Monster Beverage Corporation (MNST) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Monster Beverage Corporation Fourth Quarter and Year-End 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's call, Mr. Rodney Sacks, Chairman and CEO. Mr. Sacks, you may begin.

Good afternoon, ladies and gentlemen. Thank you for attending this call. I'm Rodney Sacks. Hilton Schlosberg, our Vice Chairman and President, is with me today; as is Tom Kelly, our Senior Vice President of Finance. Before we begin, I would like to remind listeners that certain statements made during 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 1954 as amended, and which are based on currently available information regarding the expectations of management with respect to revenues, profitability, future business, future events, financial performance and trends. Management cautions that these statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside the control of the company, that may cause actual results to differ materially from the forward-looking statements made during this call. Please refer to our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed March 1, 2013, as well as our most recent report on Form 10-Q filed November 8, 2013, including the sections contained therein entitled Risk Factors and Forward-Looking Statements, for a discussion on specific risks and uncertainties that may affect our performance. The company assumes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. An explanation of the non-GAAP measure of gross sales and certain expenditures, which may be mentioned during the course of this call, is provided in the notes designated with asterisks in the condensed consolidated statements of income and other information attached to the earnings release dated February 27, 2014. A copy of this information is also available on our website at monsterbevcorp.com in the Financial Information section. We reiterate that our products are safe and are pleased to report that more than 10 billion Monster Energy drinks have been sold and safely consumed around the world over the past 12 years. The long history of safe use of products containing caffeine in the U.S. has remained unchanged. Studies confirm that the average amount of caffeine consumed by the U.S. population has remained relatively stable, despite the entry of energy drinks into the market. As previously indicated, and as stated by the FDA in 2012, available studies did not indicate any new, previously unknown risks associated with caffeine consumption, although the FDA has continued to explore whether additional research on caffeine or energy drinks is needed. The Institute of Medicine held a public workshop in August 2013 in Washington, D.C. to help determine whether there were potential health hazards associated with the consumption of caffeine in food and dietary supplements. In January 2014, the IM forwarded a copy of the proceedings to the FDA. Many studies conducted in recent years in the U.S.A., Canada and Europe, including a very recent study, have all consistently concluded that the principal sources of caffeine for teens under 18 are coffee, soft drinks and tea and not energy drinks. In fact, a recent article published in the Journal of Pediatrics analyzed the consumption data. Even after including young adults aged 19 to 22 years in the most recent 2-year period study, that's 2009 to 2010, only some 6% of the caffeine consumed by all persons, 22 and under, was from energy drinks as compared to 24% from coffee and 38% from soda. If young adults aged 19 to 22 are excluded as they are neither children nor adolescents, the percentages are even lower with the result at less than 3% of the caffeine intake of children and adolescents, 18 and under, comes from energy drinks. To put of the level of caffeine in Monster Energy drinks in context, we again remind listeners that a medium Starbucks 16-ounce sized brewed coffee contains approximately 330 milligrams of caffeine, which is more than double the approximately 160 milligrams of caffeine that is contained in the same-sized Monster Energy drink. In the litigation between the company and the City Attorney of San Francisco, the company recently filed the demurrer to and motion to strike allegations in the complaint. The demurrer and motion to strike were currently scheduled for a hearing on March 4, 2014. Subsequent to the last conference call, the court issued a final ruling dismissing the amended complaint filed in the purported class action against the company, in which 3 individuals challenged the safety of Monster Energy drinks and the marketing activities of the company. The plaintiffs have filed an appeal against that decision. The American Beverage Association is awaiting a response from certain senators to the proposed U.S. model guidelines for energy drink companies that are described in our last conference call. We continue to support the proposed model guidelines and would be prepared to adopt them if all other major energy drink companies doing business in the U.S. do the same. With respect to the Kona Federal Securities case that has been pending since 2008, we are currently negotiating the terms of a possible settlement of the action, following a mediation conducted by an independent mediator. Any potential settlement, if completed, will be fully paid by insurance and will not have a material adverse effect on the company's financial position or results of operations. The company assumes no obligation to update any statements made with respect