UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X] ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20172020
OR
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Numberfile number 001-18761
MONSTER BEVERAGE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
| 47-1809393 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
1 Monster Way
Corona, California 92879
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (951)(951) 739 - 6200
Securities registered pursuant to Section 12(b) of the Act:
Title of |
| Trading Symbol(s) | Name of each exchange on which registered | |
Common Stock, | | MNST | | Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ No¨◻
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes¨◻ Noþ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨◻
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company,or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Act:
Large accelerated filer þ |
| Accelerated filer |
Non-accelerated filer | | Smaller reporting company |
| | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.). Yes ¨☐ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $25,779,806,546$33,039,197,262 computed by reference to the closing sale price for such stock on the NASDAQNasdaq Global Select Market on June 30, 2017,2020, the last business day of the registrant’s most recently completed second fiscal quarter.
The number of shares of the registrant’s common stock, $0.005 par value per share (being the only class of common stock of the registrant), outstanding on February 12, 201819, 2021 was 566,402,748528,137,036 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s Definitive Proxy Statement to be filed subsequent to the date hereof with the Commission pursuant to Regulation 14A in connection with the registrant’s 20182021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission no later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2018.2020.
MONSTER BEVERAGE CORPORATION
FORM 10-K
TABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 | |
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PART I
When this report uses the words “the Company”, “we”, “us” and “our”, these words refer to Monster Beverage Corporation and its subsidiaries, unless the context otherwise requires. Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business, except through its consolidated subsidiaries. The Company’s subsidiaries primarily develop and market energy drinks as well as Mutant® Super Soda drinks.
Reportable Segments
We have three operating and reportable segments, (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is comprised of our Monster Energy® drinks, Monster Hydro® energy drinks and Mutant® Super Soda drinks, (ii) Strategic Brands segment (“Strategic Brands”), which is comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”) in 2015 (the “TCCC Transaction”) (see Note 2 “Acquisitions and Divestitures” in the notes to the consolidated financial statements) and (iii) Other segment (“Other”), the principal products of which include the non-energy brands disposed of as a result of the TCCC Transaction (effectively from January 1, 2015 to June 12, 2015), as well as certain products, acquired as part of our American Fruits & Flavors (“AFF”) asset acquisition in 2016 (the “AFF Transaction”) (see Note 2 “Acquisitions and Divestitures” in the notes to the consolidated financial statements), that are sold by AFF to independent third-party customers (the “AFF Third-Party Products”) (effectively from April 1, 2016). Corporate and unallocated amounts that do not specifically relate to a reportable segment have been allocated to “Corporate and Unallocated.” Our Monster Energy® Drinks segment represented 90.5%, 90.5% and 92.5% of our consolidated net sales for the years ended December 31, 2017, 2016 and 2015, respectively. Our Strategic Brands segment represented 8.9%, 8.9%, 5.3% of our consolidated net sales for the years ended December 31, 2017, 2016 and 2015 (effectively from June 13, 2015). Our Other segment represented 0.6%, 0.6% and 2.2% of our consolidated net sales for the years ended December 31, 2017, 2016 and 2015, respectively.
Our Monster Energy® Drinks segment generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage distributors. In some cases, we sell directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, food service customers and the military.
Our Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold to other bottlers and full service distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food service customers, drug stores and the military. To a lesser extent, our Strategic Brands segment generates net operating revenues by selling ready-to-drink packaged energy drinks to bottlers and full service beverage distributors.
Generally, the Monster Energy® Drinks segment generates higher per case net operating revenues, but lower per case gross profit margins than the Strategic Brands segment.
For financial information about our reporting segments and geographic areas, refer to Note 18 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.
Overview
We develop, market, sell and distribute energy drink beverages sodas and/orand concentrates for energy drink beverages, primarily under the following brand names:
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● Monster Rehab® ● Monster MAXX® ● Java Monster® ● Muscle Monster® ● Espresso Monster® ● Punch Monster® ● Juice Monster® ● Monster Hydro® Energy Water ● Monster Hydro® Super Sport ● Monster HydroSport Super Fuel® ● Monster Super Fuel® ● Monster Dragon Tea® ● Reign Total Body Fuel® ● Reign Inferno® Thermogenic Fuel |
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● Full Throttle® ●Burn® |
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● Relentless® ● BPM® ● BU® ● Gladiator® ● Samurai® ● Live+® |
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| ● Fury® |
Our Monster Energy® brand energy drinks, which represented 90.1%, 90.1% and 92.5% of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively, primarily include the following energy drinks1:
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1Discontinued products have been omitted.
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 waters (flavored, unflavored and enhanced) with “new age” beverages, including sodas that are considered natural, sparkling juices and flavored sparkling beverages. According to Beverage Marketing Corporation, domestic U.S. wholesale sales in 20172020 for the “alternative” beverage category of the market are estimated at approximately $52.6$60.5 billion, representing an increase of approximately 5.6%1.8% over estimated domestic U.S. wholesale sales in 20162019 of approximately $49.8$59.5 billion.
Reportable Segments
AcquisitionsWe have three operating and Divestitures
On April 1, 2016, we completed the AFF Transaction resulting in our acquisition of flavor supplier and long-time business partner AFF, in an asset acquisition that brought our primary flavor supplier in-house, secured the intellectual propertyreportable segments, (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of our most important flavors in perpetuityMonster Energy® drinks and further enhanced our flavor development and global flavor footprint capabilities. Pursuant to the termsReign Total Body Fuel® high performance energy drinks, (ii) Strategic Brands segment (“Strategic Brands”), which is primarily comprised of the AFF Transaction, we purchased AFF for $688.5 million in cash after adjustments. (See Note 2 “Acquisitions and Divestitures” in the notes to the consolidated financial statements).
On June 12, 2015, we completed the TCCC Transaction contemplated by the definitive agreements entered into with TCCC on August 14, 2014, which provided for a long-term strategic relationship in the globalvarious energy drink category. (See Note 2 “Acquisitionsbrands acquired from The Coca-Cola Company (“TCCC”) in 2015 as well as our affordable energy brands, and Divestitures” in(iii) Other segment (“Other”), which is comprised of certain products sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary, to independent third-party customers (the “AFF Third-Party Products”).
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Our Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage distributors. In some cases, we sell directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and the notesmilitary.
Our Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the consolidated financial statements).concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold to other bottlers, full service distributors or retailers, including, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military. To a lesser extent, our Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage distributors.
Generally, the Monster Energy® Drinks segment generates higher per case net operating revenues, but lower per case gross profit margin percentages than the Strategic Brands segment.
For certain risks with respect to our energy drinks see “Part I, Item 1A – Risk Factors” below.
Corporate History
In the 1930s, Hubert Hansen and his sons started a business selling 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’s® trademark. In 1977, Tim Hansen, one of the grandsons of Hubert Hansen, perceived a demand for shelf stable pasteurized natural juices and juice blends and formed Hansen Foods, Inc. (“HFI”). HFI expanded its product line from juices to include Hansen’s Natural Soda® brand sodas. In 1990, 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 1992, Hansen Natural Corporation acquired the Hansen’s® brand natural soda and apple juice business from CCC. Under our ownership, the Hansen’s® beverage business significantly expanded to include a wide range of beverages within the growing “alternative” beverage category including, in particular, energy drinks. In 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 2012, we changed our name from Hansen Natural Corporation to Monster Beverage Corporation. In 2015, as part of the TCCC Transaction, we acquired the Strategic Brandsvarious energy brands from TCCC and disposed of our non-energy drink business. In 2016, we completed our acquisition of flavor supplier and long-time business partner AFF.
20172020 Product Introductions
During 2017,2020, we continued to expand our existing energy drink portfolio by adding additional products to our portfolio in a number of drinkscountries and further developdeveloped our distribution markets. During 2017,2020, we introducedsold the following products:
·Espresso MonsterTM Espresso and Cream (October 2017)
·Espresso MonsterTM Vanilla Espresso (October 2017)
·NOS® Nitro Mango (October 2017)
·Monster Energy® Fury (September 2017)
·Monster Energy® Lewis Hamilton 44 (April 2017)
·Mutant® Super Soda White Lightning (April 2017)
·Monster Hydro® Mean Green® (May 2017)
·Monster Hydro® Manic Melon® (May 2017)
·Monster Hydro® Tropical Thunder® (May 2017)
·Juice Monster® Mango Loco (May 2017)
·Full Throttle® Orange (March 2017)
Subsequentnew products to December 31, 2017, we introduced Caffé MonsterTM Vanilla, Caffé MonsterTM Mocha and Caffé MonsterTM Salted Caramel.our bottlers/distributors:
| ● | Monster Energy® Dragon Ice TeaTM Lemon (Brazil) |
| ● | Monster Energy® Dragon TeaTM (China) |
| ● | Monster Energy Ultra Fiesta® |
| ● | Monster Energy Ultra Rosa® |
| ● | Monster Energy Ultra® Watermelon |
| ● | Monster Hydro® Super Sport Blue Streak |
| ● | Monster Hydro® Super Sport Red Dawg |
| ● | Juice Monster® Khaotic® Energy + Juice |
| ● | Juice Monster® PapillonTM Energy + Juice |
| ● | Java Monster® 300 French Vanilla |
| ● | Java Monster® 300 Mocha |
| ● | Reign Total Body Fuel® Lilikoi Lychee |
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| ● | Reign Inferno® Thermogenic Fuel Jalapeno Strawberry |
| ● | Reign Inferno® Thermogenic Fuel Red Dragon |
| ● | Reign Inferno® Thermogenic Fuel True BLU |
| ● | NOS® Turbo |
| ● | Burn® Dark Energy |
| ● | Burn® Peach |
| ● | Burn® Zero Raspberry |
| ● | Nalu® Black Tea & Passion Fruit |
| ● | Nalu® Green Tea & Ginger |
| ● | Fury® Gold Strike |
| ● | Ultra Energy® Peach Mango |
| ● | Ultra Energy® Zero Raspberry |
| ● | Monster Energy® Dragon’s Gold (China) |
In the normal course of business, we discontinue certain products and/or product lines. Those products or product lines discontinued in 2017,2020, either individually or in aggregate, did not have a material adverse impact on our financial position, results of operations or liquidity.
