expenses, exclusive of expenditures of $15.3 million and $12.7 million for 2007 and 2006, respectively, attributable to the costs associated with terminating existing distributor and exlcusive of expenditures of $9.8 million (net of 2.5 million in insurance reimbursements) and $3.8 million for 2007 and 2006, respectively in connection with our special investigation of stock option grants and granting practices, related litigation and other related matters, as a percentage of net sales, were 23.4% for both 2007 and 2006.



Contribution Margin. Contribution margin for the DSD segment was $281.6 million for the year ended December 31, 2007, an increase of approximately $93.8 million or 49.9% higher than contribution margin of $187.9 million for the year ended December 31, 2006. The increase in contribution margin for the DSD segment was primarily attributable to the increase in net sales of Monster Energy® brand energy drinks as well as sales of certain new products such as the Java Monster™ line of non-carbonated dairy based coffee drinks and Monster M-80 TM energy drinks. Contribution margin for the Warehouse segment was $3.9 million for the year ended December 31, 2007, a decrease of approximately $2.2 million or 36.3% lower than contribution margin of $6.1 million for year ended December 31, 2006. The decrease in the contribution margin for the Warehouse segment was primarily attributable to a reduction in gross margin as a result of increased costs of raw materials and production.



Operating Income. Operating income was $231.0 million for the year ended December 31, 2007, an increase of approximately $72.4 million or 45.7% higher than operating income of $158.6 million for the year ended December 31, 2006. Operating income as a percentage of net sales decreased to 25.5% for 2007 from 26.2% for 2006. The increase in operating income was primarily due to an increase in gross profit of $151.4 million. The decrease in operating income as a percentage of net sales was primarily attributable to increased cost of sales as a percentage of net sales. Operating income, exclusive of recognition of deferred revenue of $1.9 million and $0.4 million for 2007 and 2006, respectively, attributable to the AB Distribution agreements entered into with newly appointed AB Distributors, exclusive of expenditures of $15.3 million and $12.7 million for 2007 and 2006, respectively, attributable to the costs associated with terminating existing distributors and exclusive of expenditures of $9.8 million (net of $2.5 million insurance reimbursements) and $3.8 for 2007 and 2006, respectively, in connection with our special investigation of stock option grants and granting practices, related litigation and other related matters, as a percentage of net sales, was 28.2% for 2007 as compared to 28.9% for 2006.



Interest and Other Income, net . Net interest and other income was $8.8 million for the year ended December 31, 2007, an increase of $5.1 million from net interest and other income of $3.7 million for the year ended December 31, 2006. The increase in net interest and other income was primarily attributable to increased interest revenue earned on our cash balances and short- and long-term investments, which have increased significantly over the prior year.



Provision for Income Taxes . Provision for income taxes for the year ended December 31, 2007 was $90.3 million, as compared to provision for income taxes of $64.3 million for the year ended December 31, 2006. The effective combined federal and state tax rate for 2007 was 37.7%, which was lower than the effective tax rate of 39.6% for 2006. The decrease in the effective tax rate was primarily attributable to certain interest income earned on securities that is exempt from federal income taxes and a reduction in federal taxes attributable to the domestic production tax deduction. This decrease was partially offset by stock-based compensation relating to incentive stock options that is not deducted for federal or state income tax purposes.



Net Income . Net income was $149.4 million for the year ended December 31, 2007, an increase of $51.5 million or 52.5% higher than net income of $97.9 million for the year ended December 31, 2006. The increase in net income was primarily attributable to an increase in gross profit of $151.4 million and, to a lesser extent, an increase in net interest and other income of approximately $5.1 million. This was partially offset by an increase in operating expenses of $79.0 million and an increase in provision for income taxes of $26.1 million.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations for the Three-Months Ended March 31, 2008 Compared to the Three-Months Ended March 31, 2007