to ongoing litigation and regulatory matters, including with respect to the foregoing disclosures whether as to new information, future events or otherwise, other than as required by law. Given the current litigation and pending regulatory requests, we will refrain from answering questions or commenting further on these specific subjects. We are happy, of course, to answer questions that you may have about our products in general or about the fourth quarter and 2013 full year results as best we can after we've concluded our discussion on the business. Turning to the business. In the fourth quarter of the 2013, the beverage market, generally in North America continued to experience softness, not only in traditional CSDs, but even more so in diets. In contrast, the energy drink sector grew in the high-single-digits. Positive sales momentum of our Ultra line continued during the fourth quarter. According to the Nielsen reports, sales of Ultra Red, which we introduced in September 2013, exceeded the sales of Ultra Blue in the 13 weeks through January 25, 2014, in the convenience and gas channel. Rehab Pink Lemonade also continued to progress and is now the second best-selling Rehab product. In fact, our 3 Ultra products are among our top 8 best-selling SKUs in the convenience and gas channel. Sales of our Muscle Monster line continued to gain traction. According to Nielsen reports for the 13 weeks through December 21, 2013, in the convenience and gas channel, Muscle Monster was the second best-selling brand in the protein supplement sector and achieved a 22.8% market share. Although Muscle Monster's ATV distribution levels have improved, they are still relatively low at approximately 50%. We are working with our distributor partners to improve these levels. We are confident that as we achieve increased distribution levels for that line, Muscle Monster's market share will continue to improve. The company continued to make good progress in the fourth quarter and achieved record fourth quarter gross sales, up 14% to $621.1 million and net sales up 14.7% to $540.8 million. Although we are pleased with the sales achieved for the fourth quarter and year-ended December 31, 2013, our revenues were affected by: One, less robust growth rates for the energy category as a whole in certain of our overseas markets, such as EMEA. Despite the slower growth, Monster was able to achieve 15.2% growth in net sales in dollars in that region in the fourth quarter, well ahead of the growth of the category overall in that region. As measured by Nielsen, for of our EMEA markets and IRI for its measure Italy and Greece. The energy category in EMEA grew by 5.5% in value in the 13 weeks to the end of December 2013, while Monster grew 23% in value over that period. The actual days of the 13-week period vary by a few days between different markets. Two, sales were positively affected in the U.S.A. by the launch of our new Ultra Red energy drink, as well as sales of Zero Ultra and Ultra Blue and our new Muscle Monster line. Three, sales in the U.S.A. of our new Zero Ultra, Ultra Blue and Ultra Red energy drinks are lower accretive did result in some cannibalization generally across our existing SKUs primarily Absolutely Zero and Lo-Carb. Four, sales of Monster Energy protein glass bottles in the U.S.A. were lower during the quarter. Operating income was up 18.3% to $134.8 million. During the fourth quarter, our operating income was negatively affected by professional services costs of $4.7 million related to regulatory matters and litigation concerning the company's marketing promotions, ingredients, labeling, and safety of its Monster Energy drinks, which we believe are exceptional in nature. Diluted earnings per share increased 13.7% from $0.39 per share in the fourth quarter of 2012 to $0.44 per share in the fourth quarter of 2013. Net income was also negatively affected by foreign currency losses of about $3.6 million, principally attributable to Japan and South Africa. And an increase in the effective tax rate to 42.2% from 39.1% last year, which was primarily the result of the establishment of a full valuation allowance against the deferred tax assets of certain foreign subsidiaries, as well as losses in certain foreign subsidiaries for which no tax benefit is recorded. We anticipate that the rates should return to a more normalized level in 2014. The net effect on diluted earnings per share of professional services costs related to regulatory matters and related litigation, foreign exchange losses and higher tax rate is approximately $0.07 per share. According to the Nielsen reports for the 13 weeks through January 25, 2014, all outlets combined, namely convenience, grocery, drug and mass merchandisers, sales in dollars in the energy drink category, including shots, increased by 7.6% versus the same period a year ago. Sales of Monster grew 17.9% in the 13-week period, while sales of Red Bull increased by 6.3%. Sales of Rockstar increased by 3.3%. And sales of 5-Hour decreased by 2.8%. Sales of AMP were down 9%, NOS increased sales by 17.3% and sales of Full Throttle increased 3.5%. According to the Nielsen reports, for the 4 weeks ended January 25, 2014, sales of energy drinks in the convenience and gas channel, in dollars, increased by 6.6% over the comparable period in 2013. Sales of Monster increased by 14% over the comparable period last year, while sales of Red Bull increased by 5.4%. Rockstar was up 7.5%, while 5-Hour was down 3.3%. NOS was up 11.7% and AMP was down 2.8%. According