Products – Monster Energy® Drinks Segment
Monster Energy® Brand Energy Drinks:
Monster Energy® Drinks – - a line of carbonated energy drinks. Our Monster Energy® drinks contain vitamins, minerals, nutrients, herbs and other dietary ingredients (collectively, “dietary“supplement ingredients”) and are marketed through our full service distributor network.. We offer the following energy drinks under the Monster Energy® drink product line: Monster Energy®, Lo-Carb Monster Energy®, Monster Assault®, Monster Energy® Fury,Fury®, Juice Monster® Khaos®, Juice Monster® Ripper®Khaotic®, Juice Monster® Mango Loco®, Juice Monster® Pacific Punch®, Juice Monster® PapillonTM, Juice Monster® Pipeline Punch®, Juice Monster® Ripper®, Monster® Mango Loco, Monster Energy® Absolutely Zero, Monster Energy® Import, Punch Monster® Baller’s Blend®, Punch Monster® Mad Dog, Mega Monster Energy®, Export, M3(stylized)®, Monster Energy® Super Concentrate, Übermonster® Energy Brew™Monster Mule®, Monster Cuba Libre®, Monster Energy Zero Ultra®, Monster Energy Ultra Black®, Monster Energy Ultra Blue®, Monster Energy Ultra Citron®, Monster Energy Ultra Fiesta®, Monster Energy Ultra Gold®, Monster Energy Ultra Paradise®, Monster Energy Ultra Red®, Monster Energy Ultra Black®Rosa®, Monster Energy Ultra Sunrise®, Monster Energy Ultra Citron®Violet®, Monster Energy Ultra Violet®,Ultra® Watermelon, Monster Energy® Mixxd Punch, Monster Energy® Gronk, Monster Energy® Valentino Rossi and Monster Energy® Lewis Hamilton 44.
Espresso Monster® Espresso + Energy Drinks –a line of non-carbonated dairy based espresso + energy drinks. We offer the following espresso + energy drinks under the Espresso Monster® product line: Espresso and Milk, Salted Caramel and Vanilla Espresso.
Java Monster® Coffee + Energy Drinks - –a line of non-carbonated dairy based coffee + energy drinks. We offer the following coffee + energy drinks under the Java Monster® product line: Java Monster® 300 French Vanilla, Java Monster® 300 Mocha, Java Monster® Farmer’s Oats, Java Monster® Irish Blend®, Java Monster® Kona Blend, Java Monster® Loca Moca®, Java Monster® Mean Bean®, Java Monster® Vanilla Light,Salted Caramel, Java Monster® Irish Blend®Swiss Chocolate and Java Monster® Salted Caramel.
Vanilla Light.
Muscle Monster Energy® Dragon Iced Tea®TM Energy ShakesTeas -– a line of non-carbonated energy shakes containing 25-grams of protein.teas. We offer the following energy shakesteas under the Muscle Monster®Monster Energy Shakes® Dragon Iced TeaTM product line in different countries: Green Tea, White Tea and Lemon Ice Tea.
Monster Hydro® includes two product lines: Energy Water and Super Sport. Monster Hydro® Energy Water is a line of non-carbonated, lightly sweetened refreshment + energy drinks. We offer the following refreshment + energy drinks
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under the Monster Hydro® Energy Water product line: VanillaBlue Ice®, Watermelon®, Purple Passion®, Tropical Thunder® and Chocolate.
Zero Sugar. Monster Hydro® Super Sport is a line of non-carbonated, lightly sweetened refreshment + energy drinks that features an enhanced electrolyte blend and BCAA’s. We offer the following refreshment + energy drinks under the Monster Hydro® Super Sport product line: Blue Streak and Red Dawg.
Monster Energy Extra Strength Nitrous TechnologyHydroSport Super Fuel®®Hydration + Energy Drinks -– a zero sugar line of non-carbonated, advanced hydration + energy drinks with BCAA’s. We offer the following advanced hydration + energy drinks under the Monster HydroSport Super Fuel® product line: Charge, Hang Time and Striker.
Monster MAXX® Energy Drinks – a line of carbonated energy drinks containing nitrous oxide. We offer the following energy drinks under the Monster Energy Extra Strength Nitrous Technology®MAXX® product line: Eclipse, Mango Matic, Rad Red, Solaris and Super Dry™ and Anti Gravity®.
Dry.
Monster Rehab® Tea + Energy Drinks - – a line of non-carbonated energy drinks with electrolytes. We offer the following tea + energy drinks under the Monster Rehab® drink line: Monster Rehab® Tea + Lemonade + Energy, Monster Rehab® Raspberry Tea + Energy, Monster Rehab® Tea + Orangeade + Energy, Monster Rehab® Peach Tea + Pink LemonadeEnergy, Monster Rehab® Raspberry Tea + Energy and Monster Rehab Peach® TeaRehab® Strawberry Lemonade + Energy.
EspressoMuscle Monster® TM Espresso + Energy DrinksShakes - – a line of non-carbonated dairy based espresso + energy drinks.shakes containing 27-grams of protein. We offer the following espresso +energy shakes under the Muscle Monster® Energy Shakes product line: Chocolate and Vanilla.
Reign Total Body Fuel® High Performance Energy Drinks – a line of high performance energy drinks with BCAA’s, B vitamins, electrolytes and CoQ10 with zero sugar. We offer the following high performance energy drinks under the Espresso MonsterTMReign Total Body Fuel® product line: EspressoCarnival Candy, Cherry Limeade, Lemon Hdz, Lilikoi Lychee, Mang-O-Matic, Melon Mania, Orange Dreamsicle, Peach Fizz, Razzle Berry, Sour Apple, Strawberry Sublime and Cream and Vanilla Espresso.White Gummy Bear.
Mutant® Super Soda Drinks:
Mutant® -Reign Inferno® Thermogenic Fuel High Performance Energy Drinks – a line of carbonated ‘super’ sodas.high performance energy drinks with a thermogenic performance blend in addition to BCAA’s, B vitamins, electrolytes, and CoQ10 with zero sugar. We offer the following sodas under the Mutant® Super Soda product line: Mutant® Super Soda, Mutant® Red Dawn Super Soda and Mutant® Super Soda White Lightning.
Monster Hydro®:
Monster Hydro® - a line of non-carbonated, lightly sweetened refreshment + energy drinks. We offer the following refreshment +high performance energy drinks under the Monster Hydro®Reign Inferno® Thermogenic Fuel product line: Tropical Thunder, Mean GreenJalapeno Strawberry, Red Dragon, True BLU and Manic Melon.Watermelon Warlord.
Products – Strategic Brands Segment
Strategic Brands Energy Drinks:
BPM® - – a line of carbonated energy drinks. We offer the following energy drinks under the BPM® product line: Focus Berry Red, and Hydrate Citrus Green.
Green, Sour Twist and Zero Orange.
BU® - –a line of carbonated energy drinks. We offer the following energy drinks under the BU®product line: Island Punch and Original.
Burn® - – a line of carbonated energy drinks. We offer the following energy drinks under the Burn® product line: Original,Apple Kiwi, Blue, Zero, Cherry, Dark Energy, Lemon Ice, Apple KiwiMango, Original, Passion Punch, Peach, Zero Raspberry, Sour Twist and Passion Punch.
Zero.
Full Throttle® - – a line of carbonated energy drinks. We offer the following energy drinks under the Full Throttle® product line: Citrus, Blue Agave and Orange.
Original (Citrus).
Fury® – a line of affordable carbonated energy drinks. We offer the following energy drink under the Fury® product line: Gold Strike.
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Gladiator® -– a line of carbonated energy drinks. We offer the following energy drink under the Gladiator® product line: Original.
Live+®–a line of carbonated energy drinks. We offer the following energy drinks under the Gladiator®Live+® product line: Original.
Ascend, Ignite and Persist.
Mother® -– a line of carbonated energy drinks. We offer the following energy drinks under the Mother®product line: Epic Swell, Frosty Berry, Kicked Apple®,Original, Passion, Sugar Free Frosty Berry and Kicked Apple.
Tropical BlastTM.
Nalu® - – a line of carbonated energy drinks. We offer the following energy drinks under the Nalu® product line: Black Tea & Passion Fruit, Exotic, Frost, Green Tea & Ginger, Original, ExoticPassion and Frost.
Refresh.
NOS® - – a line of carbonated energy drinks. We offer the following energy drinks under the NOS® product line: Original, Sugar Free, Charged Citrus, GT Grape, Cherried Out, NOS RowdyNitro Mango, Original, Sonic Sour and NOS Nitro Mango.
Turbo.
Play® and Power Play(stylized)Play® - (stylized) –a line of carbonated energy drinks. We offer the following energy drinks under the Play® and Power Play(stylized)Play® (stylized) product line: Apple Kiwi, Mango, Passion Fruit, Original and Sugar Free.
Predator® – a line of affordable carbonated energy drinks. We offer the following energy drinks under the Predator® product line: Original, Sugar Free, DareGold Strike, Mean Green, Purple Rain and Forge.
Red Dawn.
Relentless® -– a line of carbonated energy drinks. We offer the following energy drinks under the Relentless® product line: Origin, Zero, Apple Kiwi, Cherry, Lemon Ice, CherryMango, Origin, Passion Punch, Sour Twist and Passion Punch.
Zero.
Samurai® - – a line of carbonated energy drinks. We offer the following energy drinks under the Samurai® product line: StrawberryFruity and Fruity.
Strawberry.
Ultra Energy® - – a line of carbonated energy drinks. We offer the following energy drinks under the Ultra Energy®Energy® product line: Apple Kiwi, Fury, Mango, Original, Passion Punch, Peach Mango and Fury.Zero Raspberry.
Products – Other Segment
AFF Third-Party Products:
We sellsells a limited number of products acquired as part of the AFF Transaction to independent third-party customers.
Non-Energy Drinks Disposed of as part of the TCCC Transaction (sales through June 12, 2015):
As part of the TCCC Transaction, we transferred all of our rights in and to the following products to TCCC (with the exception of Hansen’s® energy drinks and Blue Sky® energy drinks, which were discontinued): Peace Tea® iced teas and juice drinks, Hansen’s® Brand sodas, Hansen’s® juices, Hansen’s® aseptic juices, Blue Sky® beverages and Hubert’s® lemonades.
Other Products
We continue to evaluate and, where considered appropriate, introduce additional products, flavors and types of beverages to complement our existing product lines. We may also evaluate, and where considered appropriate, introduce additional types of consumer products we consider areto be complementary to our existing products and/or to which our brand names are able to add value. Under the terms of the TCCC Transaction, we have agreed, subject to certain exceptions, not to compete with TCCC in non-alcoholic ready-to-drink beverages, other than the energy drink category.
Products – Packaging
Our products are packaged in a variety of different package types and sizes including, but not limited to, aluminum cans, aluminum Cap Cans,cap cans, sleek aluminum cans, aluminum cans with re-sealable ends as well as glass bottles, polyethylene terephthalate (PET) plastic bottles and PET plastic cans.to a limited extent glass bottles.
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Manufacture and Distribution
We do not directly manufactureoperate our own manufacturing facilities for finished goods, but instead outsource the manufacturing process to third-party bottlers and contract packers.