Gross Sales.* Gross sales were $244.0 million for the three-months ended March 31, 2008, an increase of approximately $53.9 million or 28.4% higher than gross sales of $190.1 million for the three-months ended March 31, 2007. The increase in gross sales was primarily attributable to sales of our Java Monster™ line of non-carbonated dairy based coffee drinks (introduced in April 2007), increased sales by volume and increased sales price per case for certain of our Monster Energy® brand energy drinks, which include Monster Energy® drinks (introduced in April 2002), lo-carb Monster Energy® drinks (introduced in August 2003), Monster Energy® Assault TM energy drinks (introduced in September 2004), Monster Energy® Khaos TM energy drinks (introduced in August 2005) and Monster M-80 TM energy drinks (introduced in March 2007), as well as sales of certain new products such as, Monster MIXXD™ energy drinks (introduced in December 2007) and Monster Heavy Metal™ energy drinks (introduced in November 2007). To a lesser extent, the increase in gross sales was attributable to increased sales by volume of apple juice and juice blends. The increase in gross sales was partially offset by decreased sales by volume of Rumba™ brand energy juice (introduced in December 2004), iced teas, and Unbound Energy® drinks (commencing October 2006). Our gross sales for the three-months ended March 31, 2008 were impacted by a price increase announced during the fourth quarter of 2007 for our Monster Energy® brand energy drinks in 16-ounce cans and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that gross sales for the three-months ended March 31, 2008 were reduced by approximately 8% to 9% as a result of purchases made by our customers in advance of such price increases. Promotional and other allowances were $31.8 million for the three-months ended March 31, 2008, an increase of $7.6 million or 31.4% higher than promotional and other allowances of $24.2 million for the three-months ended March 31, 2007. Promotional and other allowances as a percentage of gross sales increased to 13.0% from 12.7% for the three-months ended March 31, 2008 and 2007, respectively. As a result, the percentage increase in gross sales for the three-months ended March 31, 2008 was higher than the percentage increase in net sales.

Net Sales. Net sales were $212.2 million for the three-months ended March 31, 2008, an increase of approximately $46.3 million or 27.9% higher than net sales of $165.9 million for the three-months ended March 31, 2007. The increase in net sales was primarily attributable to sales of our Java Monster™ line of non-carbonated dairy based coffee drinks, increased sales by volume and increased sales price per case for certain of our Monster Energy® brand energy drinks, which include Monster Energy® drinks, lo-carb Monster Energy® drinks, Monster Energy® Assault TM energy drinks, Monster Energy® Khaos TM energy drinks and Monster M-80 TM energy drinks, as well as sales of certain new products such as, Monster MIXXD™ energy drinks and Monster Heavy Metal™ energy drinks. The increase in net sales was partially offset by decreased sales by volume of iced teas, Unbound Energy® drinks and Rumba™ brand energy juice. Our net sales for the three-months ended March 31, 2008 were impacted by a price increase announced during the fourth quarter of 2007 for our Monster Energy® brand energy drinks in 16-ounce cans and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that net sales for the three-months ended March 31, 2008 were reduced by approximately 8% to 9% as a result of purchases made by our customers in advance of such price increases.

Case sales, in 192-ounce case equivalents, were 22.3 million cases for the three-months ended March 31, 2008, an increase of 2.9 million cases or 15.0% higher than case sales of 19.4 million cases for the three-months ended March 31, 2007. The overall average net sales price per case increased to $9.53 for the three-months ended March 31, 2008 or 11.5% higher than the average net sales price per case of $8.55 for the three-months ended March 31, 2007. The increase in the average net sales prices per case was attributable to an increase in the proportion of case sales derived from higher priced products as well as the price increases for our Monster Energy® brand energy drinks in 16-ounce cans effective January 1, 2008 and in 24-ounce cans effective July 1, 2007, respectively.