to Nielsen, for the 4 weeks ended January 25, 2014, Monster's market share of the energy drink category in the convenience and gas channel, including energy shots, in dollars, increased by 2.2 points over the comparable period a year ago to 33.9% against Red Bull share points of 34.8%. Rockstar share was flat at 8.5%, 5-Hour's share was lower at 9.6%, while NOS' share was slightly higher at 3.1%. According to Nielsen, in the 4-weeks ended January 25, 2014, sales of energy plus coffee drinks, in dollars, in the convenience and gas channel increased 7.1% over the same period last year. Java Monster was 6.3% higher than in the comparable period last year while Starbucks Double Shot Energy was 9.3% higher. According to Nielsen, in the convenience and gas channel in Canada, for the 12 weeks ended January 11, 2014, the energy drink category grew 3%, Monster sales increased 21%. Our market share increased 4.6 points to 31% over the comparable period last year. Red Bull sales were flat versus a year ago, its market share decreased 1.3 points to 36.6%. Rockstar's sales decreased 3% and its market share decreased 0.9 to 13.6%. According to Nielsen, with all outlets combined in Mexico, the energy drink category grew 22.6%. In the month of December 2013, Monster sales increased 20.9%. Our market share decreased 0.5 to 35.1% against the comparable period last year. Red Bull sales increased 2.6% and its market share decreased by 5.6% to 28.4%. Boost sales increased 35% and its market share increased 1.5 points to 16.5%. Vivo 100, new in 2013, has grown to 7.8% market share, while Coke market share represented by Burn and Gladiator is 9.5%. The Nielsen statistics for Mexico cover single months, which is a short period that may often be materially influenced positively and/or negatively by sales in the OXXO convenience chain, which dominates the market. Sales in the OXXO convenience chain in turn could be materially impressed by promotions that may be undertaken in that chain by one or more energy drink brands during a particular month. Consequently, such activities could have a significant impact on the monthly Nielsen statistics for Mexico. Net sales for the company's DSD segment increased 15.2% to $519.4 million for the 3 months ended December 31, 2013, from $451 million in the same period in 2012. Operating income for the DSD segment increased to 22.2% from $145.6 million to $177.9 million. Sales of our Monster Original Green Energy Drink continued to increase in the quarter as did sales of Java Monster. However, the increase in sales of these products, together with the sales of our Ultra Muscle Monster line, as well as certain other Monster energy products was partially offset by lower sales of certain Monster SKUs, including Lo-Carb Monster Energy, Monster Energy Absolutely Zero, certain of the Rehab, Monster Rehab drinks, Monster Import and Khaos. Sales of Monster [indiscernible] and Peace Tea taker multipacks did not meet our expectations and we are winding down our sales of these products. Net sales for the company's Warehouse segment increased 4.5% to $21.4 million for the 3 months ended December 31, 2013. Sales of juice boxes and Hubert's Lemonades were higher but were partially offset by reduced sales of sodas. The warehouse division experienced an operating loss of $1 million in the quarter compared to an operating loss of $300,000 in the same period last year, largely as a result of lower gross profit due to the impact of increased cost of apple juice concentrate, as well as higher promotional allowances. For the 3 months ended December 31, 2013, gross sales to retail grocery, specialty chains and wholesalers represented 4% of gross sales, up from 3% in the comparable period in 2012, gross sales to club stores, drug chains and mass merchandisers represented 8% of sales, down from 9% in 2012. Gross sales to full service distributors represented 64% of sales, lower than the 65% in 2012. Gross sales internationally increased to 22% from 21% in the same period in 2012. And other sales were 2% for the period, the same as in the comparable period in 2012. Gross sales to customers outside of the United States in the fourth quarter of 2013 amounted to $137.9 million compared to $115.2 million in the same quarter in 2012. Included in such sales are sales to the company's military customers, which are delivered in the United States and transshipped to the military and their customers overseas. Net sales in Europe, the Middle East and Africa in the fourth quarter of 2013, in dollars, were 15.2% higher than the same period last year. Monster is continuing to gain momentum and increase market share in Europe. In particular, in the U.K., Spain, Germany, Sweden, Belgium, France and South Africa, Monster increased -- achieved increase -- achieved sales gains and continued to increase its market share. Overall, our Western European and African divisions are now operating well and we have made good strides in achieving increased distribution levels and sales. In anticipation of the introduction of a sales tax on energy drinks in France, on January 1, 2014, our distributor in France increased its purchases in the fourth quarter of 2013 by an estimated $3 million, which we estimate will result in a reduction in our sales to our French distributor in the first quarter of 2014 by a similar amount. We're in the process of implementing a formula change for our products sold in France to address such tax. The Central and Eastern European market is still incurring operating losses although