The AFF Transaction brought ourdevelops and manufactures the primary flavor supplier in-house, secured the intellectual property of our most important flavors in perpetuity and further enhanced our flavor development and global flavor footprint capabilities for our Monster Energy® Drinks segment. We also source flavors from other suppliers.
We purchase flavors, concentrates, sweeteners, juices, dietarysupplement ingredients, cans, bottles, caps, labels, trays, boxes and other ingredients for our beverage products from ouringredient suppliers, which are delivered to our various third-party bottlers and co-packers. In some cases, certain common supplies may be purchased by our various third-party bottlers and co-packers. Depending on the product, the third-party bottlers or co-packers add filtered water and/or other ingredients (including dietarysupplement ingredients) for the manufacture and packaging of the finished products into our approved containers in accordance with our recipes and formulas. Depending on the beverage, the bottler/packer may also add carbonation to the products as part of the production process.
For our Strategic Brands segment, we primarily purchase concentrates and/or beverage bases from ingredient suppliers, which are then sold to certain of our various third-party bottlers/distributors. The third-party bottlers/distributors are responsible for the manufacture and packaging of the finished products, including the procurement of all other required ingredients and packaging materials. For certain limited products in the Strategic Brands segment, we may purchase flavors, concentrates, sweeteners, juices, flavors, dietarysupplement ingredients, cans, bottles, caps, labels, trays, boxes and other ingredients for our Strategic Brand products from our suppliers, which are delivered to our various third-party bottlers and co-packers. In some cases, certain common supplies may be purchased by our various third-party bottlers and co-packers. Depending on the product, the third-party bottlers or co-packers add filtered water and/or other ingredients (including dietarysupplement ingredients), for the manufacture and packaging of the finished products into our approved containers in accordance with our recipes and formulas. Depending on the beverage, the bottler/co-packer may also add carbonation to the products as part of the production process.
Co-Packing Arrangements
All of our finished goods are manufactured by various third-party bottlers and co-packers situated throughout the United States and abroad, under separate arrangements with each party. The majority of ourOur co-packaging arrangements are generally on a month-to-month basis or are terminable upon requestvary in terms and do not generally obligate us to produce anyprocure minimum quantities of products within specified periods.
In some instances, subject to agreement, certain equipment may be purchased exclusively by us and/or jointly with our co-packers, and installed at their facilities to enable them to produce certain of our products. In certain cases, such equipment remains our property and is required to be returned to us upon termination of the packing arrangements with such co-packers, unless we are reimbursed by the co-packer at the then book value or via a per-case credit over a pre-determined number of cases that are produced at the facilities concerned.
For our Monster Energy® Drinks segment, we are generally responsible for arranging for the purchase and delivery to our third-party bottlers and co-packers of the containers in which our beverage products are packaged.
Our products are packaged in a number of locations, both domestically and internationally, which enables us to produce products closer to the markets where they are sold, with the objective of reducing freight costs as well as transportation-related product damages. As distribution volumes increase in both our domestic and international markets, we will continue to source 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 and/or are unable to secure sufficient ingredients or raw materials including, but not limited to, aluminum cans, aluminum Cap Cans,cap cans, sleek aluminum cans, aluminum cans with re-sealable ends, PET plastic bottles, PET plastic cans, glass bottles,caps, labels, flavors, juice
8
concentrates, dietarycoffee, tea, supplement ingredients, other ingredients and certain sweeteners, and/or procure adequate packing arrangements and/or obtain adequate or timely shipment of our products, we might not be able to satisfy demand on a short-term basis. In this regard, due to a shortage in available retort capacity, we were unable to fulfill demand in full for our Java Monster and Muscle Monster products during the latter half of 2016 and into the fourth quarter of 2017. (See “Part I, Item 1A – Risk Factors”).
Our production arrangements are generally of short duration or are terminable upon request. For certainthe majority of our products, including our Monster Energy® brand energy drinks, our Java Monster® product line, our Espresso MonsterTMMonster® product line, our Monster Hydro® product lines, our Monster HydroSport Super Fuel® product line, our Monster Super Fuel® product line, our Muscle Monster® product line, our PunchMonster MAXX® product line, our Juice Monster® product line, our Reign Total Body Fuel® product line, our Reign Inferno® Thermogenic Fuel product line and certain of our other products, there are limited co-packing facilities in our domestic and international markets with adequate capacity and/or suitable equipment to package our products. We believe a short disruption or delay in production would not significantly affect our revenues; however, as alternative co-packing facilities in our domestic and international markets with adequate long-term capacity may not be available for such products, either at commercially reasonable rates and/or within a reasonably short time period, if at all, a lengthy disruption or delay in production of any of such products could significantly affect our revenues.
We continue to actively seek alternative and/or additional co-packing facilities around the world (including in Africa, Asia, Australia, Central and South America, China, Europe, India, Mexico, the Middle East and the United States) with adequate capacity and capability for the production of our various products to minimize transportation costs and transportation-related damages as well as to mitigate the risk of a disruption in production and/or importation.
Distribution Agreements
During 2017,2020, we continued to expand distribution of our products in both our domestic and international markets, due in part to the TCCC Transaction.
markets.
Distribution levels vary by product and geographic location. GrossNet sales outside the United States were $1,094.8 million, $888.7 million$1.51 billion, $1.33 billion and $713.2 million$1.09 billion for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Monster Energy® Distribution Agreements
We have entered into agreements with various bottlers/distributors providing for the distribution of our products during initial terms of up to twenty years, which may be renewed thereafter for additional terms ranging from one to five years.years, subject to certain terms and conditions which may vary depending on the form of the agreement. Such agreements remain in effect for their then-current term as long as our products are being distributed, but are subject to specified termination rights held by each party, which may include by way of example, and depending on the form of agreement, termination upon: mutual agreement; material breach of the agreement by, or an insolvency of, either party; deadlock; change of control; changes in legal or regulatory conditions and termination of certain related agreements. Additionally, we are entitled to terminate certain distribution agreements at any time without cause upon payment of a termination fee, including the distribution agreements with select Anheuser-Busch distributors (the “AB Distributors”) and a limited number of distribution agreements with TCCC network bottlers that were entered into prior to 2015.
Certain of our material distribution arrangements for our Monster Energy® brand energy drinks, as amended from time to time, are described below:
| (a) | Amended and Restated Distribution Coordination Agreement with TCCC, pursuant to which we have designated, and in the future may designate, subject to TCCC’s approval, territories in Canada and the United States in which bottlers from TCCC’s network of wholly or partially-owned and independent bottlers (the “TCCC North American Bottlers”) will distribute and sell, or continue to distribute and sell, our Monster Energy® brand energy drinks. |
| (b) | Amended and Restated International Distribution Coordination Agreement with TCCC, pursuant to which we have designated, and in the future may designate, countries, or territories within countries, in which we wish to appoint TCCC network bottlers to distribute and sell our Monster Energy® brand energy drinks, subject to TCCC’s |
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(a)Amended and Restated Distribution Coordination Agreement with TCCC, pursuant to which we have designated, and in the future may designate, subject to TCCC’s approval, territories in Canada and the United States in which bottlers from TCCC’s network of wholly or partially-owned and independent bottlers will distribute and sell, or continue to distribute and sell, our Monster Energy® brand energy drinks.
(b)Amended and Restated Distribution Agreement with Coca-Cola Refreshments (“CCR”), pursuant to which CCR distributes, directly and through certain sub-distributors, our Monster Energy® brand energy drinks in a large portion of the United States. As of March 1, 2018, all of the territory previously falling under the Amended and Restated Distribution Agreement with CCR has been assigned by CCR to various TCCC network bottlers in the United States, including CCBCC Operations, LLC.
(c)Amended and Restated International Distribution Coordination Agreement with TCCC, pursuant to which we have designated, and in the future may designate, countries in which we wish to appoint TCCC network bottlers to distribute and sell our Monster Energy® brand energy drinks, subject to TCCC’s approval.
(d)
| approval. In February 2020, the Amended and Restated International Distribution Coordination Agreement with TCCC was renewed for an additional five year term. |
| (c) | Additionally, we have entered into distribution agreements for certain of our Monster Energy® products with various TCCC network bottlers, both in the United States and internationally. |
All distribution territories in the United States, and internationally.
substantially all distribution territories internationally have been transitioned to TCCC network bottlers/distributors.
Strategic Brands Distribution Agreements
On June 12, 2015, in connection with the closing of the TCCC Transaction, TCCC transferred to the Company all of its rights in and to TCCC’s worldwide energy drink business including: NOS®, Full Throttle®, Burn®, Mother®, Play®, Power Play(stylized)®, Relentless®, Nalu® and other brands (the “Strategic Brands”).
We have entered into distribution coordination agreements with TCCC pursuant to which we have designated, and in the future may designate, subject to TCCC’s approval, territories in which TCCC network bottlers will distribute our Strategic Brands energy drinks.
We have entered into agreements with various TCCC network bottlers, both in the United States and internationally, providing for the distribution and sale of our Strategic Brands energy drinks.
Raw Materials and Suppliers
The principal raw materials used in the manufacturing of our products are aluminum cans, aluminum Cap Cans,cap cans, sleek aluminum cans, aluminum cans with re-sealable ends, PET plastic bottles, PET plastic cans, glass bottlescaps, as well as flavors, juice concentrates, glucose, sugar, sucralose, milk, cream, protein, dietarycoffee, tea, supplement ingredients and other packaging materials, the costs of which are subject to fluctuations. As a consequence of the COVID-19 pandemic, we have seen a shift in consumer channel preferences and package configurations, including an increase in at-home consumption and a decrease in food service on-premise consumption. This shift has resulted in increased industry demand for aluminum cans, leading to aluminum cans being in short supply.
The AFF Transaction brought ouris the primary flavor supplier in-house, secured the intellectual property of our most important flavors for our Monster Energy®Energy® brand energy drinks in perpetuity and further enhanced our flavor development and global flavor footprint capabilities.drinks. We also purchase flavors from other suppliers as well as juices, dietarysupplement ingredients, glucose, sugar, sucralose, other sweeteners and other ingredients from independent suppliers located in the United States and abroad.
For our Strategic Brands energy drinks, we purchase flavors, concentrates and/or beverage bases from flavor suppliers including TCCC in the United States and abroad, and may purchase certain other ingredients from independent suppliers located in the United States and abroad. As part of the TCCC Transaction, we acquired ownership of the TCCC flavor formulas for the Strategic Brands, with some limited exceptions.
With regard to our Java Monster®, Espresso MonsterTMMonster® and Muscle Monster® product lines, the dairy, protein and retort co-packing industries are subject to shortages and increased demand from time to time, which may result in production disruption and/or higher prices.