Net sales for the DSD segment were $189.8 million for the three-months ended March 31, 2008, an increase of approximately $46.5 million or 32.4% higher than net sales of $143.3 million for the three-months ended March 31, 2007. The increase in net sales was primarily attributable to sales of our Java Monster™ line of non-carbonated dairy based coffee drinks, increased sales by volume and increased sales price per case for certain of our Monster Energy® brand energy drinks, which include Monster Energy® drinks, lo-carb Monster Energy® drinks, Monster Energy® Assault TM energy drinks, Monster Energy® Khaos TM energy drinks and Monster M-80 TM energy drinks, as well as sales of certain new products such as Monster MIXXD™ energy drinks and Monster Heavy Metal™ energy drinks. The increase in net sales was partially offset by decreased sales by volume of Unbound Energy® drinks and Rumba™ brand energy juice. Our net sales for the DSD segment for the three-months ended March 31, 2008 were impacted by a price increase announced during the fourth quarter of 2007 for our Monster Energy® brand energy drinks in 16-ounce cans and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that net sales for the three-months ended March 31, 2008 were reduced by approximately 8% to 9% as a result of purchases made by our customers in advance of such price increases.



Net sales for the Warehouse segment were $22.5 million for the three-months ended March 31, 2008, a slight decrease of approximately $0.1 million or 0.4% lower than net sales of $22.6 million for the three-months ended March 31, 2007. The slight decrease in net sales was attributable in part to slotting charges for our flavored sparkling beverages. Changes in pricing within the Warehouse segment did not have a material impact on net sales for the three-months ended March 31, 2008.



Gross Profit.** * Gross profit was $104.7 million for the three-months ended March 31, 2008, an increase of approximately $19.1 million or 22.3% higher than the gross profit of $85.6 million for the three-months ended March 31, 2007. Gross profit as a percentage of net sales decreased to 49.4% for the three-months ended March 31, 2008 from 51.6% for the three-months ended March 31, 2007. The increase in net sales contributed to the increase in gross profit dollars. The decrease in gross profit as a percentage of net sales was primarily due to an increase in the percentage of sales within the DSD segment of the Java Monster™ line of non-carbonated dairy based coffee drinks that have lower gross profit margins than those of our Monster Energy® brand energy drinks. To a lesser extent, the decrease in gross profit as a percentage of net sales was also attributable to an increase in the cost of certain raw materials including certain sweeteners, certain containers and packaging materials and certain juice concentrates, particularly apple juice concentrate as well as increased chain marketing agreements. Such decrease in gross profit as a percentage of net sales was partially offset by increased sales of DSD segment products which have higher gross profit margins than those in the Warehouse segment.

Operating Expenses . Total operating expenses were $61.9 million for the three-months ended March 31, 2008, an increase of approximately $8.2 million or 15.2% higher than total operating expenses of $53.7 million for the three-months ended March 31, 2007. Total operating expenses as a percentage of net sales was 29.2% for the three-months ended March 31, 2008, lower than 32.4% for three-months ended March 31, 2007. Total operating expenses for the three-months ended March 31, 2008 included costs of $2.0 million relating to the launch of the Monster Energy® brand in the United Kingdom. The increase in operating expenses in dollars was partially attributable to increased out-bound freight and warehouse costs of $2.0 million primarily due to increased volume of shipments, increased expenditures of $5.7 million for sponsorships and endorsements, increased expenditures of $2.8 million for merchandise displays, increased expenditures of $1.7 million for sampling programs, increased expenditures of $1.6 million for commissions and royalties and increased payroll expenses of $2.1 million. The increase in operating expenses in dollars was partially offset by decreased expenditures of $5.0 million for professional services costs, including legal and accounting fees, and decreased expenditures of $6.3 million relating to the costs associated with terminating existing distributors. Included in legal and accounting fees are costs of $0.2 million and $6.7 million for the three-months ended March 31, 2008 and 2007, respectively, in connection with our special investigation of stock option grants and granting practices, related litigation and other related matters. Total operating expenses, exclusive of expenditures of $6.3 million for the three-months ended March 31, 2007 attributable to the costs associated with terminating existing distributors and exclusive of expenditures of $0.2 million and $6.7 million for the three-months ended March 31, 2008 and 2007, respectively in connection with our special investigation of stock option grants and granting practices, related litigation and other related matters, as a percentage of net sales, were 29.1% and 24.5% for the three-months ended March 31, 2008 and 2007, respectively.