we are seeing improved results from the strategic changes we implemented during last year. The addition of Monster Ultra Blue and Ultra Red, as well as the launch of our Muscle Monster line in 2013 were successful. We are continuing with our expansion strategy in international markets. Our distributor commenced sales in India during October 2013. In addition, we are proposing to launch Monster in a number of limited countries in Asia, Central and Eastern Europe and Africa this year. Sales of Monster Energy brand internationally, including in Japan, in particular, continue to grow satisfactorily. The weaker yen negatively affected our growth sales in U.S. dollars, as well as our margins in Japan during the quarter. Sales to our Japanese distributor in the fourth quarter were higher in dollars than in the comparable quarter last year. Plans for production in Japan and Korea continue to move forward and we are on track to commence full commercial production in Japan in March. We are also moving ahead with our plans to produce Monster Energy drinks in India. Sales in Chile are progressing well as are sales in Brazil where our new distributor continues to secure increased distribution for month-to-month. We are continuing with our strategy to secure local production in certain of our international markets, which we believe will facilitate improved gross margins and mitigate the effects of exchange rate fluctuations, as well as reduced damages. Net sales of Peace Tea in the fourth quarter and 2013 full year were higher than in the comparable periods in 2012. We continue to believe that the Peace Tea brand has good growth potential and have added a mango juice cocktail to the line. We are planning to launch an iced coffee line in glass bottles under the Peace Tea brand later in 2014. In the warehouse division, sales of Hubert's Lemonades in glass bottles for the year to December 31, 2013, were higher than sales in the previous year. The Hubert's brand continues to gain market and consumer acceptance. Gross profit as a percentage of net sales achieved in the fourth quarter of 2013 was 51.2% versus 51.7% in the comparable quarter in 2012. The decrease in gross profit percentage was primarily attributable to certain inventory damages in reserves in excess of normal levels, as well as international sales, which have lower gross profit percentages than our North American sales. The gross profit percentage achieved in the fourth quarter in North America in 2013 was higher than in the comparable quarter last year. Gross profit percentages achieved outside North America from Monster Energy were lower in the fourth quarter of 2013 than in the comparable quarter in 2012. Gross profit percentage for the 2013 full year was 52.2% compared with 51.7% in 2012. We have covered a significant portion of our anticipated requirements for aluminum cans in 2014, as well as a significant portion of our anticipated requirements for apple juice and sugar over the same period. We do not believe that at current levels, increases in the cost of any raw material will have a material negative effect on our margins. Distribution expenses as a percentage of net sales in the fourth quarter was 4.5%, versus 4.7% in the comparable quarter in 2012. Selling expenses as a percentage of net sales were 10.8% in the quarter versus 12.5% in the comparable period in 2012. Our sponsorships and endorsement costs were higher, as well as the cost of merchandise displays and commissions, cost of point of sales, premiums and other marketing expenses were lower during the quarter. For the 12 months ended December 31, 2013, distribution expenses as a percentage of net sales were 4.5% versus 4.4% in the prior year. Selling expenses as a percentage of sales were 11.9%, unchanged from 2012. Sponsorship and endorsement costs, merchandise display costs and allocated [indiscernible] development programs were higher than in 2012. Selling expenses were also higher due to certain marketing expenses and in-store demos. The increase in selling expenses was partially offset by reduced expenses for advertising and allocated [indiscernible] program. General and administrative expenses increased 22.2% in the quarter and 28.8% for the year ended December 31, 2013. The increase in general and administrative cost was partially attributable to increased professional service costs for legal, accounting and other professional costs of which $4.7 million in the quarter and $17.9 million for the year, related to regulatory matters and litigation regarding our Monster Energy drinks, as well as increased payroll and related costs, which includes severance payments due to the reorganization of sales and marketing groups in Europe. Operating income was negatively affected by combined operating losses of $3.5 million for the quarter ended December 31, 2013, from our international operations outside North America, which was higher than the operating losses of $0.7 million, which were incurred by us during the same period last year. We are continuing to work with certain of our distributors to increase their contribution towards promotional costs going forward and are working towards reducing our overall operating costs in our international markets. For the 12 months ended December 31, 2013, operating income was negatively affected by combined operating losses of $12.9 million from our international operations outside North America. Following the strength of the U.S. dollar, we recorded foreign currency, transaction losses of $3.6 million for the