For certain flavors purchased from third-party suppliers and used in a limited number of our Monster Energy®Energy® brand energy drinks and/or our Strategic Brands energy drinks, these third-party flavor suppliers own the proprietary rights to certain of their flavor formulas. We do not have possession of the list of such flavor ingredients or formulas used in the production of certain of our products and certain of our blended concentrates, and we may be unable to obtain comparable flavors or concentrates from alternative suppliers on short notice. Our third-party flavor suppliers generally do not make such flavors and/or blended concentrates available to other third partythird-party customers.
We have identified alternative suppliers for many of the ingredients contained in many of our beverages. However, industry-wide shortages of certain flavors, fruits and fruit juices, coffee, tea, dairy-based products, dietarysupplement ingredients
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and sweeteners have been, and could from time to time in the future be, encountered, which could interfere with and/or delay production of certain of our products.
We continually endeavor to develop back-up sources of supply for certain of our flavors and concentrates purchased from third-party suppliers, as well as to negotiate arrangements with our existing suppliers, which would enable us to obtain access to certain of such concentrates or flavor formulas under certain circumstances. We have been partially successful in these endeavors. Additionally, in a limited number of cases, contractual restrictions and/or the necessity to obtain regulatory approvals and licenses may limit our ability to enter into agreements with alternative suppliers, manufacturers and/or distributors.
Competition
The beverage industry is highly competitive. The principal areas of competition are pricing, packaging, development of new products and flavors as well as promotional and marketing strategies. Our products compete with a wide range of drinks produced by a relatively large number of companies, many of which have substantially greater financial, marketing and distribution resources than we do.
Important factors affecting our ability to compete successfully include brand and product image, taste and flavor of products, trade and consumer promotions, rapid and effective development of new and unique cutting edge products, ingredients, attractive and different packaging, brand exposure and marketing as well as pricing. We also rely on our bottlers and full service beverage distributors to allocate more attention to our products than those of our competitors, provide stable and reliable distribution and secure adequate shelf space in retail outlets. Competitive pressures in the “alternative”, energy, coffee and “functional” beverage categories could cause our products to be unable to gainmaintain or to lose market share or we could experience price erosion, which could have a material adverse effect on our business and results of operations.
We have experienced and continue to experience competition from new entrants in the energy drink and energy shot categories. A number of companies who market and distribute iced teas, coffees, juice cocktails, and enhanced waters and sports drinks in various larger volume packages such as 16- and 20-ouncein glass and plastic bottles (including Bai, Sobe Life Water, BODYARMOR, Vitamin Water, CORE, Snapple, Arizona, Fuse, Ocean Spray, Honest Tea, Gold Peak Tea)Tea, Powerade, Gatorade Bolt 24 and Starbucks) and 12- and 16-ounce cans (such as Mountain Dew Kickstart)Kickstart and Amp Game Fuel), have added dietary supplementssupplement ingredients to their products with a view to marketing their products as “functional” or energy beverages or as having “functional” benefits. We believe that many of those products contain lower levels of dietarysupplement ingredients, principally deliver refreshment and are positioned differently from our energy or “functional” drinks.
We are also subject to increasing levels of regulatory issues particularlyincluding in relation to the registration andand/or taxation of our products in certain new international markets, which may put us at a competitive disadvantage. (See “Government Regulation” below for additional information).
We compete not only for consumer preference, but also for maximum marketing, and sales efforts byand attention from our multi-brand licensed bottlers, brokers and distributors, many of which have a principal affiliation with competing companies and brands. Our products compete with all liquid refreshments and in many cases with products of much larger and in some cases better financed competitors, including the products of numerous nationally and internationally known producers such as TCCC, PepsiCo, Inc. (“PepsiCo”), TheKeurig Dr. Pepper Snapple Group, Inc. (the “DPS Group”(“KDP”) and Red Bull Gmbh.GmbH. We also compete with companies that are smaller or primarily local in operation. Our products also compete with private-label brands such as those carried by grocery store chains, convenience store chains and club stores.
Domestically, our energy drinks compete directly with Red Bull, Rockstar, Amp and Amp GameFuel, Venom, VPX Redline, Rip It, Xenergy, 5-Hour Energy Shots, MiO Energy, Stacker 2, VPX Bang, V8 + Energy, Uptime, hi*ball, CELSIUS, C4, Alani Nu, 3D Energy, Coca-Cola Energy, ZOA Energy, Rowdy Energy and many other brands. In 2020, PepsiCo acquired Rockstar and entered into an agreement with VPX to distribute VPX Bang products in the United States. PepsiCo also
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markets and/or distributes additional products in that market segment such as Pepsi Max, Mountain Dew, Mountain Dew Kickstart and Mountain Dew Kickstart.Amp Game Fuel. Internationally, our energy drinks compete with Red Bull (including non-carbonated Red Bull in China and Asia), Rockstar, V-Energy, Lucozade, Coca-Cola Energy and numerous local and private-label brands that usually differ from country to country, such as Hell,HELL, Amper, Shock, Tiger, Fearless, Boost, TNT, Shark, Dragon, Score, Sting, Hot 6, Suntory ZONE, Battery, Bullit, Flash Up, Black, Non-Stop, Bomba, Semtex, Vive 100, Dark Dog, Speed, Guaraná,Guarana, M-150, Lipovitan, Bacchus, Volt, Bolt, Mr. Big, Boom, Raptor, Amp, Fusion, Hi-Tiger, Eastroc Super Drink, Carabao, Powerhouse,Power Horse, XL, Crazy Tiger, Effect, Missile, Nocco, Adrenaline Rush, Real Gold, War Horse, BLU, and a host of other international brands.
Our Reign Total Body Fuel® and Reign Inferno® Thermogenic Fuel high performance energy drinks compete with VPX Bang, Adrenaline Shoc, C4, CELSIUS, NOCCO, Rockstar XDURANCE and Quake in the performance energy category.
Our Java Monster® and Espresso MonsterTMMonster® product lines compete directly with Starbucks Frappuccino, Starbucks Double Shot,Doubleshot, Starbucks Double ShotDoubleshot Energy Plus Coffee, Starbucks Tripleshot and other Starbucks coffee drinks, Costa Coffee, Rockstar Roasted, Dunkin Donuts, Gold Peak, Stok, High Brew, McCafé, hi*ball, Douwe Egberts Coffee, Emmi CAFFÈ, Bang Keto Coffee, Nescafe and International Delight.
Our Muscle Monster® product line competes directly with Muscle Milk, Core Power, Premier Protein, Kellogg’s Special K Protein, Bolthouse Farms Protein, EAS AdvantEdge,AdvantEDGE, EAS Myoplex and Gatorade G Series 03 Recover, 5-Hour, PowerBar and EAS Myoplex.
Recover.
Our Mutant®Monster Hydro® Energy Water, Monster HydroSport Super SodaFuel® and Monster Hydro® Super Sport product line competeslines compete directly with Mountain DewVitamin Water, Sparkling Ice, Bai, Propel, Vita Coco, Lucozade, Powerade, Gatorade Bolt 24 and Mountain Dew Kickstart.BODYARMOR.
Sales and Marketing
Our sales and marketing strategy for all our beverages is to focus our efforts on developing brand awareness through image-enhancing programs and product sampling. We use our branded vehicles and other promotional vehicles at events where we offer samples of our products to consumers. We utilize “push-pull” methods to enhance shelf and display space exposure in sales outlets (including racks, coolers and barrel coolers), advertising, in-store promotions and in-store placement of point-of-sale materials to encourage demand from consumers for our products. We also support our brands with prize promotions, price promotions, competitions, endorsements from selected public and sports figures, sports personality endorsements, sampling and sponsorship of selected athletes, teams, series, bands, esports, causes and events. In-store posters, outdoor posters, social media, concerts, print, radio and television advertising (directly and through our sponsorships and endorsements) 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, making our brands and products visually appealing and 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 and unique. The labels and graphics for many of our products are redesigned and refreshed from time to time to maximize their visibility and identification, wherever they may be placed in stores, which we continue to reevaluate from time to time.
Where appropriate, we partner with our bottlers/distributors and/or retailers to assist our marketing efforts.
We increaseddecreased expenditures for our sales and marketing programs by approximately 22.6%9.7% in 20172020 compared to 2016. As2019. This decrease was primarily due to decreased expenditures for sponsorship and endorsements and decreased expenditures for travel and entertainment, each largely as a consequence of December 31, 2017, we employed 2,114 employees in sales and marketing activities, of which 1,319 were employed on a full-time basis.the COVID-19 pandemic. The costs for certain postponed or rescheduled events have been, or may be, deferred to future periods. Due to the uncertainty surrounding the
COVID-19 pandemic, we are unable to estimate in which future periods, if any, such deferred sponsorship and endorsement costs will be recognized.
Customers
Our customers are primarily full service beverage bottlers/distributors, retail grocery, drug and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food servicefoodservice customers, value stores, e-commerce retailers and the military. Percentages of our gross salesbillings to our various customer types for the years ended December 31, 2017, 20162020, 2019 and 20152018 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our full service beverage bottlers/distributors in the United States. Such full service beverage bottlers/distributors in turn sell certain of our products to some of the same customer types listed below. We limit our description of our customer types to include only our sales to our full service bottlers/distributors without reference to such bottlers/distributors’ sales to their own customers.
| | | | | | |
|
| 2020 | | 2019 | | 2018 |
U.S. full service bottlers/distributors |
| 56% | | 58% | | 61% |
International full service bottlers/distributors |
| 34% | | 33% | | 31% |
Club stores and e-commerce retailers |
| 8% | | 7% | | 6% |
Retail grocery, direct convenience, specialty chains and wholesalers |
| 1% | | 1% | | 1% |
Direct value stores and other |
| 1% | | 1% | | 1% |
|
| 2017 |
| 2016 |
| 2015 |
|
U.S. full service bottlers/distributors |
| 63% |
| 65% |
| 65% |
|
International full service bottlers/distributors |
| 28% |
| 25% |
| 23% |
|
Club stores and mass merchandisers |
| 7% |
| 8% |
| 9% |
|
Retail grocery, specialty chains and wholesalers |
| 1% |
| 1% |
| 2% |
|
Other |
| 1% |
| 1% |
| 1% |
|
Our customers include CCR, Coca-Cola Refreshments Canada Company,Bottling Limited, Coca-Cola Consolidated, Inc., Coca-Cola Bottling Company CCBCC Operations, LLC, United, Bottling Contracts Company, LLC,Inc., Reyes Coca-Cola Bottling, LLC, Great Lakes Coca-Cola Bottling,Distribution, LLC, Coca-Cola Southwest Beverages LLC, The Coca-Cola Bottling Company of Northern New England, Inc., Swire Coca-Cola, USA,Pacific Holdings, Inc. (USA), Liberty Coca-Cola Beverages, and certain other TCCC independent bottlers (collectively the “TCCC North American Bottlers”),LLC, Coca-Cola European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola group in China,(China), COFCO Coca-Cola, group in China, Coca-Cola Beverages Africa, Coca-Cola İçecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Kalil Bottling Group, Wal-Mart, Inc. (including Sam’s Club), Costco Wholesale Corporation Big Geyser,and Amazon.com, Inc. and select Anheuser-Busch distributors (the “AB Distributors”). TCCC, through certain wholly-owned subsidiaries (the “TCCC Subsidiaries”), accounted for approximately 18%, 41% and 43% of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottler/distributors. Accordingly, our percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the year ended December 31, 2017. CCBCC Operations, LLC accounted for approximately 13%, 9% and 6% of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively. A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material negative effect on our financial condition and consolidated results of operations.