Contribution Margin. Contribution margin for the DSD segment was $56.3 million for the three-months ended March 31, 2008, an increase of approximately $9.0 million or 19.0% higher than contribution margin of $47.3 million for the three-months ended March 31, 2007. The increase in contribution margin for the DSD segment was primarily attributable to sales of our Java Monster™ line of non-carbonated dairy based coffee drinks, the increase in net sales of Monster Energy® brand energy drinks as well as sales of certain new products such as the Monster MIXXD™ energy drinks and Monster Heavy Metal™ energy drinks. Contribution margin for the Warehouse segment was ($1.1) million for the three-months ended March 31, 2008, approximately $1.9 million lower than contribution margin of $0.8 million for the three-months ended March 31, 2007. The decrease in the contribution margin for the Warehouse segment was primarily attributable to a reduction in gross margin as a result of a significant increase in the costs of certain raw materials, particularly apple juice concentrate. Although we purchased sufficient quantities of apple juice concentrate at lower fixed prices to meet demand under the WIC Contracts, the blended costs of apple juice concentrate among both segments increased by approximately 50%, resulting in a significant reduction of gross margin for the Warehouse segment.



Operating Income. Operating income was $42.8 million for the three-months ended March 31, 2008, an increase of approximately $10.9 million or 34.2% higher than operating income of $31.9 million for the three-months ended March 31, 2007. Operating income as a percentage of net sales increased to 20.2% for the three-months ended March 31, 2008 from 19.2% for the three months ended March 31, 2007. The increase in operating income was primarily due to an increase in gross profit of $19.1 million. The increase in operating income as a percentage of net sales was primarily attributable to decreased operating expenses as a percentage of net sales. Operating income, exclusive of recognition of deferred revenue of $0.5 million and $0.4 million for the three-months ended March 31, 2008 and 2007, respectively, attributable to the AB Distribution agreements entered into with newly appointed AB Distributors, exclusive of expenditures of $0.0 and $6.3 million for the three-months ended March 31, 2008 and 2007, respectively, attributable to the costs associated with terminating existing distributors and exclusive of expenditures of $0.2 million and $6.7 for the three-months ended March 31, 2008 and 2007, respectively, in connection with our special investigation of stock option grants and granting practices, related litigation and other related matters, as a percentage of net sales, was 20.1% and 26.9% for the three-months ended March 31, 2008 and 2007, respectively.



Interest and Other Income, net . Net interest and other income was $3.6 million for the three-months ended March 31, 2008, an increase of $2.1 million from net interest and other income of $1.5 million for the three-months ended March 31, 2007. The increase in net interest and other income was primarily attributable to increased interest revenue earned on our cash balances and short- and long-term investments, which have increased significantly over the prior year.



Provision for Income Taxes . Provision for income taxes for the three-months ended March 31, 2008 was $17.6 million, as compared to provision for income taxes of $13.2 million for the three-months ended March 31, 2007. The effective combined federal and state tax rate for the three-months ended March 31, 2008 was 38.0%, which was lower than the effective tax rate of 39.6% for the three-months ended March 31, 2007. The decrease in the effective tax rate was primarily attributable to a reduction in federal taxes attributable to the domestic production tax deduction. Also, in the first quarter of 2008, our effective tax rate reflects an approximate $0.1 million tax charge related to a net change in our uncertain tax position under FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”.



Net Income . Net income was $28.8 million for the three-months ended March 31, 2008, an increase of $8.6 million or 42.6% higher than net income of $20.2 million for the three-months ended March 31, 2007. The increase in net income was primarily attributable to an increase in gross profit of $19.1 million and, to a lesser extent, an increase in net interest and other income of approximately $2.1 million. This was partially offset by an increase in operating expenses of $8.2 million and an increase in provision for income taxes of $4.4 million.