quarter and $12.9 million for the 12 months ended December 31, 2013. Our effective tax rate in the 2013 fourth quarter was 42.2% compared to 39.1% in the 2012 fourth quarter, effective tax rate for the year ended December 31 was 39.9% compared to 38.1% for the year ended December 31, 2012. The increase in effective tax rate for both the 2013 fourth quarter and 2013 full year was primarily the result of the establishment of a full valuation allowance against the deferred tax assets of certain foreign subsidiaries, as well as losses in certain foreign subsidiaries, for which no tax benefit is recorded. During the 2013 fourth quarter, the company purchased approximately 1 million shares of its common stock at an average purchase price of $56.98 per share pursuant to the repurchase program previously authorized by the Board of Directors in April 2013. Turning to the balance sheet. Cash and cash equivalents amounted to $211.3 million compared to $222.5 million at December 31, 2012. Short-term investments were $402.2 million compared to $97 million at December 31, 2012. Long-term investments decreased to $9.8 million from $21.4 million at December 31, 2012. Included in short- and long-term investments are auction rate securities of $16.2 million. Days outstanding for trade account receivables were 40.1 days at December 31, 2013 and 39.2 days at December 31, 2012, compared to 44.7 days at September 30, 2013. Inventories increased to $221.4 million from $203.1 million at December 31, 2012. Average days of inventory was 75.6 days at December 31, 2013, which was lower than the 80.3 days of inventory at December 31, 2012, and higher than the 78.7 days at September 30, 2013. Following up the positive response that we received from consumers to the launch of Zero Ultra, as well as our Ultra Blue line extension in the first half of 2013, we launched a new Ultra Red drink in the fourth quarter of 2013. In 2013, we also introduced a new line of 3 15-ounce energy shakes called Muscle Monster that contains 25 grams of protein per can, and subsequently, late in 2013 launched 2 new line extensions to the Muscle Monster line in Strawberry and Peanut Butter Cup flavors. Our additional Monster Rehab line extension, Pink Lemonade, was well-received and has become our second best-selling Rehab product in the latest 13-week ended January 25, 2014, in the convenience and gas channel. We recently launched a new Punch Monster line by converting our existing 2 Dub edition product into Punch Monster product with new can graphics and flavors. We are planning to launch new additions to the Monster family. Gross sales in January 2014 were 12.6% higher than in January 2013. We caution again that sells in a single month and over a short period are often disproportionately impacted by various factors, such as, for example, selling days, days of the week in which holidays fall, and the timing of promotions in retail stores, and should not necessarily be imputed to or regarded as indicative of results for the full quarter or any future period. In conclusion, I would like to summarize some recent positive points: One, North American gross margins remain healthy. Our 2013 fourth quarter gross margins for North America were higher than in the comparable quarter in 2012; U.S. Nielsen market statistics show that the energy categories growth has recovered to the high single digits and that Monster Energy's growth is still outpacing the growth of the category as a whole; three, new additions to the Monster family that have been introduced during 2013 are positive; four, we believe our recently launched new Punch Monster line will appeal to a broader consumer demographic than Dub edition and will be positively received by distributors and consumers in 2014; five, we believe that our new Strawberry and Peanut Butter Cup Muscle Monster Energy shakes will further enhance the line and increase sales; six, turning to international markets, we are satisfied with the performance of our international expansion and investments, particularly Japan, United Kingdom, Spain, South Africa, Brazil and Chile; seven, according to Nielsen, in the 13-week period to the end of December 2013, the actual days in the 13-week period vary by 2 days between different markets. Monster's market share in value in Great Britain, Spain and South Africa as compared to the same period last year grew from 9.6% to 10.6% in Great Britain, from 17.3% to 22.3% in Spain, and from 16.8% to 21.1% in South Africa. In addition, Monster's market share in Germany and France grew from 7.1% to 8.6% in Germany, and from 15.4% to 17.4% in France; eight, I would like to point out that the Nielsen and IRI numbers in the EMEA should only be used as a guide because the channels read by Nielsen and IRI in the EMEA vary from country to country; nine, it is noteworthy that even though the energy drink category has been in existence in Europe for over 26 years, our EMEA markets on average are still experiencing single-digit growth, while Monster continues to achieve double-digit growth; ten, sales of Monster in Japan are continuing to increase and remain encouraging; 11, [indiscernible] we were finally able to obtain regulatory approval for the sale of Monster in India. Sales are progressing satisfactorily; 12, as advised by AmBev, sales in Brazil by them are continuing to improve; 13, our initial tip productions in Japan have been favorable and we are moving forward with plans to produce in India. I'd like to open the floor to questions about the quarter. Thank you.