Coca-Cola Consolidated, Inc. accounted for approximately 12%, 13% and 13% of our net sales for the years ended December 31, 2020, 2019 and 2018, respectively.
SeasonalityReyes Coca-Cola Bottling, LLC accounted for approximately 11%, 11% and 12% of our net sales for the years ended December 31, 2020, 2019 and 2018, respectively.
Coca-Cola European Partners accounted for approximately 10% of our net sales for the years ended December 31, 2020, 2019 and 2018.
Seasonality
Sales of ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. We believe that the volume of sales in the beverage industry areis affected by weather conditions. However, the energy drink category appears to be less seasonal than traditional beverages. Quarterly fluctuations may also be affected by other factors including the introduction of new products, the opening of new markets, particularly internationally, where temperature fluctuations may be more pronounced, the addition of new bottlers and distributors, changes in the mix of the sales of our finished products and increased or decreased advertising and promotional expenses. However, the COVID-19 pandemic may have an impact on consumer behaviors that may result in temporary changes in the seasonal fluctuations of our business.
Intellectual Property
We presently have more than 8,90014,200 registered trademarks and pending applications in various countries worldwide, and we apply for new trademarks on an ongoing basis. We regard our trademarks, service marks, copyrights, domain names, trade dress and other intellectual property as very important to our business. We consider Monster® (registered outside of the United States in certain jurisdictions), Monster Energy®,
®, Monster Energy Ultra®, Monster Dragon Tea®, Unleash the Beast!®, Mutant®, Monster Rehab®, Java Monster®, Muscle Monster®, Punch Monster®, Juice Monster®, Unleash the Beast!® Hydro® (stylized), Monster Hydro®HydroSport Super Fuel®, Monster Super Fuel®, Espresso MonsterTM, Caffé MonsterTMMonster®, Monster Energy Extra Strength Nitrous Technology®MAXX®, Reign Total Body Fuel®, Reign Inferno®, BU®, Nalu®, NOS®, Full Throttle®, Burn®, Mother®, Ultra Energy®, Play® and Power Play(stylized)®Play® (stylized), Relentless®, Predator®, Fury®, Live+® and BPM® to be our core trademarks. In addition, as a result of the AFF Transaction, we securedWe also own the intellectual property of our most important flavors for certain of our Monster Energy® Brand energy drinks in perpetuity.
We have registered Monster®, Monster Energy®, ®, Monster Energy Ultra®, Unleash the Beast!®, Mutant®, Monster Rehab®, Java Monster®, Muscle Monster®, Punch Monster®, Juice Monster®, M Hydro®, Espresso Monster®, Monster MAXX®, BU®, Nalu®, Burn®, Mother®, Play®, Power Play(stylized)®Play® (stylized), Relentless®, Ultra Energy®, BPM®, Predator®, Fury®, Live+®, Reign®, Reign Total Body Fuel® and BPM® are registeredReign Inferno® outside of the United States in certain jurisdictions.
We protect our trademarks by applying for registrations and registering our trademarks with the United States Patent and Trademark Office and with government agencies in other countries around the world, particularly where our products are distributed and sold. We assert copyright ownership of the statements, graphics and content appearing on the packaging of our products and in our marketing materials. We aggressively pursue individuals and/or entities seeking to profit from the unauthorized use of our trademarks and copyrights, including, without limitation, wholesalers, street vendors, retailers, online auction site sellers and website operators. In addition to initiating civil actions against these individuals and entities, we work with law enforcement officials where appropriate.
Depending upon the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can generally be renewed as long as the trademarks are in use.
We also enforce and protect our trademark rights against third parties infringing or disparaging our trademarks by opposing registration of conflicting trademarks and initiating litigation as necessary.
Government Regulation
The production, distribution and sale in the United States of many of our products are subject to various U.S. federal, state and statelocal regulations, including but not limited to: the Federal Food, Drug and Cosmetic Act (“FD&C Act”); the Occupational Safety and Health Act;Act and various state laws and regulations governing workplace health and safety; various environmental statutes; the Safe Drinking Water and Toxic Enforcement Act of 1986 (“California Proposition 6565”) and a number of other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, marketing, labeling and ingredients of such products. Outside the United States, the production, distribution and sale of many of our products are also subject to numerous statutes and regulations.
We also may in the future be affected by other existing, proposed and potential future regulations or regulatory actions, including those described below, any of which could adversely affect our business, financial condition and results of operations. See “Part I, Item 1A – Risk Factors – Changes in government regulation, or failure to comply with existing regulations, could adversely affect our business, financial condition and results of operations” below for additional information.
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Furthermore, legislation may be introduced in the United States and other countries at the federal, state, municipal and municipalsupranational level in respect of each of the subject areas discussed below. Public health officials and health advocates are increasingly focused on the public health consequences associated with obesity, especially as it affects children, and are seeking legislative change to reduce the consumption of sweetened beverages. There also has been an increased focus on caffeine content in beverages, as discussed below.
below, and we are seeing some attention to other ingredients in energy drinks.
Product Formulation, Labeling and Advertising. Globally, we are subject to a number of regulations applicable to the formulation, labeling and advertising of our Products.products. In California, we are subject to California Proposition 65, a law which requires that a specified warning be provided before exposing California consumers to any product that contains in excess of threshold amounts of a substance listed by California as having been found to cause cancer or reproductive toxicity. California Proposition 65 does not require a warning if the manufacturer of a product can demonstrate that the use of the product in question exposes consumers to an average daily quantity of a listed substance that is below that threshold amount, which is determined either by scientific criteria set forth in applicable regulations or via a “safe harbor” threshold that may be established by the state, or the substance is naturally occurring, is the result of necessary cooking, or is subject to another applicable exception. If we are required to add warning labels to any of our products or place warnings in certain locations where our products are sold, it will be difficult to predict whether, or to what extent, such a warning would have an adverse impact on sales of our products in those locations or elsewhere.
In addition, in May 2016, the U.S. Food and Drug Administration (the “FDA”) revised regulations with respect to serving size information and nutrition labeling on food and beverage products, including a new requirement to disclose the amount of added sugars in such products. Although theseThese changes were scheduled to gowent into effect on July 26, 2018, the FDA has proposed delaying the compliance date until January 1, 2020, and has statedthough FDA announced that it willis not enforcefocusing on enforcement due to challenges in meeting these requirements, particularly during the JulyCOVID-19 pandemic. Further, in December 2018, compliance date.the U.S. Department of Agriculture promulgated regulations requiring that, by January 1, 2022, the labels of certain bioengineered foods include a disclosure that the food is bioengineered. We may incur significant costs to alter our existing packaging materials to comply with thisthese and other new regulations. Additionally, thethese new regulations may impact, reduce and/or otherwise affect the purchase and consumption of our products by consumers.
Further, the City of San Francisco enacted an ordinance that would require health warnings on advertisements for certain sugar-sweetened beverages, though enforcement has been delayed due to a lawsuit challenging the ordinance.
In January 2019, the U.S. Court of Appeals for the Ninth Circuit, sitting en banc, granted a preliminary injunction blocking enforcement of the ordinance, concluding that a First Amendment challenge to the ordinance was likely to succeed on the merits. In February 2020, the San Francisco Board of Supervisors passed legislation to amend the ordinance. The plaintiff amended its pleading and litigation continues in the Northern District of California over this revised legislation.
In July 2012, we received a subpoena from the Attorney General for the State of New York in connection with an investigation relating to the advertising, marketing, promotion, ingredients, usage and sale of our Monster Energy® brand energy drinks. We cannot predict the outcome of this inquiry and what effect, if any, it may have on our business, financial condition or results of operations.
Other countries, such as the member states of the Gulf Cooperation Council, and Yemen, as well as Colombia, Brazil, and the Dominican Republic and Mexico, and the People’s Republic of China are also considering, or have enacted, new labeling requirements, which may require us to amend our labels and warning statements.
The United Kingdom Government has also suggested that it may review food labeling laws following the United Kingdom’s departure from the European Union (“Brexit”).
Age and Other Restrictions on Energy Drink Products. Proposals to limit or restrict the sale and/or advertising of energy drinks to minors and/or persons below a specified age, and/or restrict the venues in which energy drinks can be sold, and/or to restrict the use of the Supplemental Nutrition Assistance Program (formerly food stamps) to purchase energy drinks have been raised and/or enacted in certain U.S. states, counties, municipalities and/or in certain foreign countries. For example, in the United States, bills seeking to impose an age restriction on the sale of energy drinks have been introduced
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in the South Carolina and Connecticut legislatures. Outside of the United States, for example, Latvia, Lithuania and Turkey prohibit the sale of energy drinks to persons under the age of 18; Canada prohibits the promotion of energy drinks to children 12 years and under; Latvia and Scotland prohibit the sale of energy drinks in educational establishments; and Turkey prohibits the sale or advertising of energy drinks in “collective consumption areas.areas,” such as sports complexes, schools or hospitals. Latin American countries such as Chile, Colombia and Brazil are considering age and other sales restrictions on energy drinks.
drinks, as are other countries such as the United Kingdom, Romania and Bulgaria.