CONF CALL

Rodney C. Sacks - Chairman of the Board, Chief Executive Officer

Good afternoon, this is Rodney Sacks speaking. I have Hilton Schlosberg, our President with us and Tom Kelly, our Controller, Vice President of Finance. Thank you for attending the call.

At this time I’d like to record that certain statements made on this call may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the expectations of management with respect to revenues and profitability. Management cautions that these statements are qualified by their terms or important factors, many of which are outside of the control of the company that could cause actual results and events to differ materially from the statements made herein. The company assumes no obligation to update any forward-looking statements.

As indicated in the announcement, gross sales for the 2008 first quarter increased 28.4% to $244 million from $190.1 million a year earlier. Net sales for the first quarter increased 27.9% to $212 million from $165.9 million a year ago. We estimate that both gross and net sales for the quarter were reduced by approximately 8% to 9% as a result of purchases made by customers in advance of the price increases effective January 1, 2008 for Monster Energy in 16-ounce cans and the Java Monster line.

Net sales of the DST division increased 32.4% for the quarter, while the net sales for the Warehouse division decreased 0.4%. In the DST division sales attributable to Monster and Java Monster products increased 36.1% during the quarter, while sales of Energy, Juice, Unbound, and Lost were lower.

In the Warehouse division, sales of apple juice and juice blends and tetra pack were higher, while sales of teas and Hansen's Energy were lower. Sales of 192-ounce case equivalents increased by 2.9 million cases or 15% from 19.4 million cases to 22.3 million cases in the quarter. Average net sales price per case increased 11.3% from 8.55 per case to 9.53. The increase in average net sales price per case is attributable to an increase in the proportion of case sales derived from higher priced Monster Energy and Java Monster products, as well as the price increases mentioned previously, which were effective January 1.

Over the quarter the entire US ready-to-drink beverage business has seen weakness across all categories. This weakness was most pronounced in c-store cold drink channels where the vast majority of energy drinks are sold. Consequently the moderating growth we have seen in energy drinks appears in part due to the challenging macro economic environment, and the resulting declines in store traffic primarily in the C&G sector and especially in Southern California.

During April, Coke reported that their North American beverage volumes for the quarter were flat and would have been down without acquisitions, namely Glaceau. PepsiCo reported that their North American beverage business had declined almost two points in major channels versus earlier expectations of modest growth. CCE notes of their total non-alcoholic ready-to-drink beverages in Nielsen measured channels, all channels combined actually had declining cases during the quarter, and PPG also reported that the liquid refreshment beverage category was down in measured channels in the quarter.

Other beverage categories, which have historically shown growth, have also slowed considerably. For example, the sports drink category was only up 1% in the quarter. Against this general slow down, the Energy drink category still managed to achieve good growth. In the C&G channel, the Energy drink category grew 18%, while in the grocery channel, the category grew 13%. Consequently, the Energy drink category’s continued gain in both dollars and volume despite the macro economic environment demonstrates the strength and continued growth of the Energy drink category. Consequently the growth of our Monster Energy brand outstripped continued positive category growth. The Monster brand grew 51% in the C&G channel and 42% in grocery. According to Nielsen all outlets combined for the 13 weeks ended March 29, 2008, the Monster brand grew nearly 50% and increased its market share by nearly six points to 27% market share compared to Red Bull, which grew 17% but had no gain in market share, which was flat at 37%.

Rockstar grew 5.1% but lost 1.3 points and now have a... at the end they are having 11% market share. Full Throttle was down 3.5% in sales and lost 1.2 points to a 5.6% market share, while Amp grew 22% with a 0.2point gain to a 5.5% market share. Java Monster performed particularly well and in dollars, sales of Java Monster in the convenience channel had reached about half of the Starbucks Frappuccino line. We think that this is a remarkable achievement bearing in mind that Java Monster was just launched a year ago and throughout the year was continuing to gain distribution and is still below… distribution figures are still not up to the levels of Starbucks Frappuccino.