[Operator Instructions] Our first question comes from the line of Amit Sharma with BMO Capital Markets.

Rodney, you talked about France and the reformulation of product in France. Is that likely to have any ongoing sales impact in France, or do you see a similar tax initiated in either of the markets in Europe?

We saw a similar tax initiated in Hungary and then in Mexico. And in Hungary, they put in a tax that was really high and the result was most of the energy drink companies reformulated in a different way and nobody paid the tax because it was just completely onerous and just not pragmatic. They then reformulated and they've redrawn the tax I think 3x now and they introduced tax now at a very much lower rate, which was -- which really made sense and was commercially realistic. And we reformulated and it didn't have an effect to ourselves, we have now gone back to reformulated based on the [indiscernible] tax and sales have come back. We did reformulate in Mexico and it didn't affect our sales and so, where we had the experience that we have reformulated, we've actually been able to continue. We found that the [indiscernible] labels that we were able to put in or [indiscernible] the ingredients were satisfactory. And so we believe we'll be able to reformulate and we don't believe that it will affect our sales in France. And we're just -- but obviously, we don't know exactly how it will pan out and what the government may do if they don't get the taxes they were hoping to get. So we'll see where it goes from there.

Great. And if I may ask one more. In the U.S., you had talked about the adoption, if everybody adopts new regulations to marketing. Now can you talk about what is your exposure to 14- to 18-year-old here? And if you adopt some voluntary marketing restrictions, what impact might have that on your sales here?

Well, firstly, our primary demographic, which we've said from the -- when we first launched products in the energy category 16, 17 years ago when we launched Hansen's energy, was that our primary demographic is young adults 18 to 34. And that has since expanded a little more to 40 -- up to 45-plus. People, both above and below that age will consume our products. But that isn't our primary demographic and we don't focus our marketing efforts on people outside of that demographic. So we really don't believe that the issues of adolescents would have a [indiscernible] effect on our business. But if we look at those guidelines, the guidelines that had been proposed at this point do not affect adolescents, they are focused on marketing to children, the ADA and the FDC generally define children as under 12, many people define children as 12 and under, but that's the sort of range. So it's really focused on children and not on adolescents. And as we've said right from the beginning again, our products were not -- have not been recommended for children, we don't believe that children are consuming our products and our products are fine for adolescents and, again, but we don't believe that would be addressed by these guidelines -- be affected by the guidelines.

And our next question comes from the line of Mark Astrachan with Stifel. Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division: Wanted to quantify the gross margin impact in the quarter. So how much of the inventory damages in reserves are took down to gross margins? So what would've been on a normalized basis, that's question one. And also one while we're housekeeping, what the impact of FX was in the quarter, as well as on net international sales?

Mark, we gave the impact of FX in the statement. I'm not sure what more you're looking for on FX. Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division: Well, I want to know what the impact was on the top line so not just what you're talking about in terms of the impact that you quantified in the release.

Well the impact to the top line is not material at all. There are some gains and there are some losses [indiscernible] . I mean, it resembles and you take individual countries that become [indiscernible] sure, it was very material in Japan but not in other countries but overall... Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division: Overall, that's fine.

Yes. Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division: What about the net international sales and the gross margin piece, please?

On the gross margin, the excess, I don't have the exact -- an exact figure, but it's around about the $6 million level as we think was excess of -- in damages and -- higher than we would normally see in that area. But that's an approximate. Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay, great. And then, just sort of broadly thinking about international profitability selling expenses. How should we think about those numbers on a go-forward basis? The selling expense is down year-on-year on an absolute basis. You talked about putting some of the promotional activity on the distributor. So is this sort of a shift now as we look forward that maybe perhaps we start seeing some international profitability and the selling expense numbers are sort of the good ones to use on a run rate basis, the one we saw in the fourth quarter?

I think that we are trying to conservatively manage our costs without clearly focusing on cost management, particularly with international, with a view to getting profitability across the board. There are many countries that are already profitable in some of the earlier countries or smaller countries that it's been harder to get enough scale of sales to offset the costs of trying to run small countries that they -- it is fragmented. But as that continues to improve, we do -- we are hopeful that by keeping the top [indiscernible] on cost, we will get -- be able to improve our profitability. We also did refer to some realignment on some of our -- we had spent -- we have pulled back on some of our sampling, our net activities, [indiscernible] ourselves, where we were sort of supplementing and helping our distributors in some countries and we probably were over -- we had too many heads, so we sort of realigned that going into the fourth quarter and we will start to see a lot -- more of those benefits coming through the 2014 year. So we are looking to obviously get to a profitability position internationally. We are optimistic but at this point, we need to see how the next couple of quarters pan out.

And of course, local production will help, local production in Japan, local production in India.

Yes, And then South Africa, I think that we also are planning I think later in the year. We are opening up some additional plants in southern Europe, which will help reduce some cost. So again, that is will be one of the material impacts that we think that over the course of 2014, we will probably open up quite a few additional production sites, which will be helpful.

And our next question comes from the line of Dara Mohsenian with Morgan Stanley.