Excise Taxes on Energy Drinks. Legislation that would impose an excise tax on sweetened beverages has been proposed in the U.S. Congress, in some state legislatures and by some local governments, with excise taxes generally ranging between $0.01 and $0.02 per ounce of sweetened beverage. Berkeley, California became the first jurisdiction to pass such a measure, and a general tax of $0.01 per ounce on certain sweetened drinks, including energy drinks, became effective on January 1, 2015. Other U.S. jurisdictions (including Albany, Oakland and San Francisco, California; Boulder, Colorado; and Philadelphia, Pennsylvania and Seattle, Washington) have passed similar measures, some of which have been challenged in litigation. The imposition of such taxes on our products would increase the cost of certain of our products or, to the extent levied directly on consumers, make certain of our products less affordable. Excise taxes on sweetened beverages already are in effect in certain foreign countries where we do business, such as France, and Mexico. Similar measures have been enacted but are not yet enforced in, for example,the United Kingdom, Ireland, South Africa and the United Kingdom.Mexico. Poland recently established a tax on drinks with added sugars, specifically targeting beverages containing caffeine and taurine. Other countries, including Brazil,the Dominican Republic, are considering similar measures. In addition, legislation has been proposed in certain jurisdictions that would specifically impose excise taxes on energy drinks. For example, Estonia and Ukraine areKuwait is considering proposalsa proposal that would impose an excise tax on energy drinks. Such targeted legislation has been passed in other countries. For instance, on January 1, 2020, a reform to a Mexican excise tax went into effect that expanded the definition of an “energy drink” subject to this tax to include products with any amount of caffeine (the prior version of the tax required a threshold of 20 milligrams of caffeine per 100 millimeters for the tax to be applicable) and “taurine or glucuronolactone or thiamine and/or any other substance that produces similar stimulating effects.” Hungary has instituted an excise tax to which our products are subject. Bahrain, Saudi Arabia and the United Arab Emirates began applying a selective tax of 100% on energy drinks in 2017, Qatar and Oman began applying the tax in 2019, and there are indications that a similar measuresmeasure may be enacted in other Gulf Cooperation Council countries.
Kuwait.
Limits on Caffeine ContentContent.. Legislation has been proposed to limit the amount of caffeine that may be contained in beverages, including energy drinks. Some jurisdictions where we do business have prescribed limited caffeine content for beverages. For example, on January 1, 2013, new requirements took effect in Canada, that limited the maximum amount of caffeine containedcannot exceed 180 mg per single-serving container or per serving (500 ml) in any beverage inthe case of a single-serving can or bottle to less than 180 milligrams, and imposed limits on the concentration levels for caffeine.multi-serving container. We adjusted the caffeine levels in certain of our Monster Energy® products that are sold in Canada to address these regulations, although the majority of our products were unaffected. In Europe, examples of caffeine restrictions include the Netherlands where there is a limit of 35mg/100ml, and Norway introduced, as of January 1, 2020 (subject to transition periods), a limit of 32mg/100ml. Caffeine limit restrictions or restrictions on combining caffeine with other ingredients or in particular product sectors (such as performance beverages/sport drinks) have also been implemented or proposed in other jurisdictions, including Turkey, India, and Pakistan’s Punjab region.region, Egypt and the member states of the Gulf Cooperation Council. Such restrictions could require reformulations of certain of our products. However, we may not be able to satisfactorily reformulate our products in all jurisdictions that adopt similar legislation.
Limitations on Container Size. We package our products in a variety of different package types and sizes including, for certain of our Monster Energy® brand energy drinks, aluminum cans larger than 16 fluid ounces. Certain jurisdictions, such as the member states of the Gulf Cooperation Council and Yemen, as well asColombia, Costa Rica, Egypt and the Dominican Republic, are considering container size limitations on energy drinks and other beverages which may require us to change the size of our products sold in these countries. Other countries, like England, have considered and rejected proposed can size limitations although it is open to such markets to revisit these and other similar proposals.
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Compliance with Environmental Laws
Our facilities in the United States are subject to federal, state and local environmental laws and regulations. Our operations in other countries are subject to similar federal, state, local and supranational laws and regulations that may be applicable in such countries. Compliance with these provisions has not had, nor do we expect such compliance to have, any material adverse effect upon our capital expenditures, net income or competitive position.
Container Deposits. Various municipalities, states and foreign countries require that a deposit be charged for certain non-refillable beverage containers. The precise requirements imposed by these measures vary by jurisdiction. Other deposit, recycling or product stewardship proposals have been, and may in the future be, introduced in certain U.S. states, counties, municipalities and in certain foreign countries.
In California, we are required to collect redemption values from our customers and to remit such redemption values to the State of California Department of Resources Recycling and Recovery based upon the number of cans and bottles of certain carbonated and non-carbonated products sold. In certain other states and countries where our products are sold, we are also required to collect deposits from our customers and to remit such deposits to the respective jurisdictions based upon the number of cans and bottles of certain carbonated and non-carbonated products sold in such states.
EmployeesHuman Capital Resources
As of December 31, 2017,2020, we employedhave employees in 66 countries, with a total of 2,9913,666 employees working worldwide. This employee population includes 2,535 employees in North America, 228 employees in Latin America, 217 employees in Asia Pacific and 686 employees in Europe, Mideast and Africa (“EMEA”). Most of which 2,187 were employed on aour employees are full-time basis.(3,013 employees) and the remaining 653 employees hold part-time positions. Of our 2,9913,666 employees, we employed 877employ 1,185 in administrativecorporate and operational capacities (including administration, human resources, legal, information technology, operations, facilities, warehouse, product development, regulatory and 2,114accounting) and 2,481 persons in sales and marketing capacities.
In 2020, we established our Equality, Diversity and Inclusion (EDI) Leadership Advisory Group, comprised of leaders from across the Company, designed to provide insight on our diversity and inclusion efforts and to assist in the integration of the EDI program with our overall strategy and business objectives. We provide training for our employees covering harassment, discrimination and unconscious bias.
We support our employees through a variety of training and development programs. We have a mid-level manager development program, in which participants learn leadership skills, network with peers and senior executives, and tackle critical initiatives. We also have a leadership development platform in partnership with a third party, for senior leaders to receive university grade certificates in business strategy and innovation and complete Food and Beverage Executive courses as well as an electronic learning platform that focuses on business acumen, professional development and technical capabilities.
We provide compensation packages designed to attract and retain talent while maintaining alignment with market compensation surveys. We have multiple short-term incentive programs focused on incentivizing and retaining talent throughout the organization and provide long-term incentive programs to employees through equity and/or performance cash awards. We currently cover the cost of insurance premiums including medical, dental, vision, life, accidental death and dismemberment, short and long term disability, and an Employee Assistance Program (EAP) covering full-time employees and share in the cost of insurance premiums covering eligible dependents including medical, dental and vision coverage. We also offer several voluntary benefits to full-time employees, including supplemental life insurance, whole life insurance, accident insurance, critical illness insurance, flexible spending accounts, travel insurance, pre-paid legal, healthy rewards programs, identity theft assistance, and retirement savings account(s).
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Available Information
As a public company, we are required to file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and other information (including any amendments) with the Securities and Exchange Commission (the “SEC”). You may read and copy such material at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also find the Company’s SEC filings at the SEC’s website, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov.www.sec.gov.
Our Internet address is www.monsterbevcorp.com. Information contained on our website is not part of or incorporated into this annual report on Form 10-K.filing or any of our other filings with the SEC. Our SEC filings (including any amendments) will be made available free of charge on at www.monsterbevcorp.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing to, or telephoning us, at the following address or telephone number:
Monster Beverage Corporation
1 Monster Way
Corona, CA 92879
(951) 739-6200
(800) 426-7367
In addition to the other information in this report,Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes, you should carefully consider the following risks. If any of the following risks actually occur or continue to occur, our business, reputation, financial condition and/or operating results could be materially adversely affected. The risk factors summarized below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, reputation, financial condition and/or operating results.
Risk Factors Summary
The following is a summary of the principal risks that could materially adversely affect our business, reputation, financial condition and/or operating results. You should read this summary together with the more detailed description of each risk contained below.
Operational and Industry Risks
| ● | The COVID-19 pandemic has had, and we expect will continue to have, certain impacts on our business and operations. Such impacts may have a material adverse or other effect on our business and results of operations. |
| ● | The Company and TCCC have extensive commercial arrangements and, as a result, the Company’s future performance is substantially dependent on the success of its relationship with TCCC. |
| ● | Provisions in our organizational documents and control by insiders may prevent changes in control even if such changes would be beneficial to other stockholders. |
| ● | We rely on bottlers and other contract packers to manufacture our products. If we are unable to maintain good relationships with our bottlers and contract packers and/or their ability to manufacture our products becomes constrained or unavailable to us, our business could suffer. |
| ● | We rely on bottlers and distributors to distribute our products. If we are unable to maintain good relationships with our existing bottlers and distributors and/or secure such bottlers and distributors, our business could suffer. |
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| ● | We derive virtually all of our revenues from energy drinks, and competitive pressure in the energy drink category could adversely affect our business and operating results. |
| ● | Criticism of our energy drink products and/or criticism or a negative perception of energy drinks generally, could adversely affect us. |
| ● | Increased competition in the beverage industry and changing retail landscape could hurt our business. |
| ● | Our inability to innovate successfully and to provide new cutting edge products could adversely affect our business and financial results. |
| ● | Changes in consumer product and shopping preferences may reduce demand for some of our products. |
| ● | Our continued expansion outside of the United States exposes us to uncertain conditions and other risks in international markets. |
| ● | If we are not able to pass on increases in the costs of raw materials, including aluminum cans and/or ingredients and/or fuel and/or costs of co-packing, such inability could harm our business and result in a higher cost base. Shortages of raw materials including aluminum cans and/or ingredients and/or fuel and/or costs of co-packing could have a material adverse effect on our business and results of operations. |
| ● | Our failure to accurately estimate demand for our products or maintain sufficient inventory levels could adversely affect our business and financial results. |
| ● | The costs of packaging supplies are subject to price increases from time to time, and we may be unable to pass all or some of such increased costs on to our customers. |
| ● | Global or regional catastrophic events could impact our operations and affect our ability to grow our business. |
| ● | Climate change and natural disasters may negatively affect our business. |
| ● | If we are not able to retain the full-time services of senior management, there may be an adverse effect on our operations and/or our operating performance until we find suitable replacements. |
| ● | Negative publicity (whether or not warranted) could damage our brand image and corporate reputation, and may cause our business to suffer. |
Government Regulation and Litigation Risks
| ● | Changes in government regulation, or failure to comply with existing regulations, could adversely affect our business, financial condition and results of operations. |
| ● | We cannot predict the effect of possible inquiries from and/or actions by attorneys general, other government agencies and/or quasi-government agencies into the production, advertising, marketing, promotion, labeling, ingredients, usage and/or sale of our energy drink products. |
| ● | Litigation regarding our products, and related unfavorable media attention, could expose us to significant liabilities and reduce demand for our products, thus negatively affecting our financial results. |
| ● | If we encounter material product recalls, our business may suffer material losses and such recalls could damage our brand image and corporate reputation, also potentially resulting in material losses. |
Intellectual Property, Information Technology and Data Privacy Risks
| ● | Our intellectual property rights are critical to our success, and the loss of such rights could materially adversely affect our business. |
| ● | We must continually maintain, protect and/or upgrade our information technology systems, including protecting us from internal and external cybersecurity threats. |
| ● | If we fail to comply with data privacy and personal data protection laws, we could be subject to adverse publicity, government enforcement actions and/or private litigation, which may negatively impact our business and operating results. |
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Financial Risks
| ● | Fluctuations in our effective tax rate could adversely affect our financial condition and results of operations. |
| ● | We may be required in the future to record a significant charge to earnings if our goodwill or intangible assets become impaired. |
| ● | Fluctuations in foreign currency exchange rates may adversely affect our operating results. |
| ● | Potential changes in accounting standards or practices and/or taxation may adversely affect our financial results. |
| ● | If we fail to maintain effective disclosure controls and procedures and internal control over financial reporting on a consolidated basis, our stock price and investor confidence in the Company could be materially and adversely affected. |
| ● | Uncertainty in the financial markets and other adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our industry, business and results of operations. |
| ● | Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses. |
| ● | Volatility of stock price may restrict sale opportunities. |
| ● | Our investments are subject to risks which may cause losses and affect the liquidity of these investments. |
Operational and Industry Risks
The COVID-19 pandemic has had, and we expect will continue to have, certain impacts on our business and operations, and such impacts may have a material adverse or other effect on our business and results of operations.