Energy drink sales in certain non-measured channels such as club stores have experienced some softness in the quarter. The Energy drink category has overtaken and is now larger than both the Sports drink category, like Gatorade, Powerade etcetera and the ready-to-drink category AriZona, Lipton, and Nestea by a substantial margin. The growth of the Energy drink category continues to outpace the growth of both the sports drink and ready-to-drink tea categories. This clearly supports our view that the Energy category is not a fad and its continued growth is further evidence that Energy drinks are becoming an integral part of everyday life. In fact, Energy drinks are now the second biggest category in c-stores by dollars of the CSDs and continue to take shelf space and market share primarily from CSDs. In dollars, in c-stores, this premium priced category is even bigger than bottled water, sports drink, and ready-to-drink teas.

The latest Nielsen figures for the 13 weeks ended 4/26/08 were received by us yesterday and reflected increase in sales for Energy drinks in the convenience category of 16.5%, 12.5% in grocery, and 27.7% in drug. According to Nielsen all outlets combined, the Energy category grew 15.9% during the period. Monster grew 47.5% has picked up 5.9 points of market share to 27.5% while Red Bull grew 14.2% and lost point six of a point of market share. Rockstar grew 4.6 and lost 1.2 points of market share to 11% while Full Throttle lost 6% and 1.2 points of market share down to 5.3 in total. Amp decreased sales 29.3% and gained 0.6 points of a point to a 6.2% market share, but at the expense of Pepsi’s other Energy drinks No Fear, Adrenaline Rush, and Sobe, which lost in excess of 3 points in aggregate.

The NOS brand which was acquired by Coke as part of the FUZE transaction benefited from a substantial increase in distribution levels as a result of that brand being taken through the CCE system. In the latest four-week period, in the convenience category, Monster share increased to 29.1% while Red Bull share declined to 35.1% and so we all continuing to close the gap on Red Bull.

Gross margin for the quarter decreased 2% to 49.4% from 51.6% for the comparable quarter in 2007. Factors, which positively affected the gross margin was the increasing product mix to DST products from 84% to 88% for the quarter as well as increases in the past of certain of the Monster and Java Monster products. Gross margin was negatively affected by the change in sales mix primarily the increasing sales of lower margin Java Monster products. Sales of Java Monster increased to just over 14% of our gross sales for the quarter. Additionally, we experienced an increase in certain raw material costs principally the process apple juice concentrate, which had a greater effect on the Warehouse division.

We believe that the price increases for Monster and Monster Java absorbed the increases in the cost of goods for those products. However the Warehouse division incurred substantial increases in cost of goods for its juice and soda products. This increase had a material impact on the gross margins for the Warehouse division and resulted in a negative contribution margin for that division for the quarter. We have a process of increasing prices of selected products in that division to offset such price increases and we are able to negotiate an early termination of the WIC contract, which going forward will be on a non-exclusive basis and this will address the losses that were incurred in the quarter with our apple juice and juice blend products.

For example market prices for apple juice concentrates have almost doubled over the last year. Sales mix and additional cost contributed about 1.7% of the decreasing gross margin. The balance was attributable to the increasing promotional allowances principally an increasing chain marketing allowances and programs to increases shelf space. Although the cost of the programs is equally amortized over the calendar year, the bulk of shelf resets did not take place until the second quarter. In fact in certain chains shelf resets are full at this time in the process of being implemented. The cost of the company for shelf space on a per shelf basis in 2008 is comparable with the cost that was incurred by us last year for similar programs. The amount of additional shelf space that we were able to secure varies greatly from chain to chain but on average has come down to between 30% and 60% of incremental space.

We caution that we do not believe that there is a direct correlation between the amount of addition shelf space and sales. However we do believe that the increased shelf space will provide additionally visibility for our product and will result in increase sales. Additionally, as we have been able to secure shelf space for Java Monster in the coffee door we believe that this will reduce the cannibalization that we believe occurred in the past due to Java Monster having been placed directly into Monster's existing space in the energy door.