So in the U.S. scanner data, we clearly saw a nice rebound in retail sales in Q4, both for your business and the energy category. You seem more bullish at the January Analyst Meeting. But since then we've seen a slowdown in the February scanner data. So I was hoping for some perspective and if you think that's primarily weather-related? Or are there other factors at play that could linger longer-term? And I guess, just taking a step back and parsing through this volatility, are you comfortable that the energy drink category is on better sustainable footing now at this point versus some of the weakness we saw last year?

That it's a lot more is a sort of we're not sure, I mean, that would be we'd be guessing, but I -- we think that weather has -- we never like referring to weather. One of the things we've never been weatherman in this company as opposed to some of the major soft drinks companies but we are all right of getting to a point where we are actually -- but I think it is correct. I think weather did have an effect. I think the weather has been exceptionally harsh in the East. And in many cases, it actually has affected our distributors' ability and some of our men in different -- to actually go on that we deliver and that hasn't -- it's something that we experienced over the last few years. This is something that is unusual. So we do think that weather has had some impact on the category as a whole. And we are hoping that once we get through the next month or 2, weather will start improving all over and particularly in the East and we will -- things will return to normal. We think the -- we feel quite good about the category, about the growth and that it has sort of returned to better levels. But again, depending on what happens on the regulatory front, it has been quiet and that might have an impact. But on the one hand, on the other hand, it's been going on now for over a year so I think a lot of consumers are basically starting to get tired of it and it's becoming old news. And we still feel very comfortable with the science and the safety of our products.

Our next line -- our next question comes from the line of Nik Modi with RBC Capital Markets.

If you could just kind of dig in deeper to Dara's question, the energy drink category certainly had a nice recovery over the last several months. And I'm just curious, maybe if you could correct in context on -- is this new consumers coming to the category? Is this kind of existing consumers getting back to normal consumption behavior? Any context you can provide around some of the consumption patterns would be helpful?

We simply don't know. We read the results, and -- but we just don't have -- and also, I can't give you good numbers [ph] , I would be guessing. So I just can't.

Our next question comes from the line of Bill Chappell with SunTrust.

Just following up on Mark's question earlier. I missed, what were the $6 million in damages, was that in Japan store or is that somewhere else? And is that expected -- anything to carry over into 2014?

We don't -- it was widespread. It was one of those interesting situations where we had widespread damages in reserves across-the-board. Some in Europe, some in the U.S., some obviously in Asia.

Yes, Asia the [indiscernible] one of the problem areas and as we continue to [indiscernible] local production, we believe that will lower our cost of goods there, improve our margins and also, reduce -- eliminate the damages of concern. But it really -- it was spread all over.

Okay. Rodney, just thought on the kind of roll out this year, just trying to understand, I mean, are we seeing most of the new, be it Red, be it Peanut Butter Cup in the market now, or will that kind of phase-in, I mean, do you expect bigger launches as we get closer to summer?

Well, Red has gone up and that's picked up quite nice distribution and that's -- in the Muscle Monster line, the actual Muscle Monster line is only about a 50% level. So we are rolling out Strawberry and that's going to pick up. We will be rolling out Peanut Butter to the general market probably in May. The new Punch line is going up as we work it through old cans and inventories, we are not sort of basically discarding any of the old inventory, so that it's starting to get onto shelves now and really by -- we expect by the end of March, early April or so, that will be pretty well distributed. There are 1 or 2 new products we are looking at. And at this point, those are sort of slated for midyear.

But we should mention that the Peanut Butter is in exclusive distribution with one particular customer group.

At this point, that is correct and then the general market will go out in about May, I think it is.

That's good.

Our next question comes from the line of Caroline Levy with CLSA. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: I'm just trying to understand on -- it's taking as long as it is to get local production going, for example, in Japan. It seems to have been pushed out a little bit over time and the damages become increasingly an issue. So what are some of the challenges you face because it's hard to imagine why it's so difficult?