The current COVID-19 pandemic has presented and continues to present a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the global economy and financial markets. The human and economic consequences of the COVID-19 pandemic as well as the measures taken or that may be taken in the future by governments, businesses (including the Company and our suppliers, bottlers/distributors, co-packers and other service providers) and the public at large to limit the COVID-19 pandemic, have and will directly and indirectly impact our business and results of operations, including, without limitation, the following:
| ● | We have experienced decreases in sales of our products in many of our markets around the world that have been affected by the COVID-19 pandemic, predominately during the early part of the 2020 second quarter. While some of the restrictions imposed as a result of the initial COVID-19 outbreak have been lifted or eased in many jurisdictions as the rates of COVID-19 infections have decreased or stabilized, resurgence of the COVID-19 pandemic in some markets has slowed or reversed the reopening process, and markets are moving through varying stages of restrictions and re-opening at different times. However, we have recently seen a resurgence of the COVID-19 pandemic in the Northern Hemisphere while cases in the Southern Hemisphere continue to rise. As a result, a number of countries, particularly in EMEA, have reinstituted lockdowns and other restrictions, which could further impact customer demand. If the COVID-19 pandemic and related unfavorable economic conditions continue to intensify, the negative impact on our sales, including our new product innovation launches, could be prolonged and may become more severe. |
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| ● | Deteriorating economic conditions and continued financial uncertainties in many of our major markets due to the COVID-19 pandemic, such as increased and prolonged unemployment, decreases in per capita income and the level of disposable income, declines in consumer confidence, or economic slowdowns or recessions, could affect consumer purchasing power and consumers’ ability to purchase our products, thereby reducing demand for our products. In addition, public concern among consumers regarding the risk of contracting COVID-19 may also reduce demand for our products. |
| ● | The closures of, and continued restrictions on, on-premise retailers and other establishments that sell our products as a result of the COVID-19 pandemic have adversely impacted and may continue to adversely impact our sales and results of operations. |
| ● | Our advertising, marketing, promotional, sponsorship and endorsement activities have been, and will continue to be, disrupted by reduced opportunities for such activities due to measures taken to limit the spread of the COVID-19 pandemic and the cancellations of or reduced capacity at sporting events, concerts and other events may result in decreased demand for our products. Our product sampling programs, which are part of our strategy to develop brand awareness, have been, and will continue to be, disrupted by the COVID-19 pandemic. If we are unable to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic, our sales, market share, volume growth and overall financial results could be negatively affected. |
| ● | Our innovation activities, including our ability to introduce new products in certain markets, have been delayed and/or adversely impacted by the COVID-19 pandemic. If such innovation activities are disrupted and we continue to delay the launch of new products and/or we are unable to secure sufficient distribution levels for such new products, our business and results of operations could be adversely affected. |
| ● | Some of our suppliers, bottlers/distributors and co-packers may experience plant closures, production slowdowns and disruptions in operations as a result of the impact of the COVID-19 pandemic. This could result in a disruption to our operations. |
| ● | We may experience delays in receiving certain raw materials as a result of shipping delays due to, among other things, additional safety requirements imposed by port authorities, closures of, or congestion at ports, reduced availability of commercial transportation, border restrictions and capacity constraints. |
| ● | Due to increased demand in at home beverage consumption, aluminum cans remain in tight supply, which could adversely impact or limit our sales and/or results of operations. |
| ● | We rely on relationships with third parties for cloud data storage and other information technology services for certain functions or for services in support of our operations. These third parties are subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and in accordance with the agreed-upon terms. |
| ● | As a result of the COVID-19 pandemic, including related governmental measures, restrictions, directives and guidance, we have required most of our office-based employees to work remotely. We may experience reductions in productivity and disruptions to our business routines while our remote work policy remains in place. If our employees working remotely do not maintain appropriate measures to mitigate potential risks to our technology and operations from information technology-related disruptions, we may face cybersecurity threats. Employees of our third-party service providers who are working remotely, with whom we may share data, are subject to similar cybersecurity risks. |
| ● | Governmental authorities at the U.S. federal, state and/or municipal level and in certain foreign jurisdictions may increase or impose new income taxes, indirect taxes or other taxes or revise interpretations of existing tax rules and regulations as a means of financing the costs of stimulus or may take other measures to protect populations and economies from the impact of the COVID-19 pandemic. Increases in direct and indirect tax rates could affect our net income, and increases in consumer taxes could affect our products’ affordability and reduce our sales. |
| ● | We may be required to record significant impairment charges with respect to goodwill or intangible assets whose fair values may be negatively affected by the effects of the COVID-19 pandemic. |
| ● | The continued financial impact of the COVID-19 pandemic may cause one or more of the financial institutions we do business with to fail or default in their obligations to us or to become insolvent or file for bankruptcy, which could cause us to incur significant losses and negatively impact our results of operations and financial condition. |
| ● | Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in negative publicity and the Company becoming a party to litigation claims and/or legal proceedings, which could consume significant financial and managerial resources, result in decreased demand for our products and injury to our reputation. |
| ● | The resumption of normal business operations after the disruptions caused by the COVID-19 pandemic may be delayed or constrained by the COVID-19 pandemic’s lingering effects on our suppliers, bottlers/distributors, co-packers, contractors, business partners and/or other service providers. |
Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our business, reputation, operating results and/or financial condition. Any of these negative impacts, alone or in combination with others, could exacerbate many of the risk factors discussed herein, any of which could materially affect our business, reputation, operating results and/or financial condition.
The Company and TCCC have extensive commercial arrangements and, as a result, the Company’s future performance is substantially dependent on the success of its relationship with TCCC.
In connection with the TCCC Transaction and the accompanying amended distribution coordination agreements entered into with TCCC, weWe have transitioned all third parties’ rights to distribute the Company’s products in most territories in the U.S. to members of TCCC’s distribution network, which largely consists of independent bottlers/distributors. In addition, except for a handful of countries, TCCC has becomeis our preferred distribution partner globally, with members of TCCC’s network distributing our products internationally, including in countries throughout, but not limited to, Africa, Asia, Canada, Central and South America, Europe, Mexico and the Middle East. As we continueprogress our international expansion, we expect TCCC’s distribution network willto continue its role as our preferred distribution partner globally. As a result, we have reduced our distributor diversification and are now substantially dependent on TCCC’s domestic and international distribution platforms.
Also in connection with the TCCC Transaction, TCCC madehas a substantial equity investment in the Company. The Company, TCCC and hascertain affiliates are parties to various agreements in which TCCC and certain affiliates have agreed, subject to certain exceptions, not to compete in the energy drink category in Europe through June 2018 and in certain other territories through June 2020. prior to the termination of the applicable distribution coordination agreement with TCCC. The Company’s distribution agreements with TCCC distributors also provide, subject to certain exceptions, that the applicable distributor will not distribute competitive energy drink products.
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While we believe that this willthese agreements incentivize TCCC to take steps to assureensure that our products receive the appropriate attention in the TCCC distribution system, there can be no assurancedisagreements as to the interpretation of this as TCCC is a much larger company with many strategic priorities.the provisions in such agreements have arisen and may arise in the future. In addition, TCCC does not control all members of its distribution system, many of which are independent companies that make their own business decisions that may not always align with TCCC’s interests. Moreover, it is also possible that we
Provisions in our organizational documents and control by insiders may failprevent changes in control even if such changes would be beneficial to recognize the expected benefitsother stockholders.
Our organizational documents may limit changes in control. Furthermore, as of the new distribution arrangements regardless of TCCC’s priorities February 19, 2021, Mr. Sacks and Mr. Schlosberg together may be deemed to beneficially own and/or the priorities of the members of TCCC’s distribution system. In any such case, our operating results could suffer and the value of the Company’s common shares could be adversely affected.
We derive virtually allexercise voting control over approximately 10% of our revenues from energy drinks, and competitive pressure in the energy drink category could adversely affect our business and operating results.
Our focus is in the energy drink category, and our business is vulnerable to adverse changes impacting the energy drink category and business, which could adversely impact our business and the trading priceoutstanding common stock. As of February 19, 2021, TCCC owned approximately 19% of our common stock.
Virtually all of our sales are derived from our energy drinks, including our Monster Energy® brand energy drinks and our Strategic Brands acquired from TCCC in 2015. Our Monster Energy® brand energy drinks and Strategic Brands represented 90.1% and 8.9% of net sales, respectively, for the year ended December 31, 2017. Any decrease in the sales of our Monster Energy® brand and other energy drinks could significantly adversely affect our future revenues and net income. Historically, we have experienced substantial competition from new entrants in the energy drink category as well as from the energy shot category. Domestically, our energy drinks compete directly with Red Bull, Rockstar, Amp, Venom, VPX Redline, Xenergy, MiO Energy, Rip It, Starbucks Double Shot, Starbucks Double Shot Energy Plus Coffee, Rockstar Roasted, 5-Hour Energy Shots, Stacker 2, VPX Bang, V8+ Energy, Uptime, hi*ball and many other brands. In addition, certain large companies, such as PepsiCo, market and/or distribute products in that market segment, such as Pepsi Max, Mountain Dew and Mountain Dew Kickstart. Internationally, our energy drinks compete with Red Bull, Rockstar, V-Energy, Lucozade and
numerous local and private-label brands that usually differ from country to country, such as Hell, Shock, Tiger, Boost, Speed, TNT, Shark, Hot 6, Shark Energy, Dragon, Score, Sting, Battery, Bullit, Flash Up, Black, Non-Stop, Bomba, Semtex, Vive 100, Dark Dog, Speed, Guaraná, M-150, Lipovitan, Bacchus, Bolt, Mr. Big, Boom, Raptor, Amp, Fusion, Hi-Tiger, Eastroc Super Drink, Carabao, Powerhouse, XL, Crazy Tiger, Effect, Missile and a host of other international brands. Our Java Monster® and Espresso MonsterTM product lines compete directly with Starbucks Frappuccino, Starbucks Double Shot, Starbucks Double Shot Energy Plus Coffee and other Starbucks coffee drinks, Rockstar Roasted, Dunkin Donuts, Gold Peak Tea, Stok, High Brew, hi*ball and International Delight. Our Muscle Monster® product line competes directly with Muscle Milk, Core Power, Premier Protein, Kellogg’s Special K Protein, Bolthouse Farms Protein, EAS AdvantEdge, Gatorade G Series 03 Recover, 5-Hour, Power Bar and EAS Myoplex. In addition, our Mutant® Super Soda product line competes directly with Mountain Dew and Mountain Dew Kickstart. Competitive pressures in the energy drink category could impact our revenues, cause price erosion and/or lower market share, any of which could have a material adverse effect on our business and results of operations.