We are hopeful that going forward the cost of promotional allowances particularly chain CMAs and MDF will be lower as percentage of net sales as our sales increase over the remainder of the year. Operating income for the three-months increased 34% to $42.8 million from $31.9 million a year ago. Operating income as a percentage of net sales increased to 20.2% for the three-months ended March 31, 2008 from 19.2% for the same quarter last year. Net income for the three-months increased 43% to $28.8 million or $0.29 per diluted share from $20.2 million or $0.21 per diluted share last year. Interest income was $3.6 million compared to $1.5 million a year ago and our effective tax rate for the three-months was approximately 38%. The change in the tax rate is attributable to the domestic deduction previously described. We expect our tax rate to be in the 38% range going forward.

Distribution cost was slightly lower at 5.7% compared to 6% in the same period last year. Increased cost of warehousing was offset by freight savings primarily due to the addition ... of additional co-packers around the US. Selling expenses for the quarter were 14.9% versus 10.1% a year ago. The increase in selling expenses was largely attributable to increased commissions and royalties which increased to 1.7% from 1.2% in the 2007 quarter largely due to commissions payable to Anheuser-Bush under the AB Coordination Agreement as a greater proportion of our sales are now being affected though the AB wholesalers.

Sponsorships were 4.8%, up from 2.7% a year earlier. A large component of sponsorship cost during the quarter relates to our sponsorship of the Supercross Series, which is now called the Monster Energy Supercross series, which we believe is a very important property for us and for the brand and helps expose our brand not only in the US but internationally where the series is shown on television and throughout Europe. The Supercross season takes place between January and May. As this is the sponsorship of an event as opposed to an annual sponsorship of athletics where we traditionally have focused and which are usually amortized over the full year, the cost of this sponsorship has been fully amortized over the season, which resulted in about two-thirds of the sponsorship cost for the event being expensed in the first quarter.

The cost of sponsorships also increased due to the sponsorship cost incurred by us to launch… support the launch of Monster in the United Kingdom. Cost incurred by us in connection with the launch in United Kingdom were both sponsorships as well as G&A amounted to some $2 million in the quarter, but we obviously didn't have the benefit of sales, there were very nominal sales that took place and we are now starting to get listings and starting to sell going into the second quarter.

Additionally merchandise displays increased from 1.1% to 2.2%, [inaudible] was up from 0.9% to 1.5% and in-store demos primarily in connection with the launch of Java Monster in some club stores was up from 0.4% to 0.9%. We believe that the selling expenses as a percentage of sales will be lower going forward as sales that occurred at the end of last year in anticipation of the price increases impacted sales in the quarter, timing issues occurred with respect to both Supercross sponsorship and the launch cost of Monster in the United Kingdom will not reoccur.

Payroll and G&A costs excluding legal fees associated with the stock option investigation and distributor terminations were approximately the same in both periods. With regard to customer mix in the quarter, retail groceries sales decreased from 10% to 9%, sales to club stores, drug chains and mass merchandisers decreased from 16% to 14%, while sales to full service distributors increased from 69% to 73%. Sales to health food distributors remained flat at 2% and generally other sales reduced were from 3% to 2%.

With regard to sales by market area, gross sales outside of California increased from 68.9% to 76.4% this quarter. Sales in California now represent less than 25% of the overall gross sales of the company. In fact, in the DST division, sales outside of California now represent 82.7% of that division sales, up from 75% last year. Gross sales to customers outside of the United States increased from $5.6 million to $17 million and as a percentage such sales increased from 2.9% of gross sales to 7%.

I think that it is pertinent to point out that if one were to basically take into account the estimated buy-in at the end of the fourth quarter and add those sales and the effect that they would have had on this quarter had they fallen in the quarter, and excluding the extraordinary one-off cost with Monster UK, which really didn't have any corresponding income, the result would be a pro forma earnings diluted EPS of about $0.36 as opposed to the reported EPS. I think that just… we believe just shows a more normalized trading position.