I'll tell you why. In Japan, we launched Monster in a slim can, the 11-ounce [indiscernible] slim can. That can was not a can manufacturer available in Japan. So we actually had to contract with a can company to have molds made and to actually have the can specifically made for us. Once we had the can made, we had to then get changed parts made on a line at which we're doing and we are testing and we're dealing with seaming issues now and production issues for really a new can that is not being run and -- on Japanese line with particular manufacturer. So this is why that has been an unusually long process. Normally, the process to get a packer up and running, you will need lesser amount of change parts maybe a share mixer or the RO water, which we require, those are 2 things that we find generally we do need to usually have our packers purchase and install. And those are usually shorter timelines, not as much complications in getting it up and running and getting quality right. So that is the reason that we've had with Japan. Then you normally have the issues of flavors and waters, the Monster Flavor, particularly the Green is very sensitive to different types of water, even though you use RO, RO has different meanings and there are different levels of minerals that are left in it. And they generally -- you'll -- you can come -- working with 1 factory works the first time and other factors, we've had a real problem with the factory in Spain where all our flavors are fine except the green. We simply can't get green with the right taste. So it's been nearly 9 months of trials and retrials in Spain to get green done. But the guys up and running with the other ones in the [indiscernible]. So we just had some production issues, the flavor is very delicate, particularly the green flavor, and that is the reason -- once we get going and we get the right authorizations in, for example, in India, that will be a shorter production issue. The issue with South Africa is similar, they don't have cans, they don't make the 500-milligram cans, it's not available. We actually are contracting to try and get cans shipped to South Africa in the short-term, and then, they will be in local production on 500, they are introducing that size towards the end of the year. So we are hoping, we actually can get production towards the second -- early in the second half of the year with the imported cans which will be slightly more expensive but then we'll go through local production. So those are the challenges we're having in addition to the normal production challenges we have. As I said, with water and mixing equipment, et cetera.

I think it's also important, Caroline, to understand that we go with the package that we feel has got the best success in our market. That's why in Japan, we went for a particular can, because we felt that would have the best success. And I think that performance to-date has proven that, that was a good move. But the can is not commercially available yet, but it will be shortly.

I think one of the reasons that maybe distinguishes us from many beverage companies is that in the case of -- a usual beverage company, they will simply use the package that is easier to produce and that is locally available. And it doesn't -- they don't focus on being different and being unique and I think that is -- we do, we really do, we've done it all our lives here. And we would rather take the time and effort to get into a package that is different and that is unique than rather just follow the herd and just take a normal -- we could use a normal 12-ounce package like a soda can and do it, but we think that is the reason why we've been able to make Monster different and that was one of the reasons. And it is important to stay true to that, so it has taken more time. We understand that. But it will come together, it's just it has taken more time than we would have liked them.

And our final question comes from the line of John Faucher with JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: Wanted just follow up on one of the things you mentioned in the call, which was severance payments in Europe, related to your restructuring. Is that related to some of the changes in the contracts you're trying to work out with the distributors?

No, that is completely separate. This was just in anticipation of possibly, sort of maybe being more optimistic about where the category was going in sales. I think, we ramped up with there and just found that we had our MET teams and TDMs were probably too large. We looked at our margins and the available margins and this really had to trim down and get that down to a more manageable level and to grow a little slower. So we looked -- that was the restructuring and that was pretty much and by and large in Western Europe. This is during the last -- the fourth quarter. John A. Faucher - JP Morgan Chase & Co, Research Division: Okay, great. And then one other sort of quick follow-up on India. At the Analyst Meeting, you talked about moving into India maybe a little bit sooner than you had planned because the right distributor came up. I guess, how should we think about the run rate there, is this a market where you think it -- we should -- we need to be patient and it's going to take a long time to develop?

We think you need to be patient. We think ultimately, the market is a very big market but as the moment, the Ultra Premium energy drink market is a small niche market from an affordability point of view. But we think that will continue to grow just as the country starts to expand and grow. So we see the energy category being a much bigger market down the line. I mean, it's obviously you know that population is up. But in the short term, it will be a smaller niche market and we are hoping to grow as we did in Japan was to hope to actually grow the market as opposed to simply trying to get a share of the existing market, but a lot of logistical issues in Japan in getting product from -- through the different cities where we sort of primarily focused our launch on a couple of key cities, the 2 main cities, obviously of Delhi and Mumbai, and a couple of the other major ones sort of -- as well. But those -- that's been the focus and as we continue to grow, we will be able to roll it out more.

And as we have mentioned and spoken to our analysts in the past, we'll continue to lose money in India until we are able to achieve local production.

In some ways it's good enough to sell too much because -- well there's more per can. But we are going to get there and we hopefully will get to local production or so reasonably, reasonably soon, going forward.

I'm showing no further questions at this time and I would now like to turn the call back to Mr. Rodney Sacks for any further remarks.

Thank you very much. On behalf of Monster, I'd like to thank everyone for their continued interest in the company. We continue to believe in the company and our growth strategy and remain committed to continuing to develop and differentiate our brands and to expand the company both at home and abroad. We are reiterating, and I can do it enough in times, that our products are safe, are properly labeled and the caffeine content of a Monster at approximately 10 milligrams per ounce is less than 0.5 milligrams per ounce of the caffeine levels contained in Starbucks and other coffee house, brewed coffee. Thank you very much for your attendance.