Moving to the... moving to the balance sheet, working capital increased from $187.3 million to $276.3 million. Accounts receivable were $81.8 million at March 31, slightly up from the $81.5 million at December and up from $68.8 million at end of March last year. Days outstanding was 32.7 for receivables at March 31, up from 28.7 in December, but down from 35.4 the year before. Our inventory balances were $109.8 million as of March, up from $98.1 million at December 31, and up from $61.6 million the year before. The increase in inventories over the prior year was primarily attributable to increased raw materials and finished goods related to Java Monster. Average days of inventory was 92 days at March 31, which is about the 73 days of inventory as of the end of December, and 69 days the year before.

Accounts payable balances was $60.7 million at March 31, up from $56.8 million at the end of December. Cash and cash equivalents were $51.2 million from $12.4 million at the end of December and short-term investments increased to a $107.9 million from $63 million at the end of December. Long-term investments reduced from $227 million at the end of December to $164.4 million. Long-term investments are comprised of municipal or educational other public body related notes with an auction reset feature. With the liquidity issues experienced in the global credit markets certain of our holding in our... of our auction rate securities having a face value of $207 million as of March 31, experienced failed auctions.

The face value of such securities have since been reduced to $169.8 million as of the end of April after redemptions during the month. This bought the strong credit ratings attributable to these notes for liquidity reasons we determine that a temporary impairment of $5.4 million had occurred as of March. And therefore recorded a charge of $3.2 million net of tax as a component of accumulated other comprehensive loss. These securities continue to accrue interest at their contractual rates, until their respective options succeed or they are redeemed.

Based on our cash and other short-term investments and expected operating cash flows and other sources of cash, we do not anticipate that the current lack of liquidity of these investments will have a material effect on our liquidity or our working capital. To give you a trading update, gross sales for April were approximately $103.6 million, 29%-odd up on April last year. Sales of Monster and Java Monster brands in the month are up approximately 35.4% over last year. We have continued to make progress with our international growth plans in the United Kingdom. As I indicated earlier we incurred approximately $2 million in cost relating to the United Kingdom operations, but do not have a benefit of sales. Sales have commenced and we believe will gain traction going into the third quarter of this year. We were also revaluating the potential launch of Monster in certain additional countries, in Europe later in the year, but have not finalized arrangements in that regard at this time. Sales in both Canada and Mexico continue to improve and we are continuing to gain market share in both those countries.

Additionally, distribution of sales are also continuing to improve in South Africa, which is another overseas market, which commenced sales recently. On the Hansen Natural side, we are continuing with the roll out of our new sports beverages in 10.5-ounce sleek cans.

In conclusion I would like to reiterate that the additional sales of approximately $21.5 million that occurred in December and would otherwise have occurred during the first quarter had a materially effect on our results for the first quarter and the impact there are ought to be taken into account in evaluating the level of expenses that are likely to be incurred by the company for the reminder of the year. Our ability to increase our operating income in the phase of increased operating expenses as compared to the decrease in operating income suffered by all of our major competitors in their respective North American beverage businesses in the quarter underscores in our view the long-term sustainability both in sales and profitability of the Energy drink category.

One of the other housekeeping items I would like to address, we have experienced an unbelievably large number of requests for telephone discussions, consultations, in person interviews, making it literally almost impossible for us, particularly myself, to spend the time and attention to vote to the growth of the business and the expansion of the business. As a policy in future, we are going to limit the amount of discussions and meetings that we hold with investors... potential investors and what we are proposing to do is there will be an annual meeting later during the course of this... next... current quarter where we will be available to answer questions and also what we are proposing to do is to set up a procedure in the future where we will we have a... we call it a mid-period or mid-quarterly discussion with investors through a conference call where we will be available to give a trading update and to answer specific questions and investors will be invited to attend that call and to ask questions.

And in that way, we will try and limit the time taken by management to deal with these requests. We don't object to dealing with the requests, its just some people come very, very burdens and not enough time to actually deal with the large number of requests that we have been experiencing. I would like to open the floor to your questions at this time.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

3951 Views