The Company, in several markets, owns multiple potentially competing brands in the energy drink category.
The Strategic Brands acquired from TCCC in 2015 represented 8.9% of consolidated net sales for the year ended December 31, 2017. In several markets our Monster Energy® brand energy drinks and Strategic Brands compete with each other. Although we continue to integrate the Strategic Brands with our broader energy drink portfolio, we may encounter difficulties managing different and potentially competing brands in such shared markets, which could adversely impact our business and results of operations.
TCCC is a significant shareholder of the Company and may have interests that are different from the Company’s other shareholders (including current shareholders of the Company).
As of February 12, 2018, TCCC owned common shares of the Company representing approximately 18% of the total number of the Company’s outstanding common shares. TCCC has also nominated two directorsone director to the Company’s board of directors. The numberConsequently, Mr. Sacks, Mr. Schlosberg and TCCC could exercise significant control over matters submitted to a vote of our stockholders, including electing directors, that TCCC is entitledamending organizational documents and disapproving extraordinary transactions such as a takeover attempt, even though such actions may be favorable to nominate is subject to reduction in certain circumstances.the other common stockholders.
In particular, TCCC’s ownership could also have an effect on the Company’s ability to engage in a change in control transaction. TCCC is obligated for a period of time to vote all of its common shares of the Company in excess of 20% of the outstanding common shares in the same proportion as all common shares not owned by TCCC with respect to a proposal for a change of control. However, if TCCC were to oppose such a change-in-control transaction, a bidder would be required to secure the support of holders of 62.5% of the Company’s common shares not owned by TCCC (assuming that TCCC increased its ownership to 20% of the Company’s common shares) to achieve a vote of a majority of the Company’s outstanding shares for a change-in-control transaction. In addition, TCCC would have a bidding advantage if the Company’s board of directors were to seek to sell the Company in the future because TCCC would not need to pay a control premium on the shares it owns at such time. TCCC and the Company would also be permitted to terminate TCCC’s distribution coordination agreements with the Company after a change in control of the Company. In such event, TCCC would receive a termination fee if TCCC terminated the distribution coordination agreements following a change in control of the Company involving certain TCCC competitors, or if the Company terminated following a change in control of the Company involving any third-party.
The interests of TCCC may be different from or conflict with the interests of the Company’s other shareholdersstockholders and, as a result, TCCC’s influence may result in the delay or prevention of potential actions or transactions, including a potential change of management or control of the Company, even if such action or transaction may be beneficial to the Company’s other shareholders.transactions. Moreover, TCCC’s ownership of a significant amount of the Company’s outstanding common shares could result in downward pressure on the trading price of the Company’s common shares if TCCC were to sell a large portion of its shares (when permitted to sell) or as a result of the perception that such a sale might occur.
We rely on bottlers and other contract packers to manufacture our products. If we are unable to maintain good relationships with our bottlers and contract packers and/or their ability to manufacture our products becomes constrained or unavailable to us, our business could suffer.
ChangesOur acquisition of AFF in government regulation, 2016 brought our primary flavor supplier in-house for the majority of our Monster Energy® brand energy drinks. However, we also procure flavors from other independent flavor suppliers. We do not operate our own manufacturing facilities for finished goods, but instead outsource manufacturing of our finished goods to bottlers and other contract packers. As a result, in the event of a disruption and/or failuredelay, we may be unable to complyprocure alternative packing facilities at commercially reasonable rates and/or within a reasonably short time period. In addition, there are limited alternative packing facilities in our domestic and international markets with existing regulations,adequate capacity and/or suitable equipment for many of our products. For example, in recent years, sales of our Java Monster® and Muscle Monster® product lines were adversely impacted by production capacity constraints resulting from production and maintenance issues with certain of our co-packers. While this disruption in production did not significantly affect our revenues, a lengthy disruption or delay in the production of any of our products could significantly adversely affect our revenues from such products, because alternative co-packing facilities in the United States and abroad with adequate long-term capacity may not be available for such products either at commercially reasonable rates and/or costs and/or within a reasonably short time period, if at all. In addition, recently there has been a consolidation of co-packers. If we are unable to maintain good relationships with our largest co-packers, or if our costs of co-packing increase, our business, financial condition and results of operations.operations could be adversely affected.
Legislation has been proposedWe rely on bottlers and distributors to distribute our products. If we are unable to maintain good relationships with our existing bottlers and distributors and/or adoptedsecure such bottlers and distributors, our business could suffer.
Many of our bottlers/distributors are affiliated with and manufacture and/or distribute other carbonated, non-carbonated and other beverage products (both alcoholic and non-alcoholic). In many cases, such products compete directly with our products.
Unilateral decisions by bottlers/distributors, buying groups, convenience chains, grocery chains, mass merchandisers, specialty chain stores, club stores, e-commerce retailers, e-commerce websites and other customers to discontinue carrying all or any of our products that they are carrying at any time, restrict the U.S. federal, state and/range of our products they carry, impose restrictions or municipal level and proposed and/or adopted in certain foreign jurisdictions to restrictlimitations on the sale of our products and/or devote less resources to the sale of our products could cause our business to suffer. In addition, possible trading disputes between our bottler/distributors and their customers or buying groups may result in the delisting of certain of the Company’s products, temporarily or otherwise. Bottler/distributor consolidation may also have an impact on our business.
The TCCC North American Bottlers, Coca-Cola European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola (China), COFCO Coca-Cola, Coca-Cola Beverages Africa and Coca-Cola İçecek are our primary domestic and international distributors of our products. As a result, if we are unable to maintain good relationships with these distributors, or they do not effectively focus on marketing, promoting, selling and distributing our products, sales of our products could be adversely affected. As TCCC markets Coca-Cola Energy in additional territories, we may encounter difficulties in maintaining distributor attention, market share or position in the energy drink category in such territories, and bottlers/distributors may reduce the number of our SKUs they carry or impose limitations on distributing new product SKUs, which could adversely affect our business and operating results.
A decision by our primary domestic and international distributors or any other large customer to decrease the amount purchased from us or to cease carrying our products could have a material adverse effect on our financial condition and consolidated results of operations.
The marketing efforts of our distributors are important for our success. If our brands prove to be less attractive to our existing bottlers and distributors, if we fail to attract additional bottlers and distributors, and/or our bottlers/distributors do not market, promote and distribute our products effectively, our business, financial condition and results of operations could be adversely affected.
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Disruption in distribution channels and/or a decline in sales due to the termination and/or insolvency of existing or new bottlers/distributors may adversely affect our business and operating results.
We derive virtually all of our revenues from energy drinks, and competitive pressure in the energy drink category could adversely affect our business and operating results.
Our focus is in the energy drink category, and our business is vulnerable to adverse changes impacting the energy drink category and business, which could adversely impact our business and the trading price of our common stock.
Virtually all of our sales are derived from our energy drinks, including our Monster Energy® brand energy drinks, our Reign Total Body Fuel® energy drinks and our Strategic Brands energy drinks (including prohibiting the sale ofour affordable brand energy drinks, at certain establishments or pursuant to certain governmental programs), limitprincipally Predator®). Any decrease in the contentsales of caffeineour Monster Energy® brand and other ingredientsenergy drinks could significantly adversely affect our future revenues and net income. Historically, we have experienced substantial competition from new entrants in beverages, require certain product labeling disclosures and/or warnings, impose excise taxes, limit product size or impose age restrictions for the sale of energy drinks.drink category as well as from the energy shot category. For a discussion of certain of such legislation,competition, see “Part I, Item 1 – Business – Government Regulation.Competition.” Furthermore, additional legislation
The increasing number of competitive products and limited amount of shelf space, including in beverage coolers, in retail stores may be introducedadversely impact our ability to gain or maintain our share of sales in the United States and other countries at the federal, state, local and municipal level in respect of each of the foregoing subject areas. Public health officials and health advocates are increasingly focused on the public health consequences associated with obesity, especially as it affects children, and are seeking legislative change to reduce the consumption of sweetened beverages. There also has been an increased focus on caffeine content in beverages. To the extent any such legislation is enacted in one or more jurisdictions where a significant amountmarketplace. In addition, certain actions of our competitors, including unsubstantiated and/or misleading claims, false advertising claims and tortious interference in our business, as well as competitors selling misbranded products, are sold individually orcould impact our sales. Competitive pressures in the aggregate, itenergy drink category could result inimpact our revenues, cause price erosion and/or lower market share, any of which could have a reduction in demand for, or availability of,material adverse effect on our energy drinks, and adversely affect our business financial condition and results of operations.
The production, distribution and sale in the United States of many of our products are also currently subject to various federal and state regulations, including, but not limited to: the FD&C Act; the Occupational Safety and Health Act; various environmental statutes; California Proposition 65; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products. Outside the United States, the production, distribution and sale of many of our products are also subject to numerous statutes and regulations. If a regulatory authority finds that a current or future product, its label, or a production run is not in compliance with any of these regulations, we may be fined, or such products may have to be recalled, reformulated and/or have the packaging changed, which could adversely affect our business, financial condition and results of operations.
We cannot predict the effect of inquiries from and/or actions by attorneys general, other government agencies and/or quasi-government agencies into the production, advertising, marketing, promotion, labeling, ingredients, usage and/or sale of our energy drink products.
We are subject to the risks of investigations and/or enforcement actions by state attorneys general and/or other government and/or quasi-governmental agencies relating to the advertising, marketing, promotion, ingredients, usage and/or sale of our energy drinks. For example, in July 2012, we received a subpoena from the New York State Attorney General in connection with an investigation relating to the advertising, marketing, promotion, ingredients, usage and sale of our Monster Energy® brand energy drinks. We cannot predict the outcome of this inquiry and what, if any, effect it may have on our business, financial condition or results of operations. If an inquiry by a state attorney general or other government or quasi-government agency finds that our products and/or the advertising, marketing, promotion, ingredients, usage and/or sale of such products are not in compliance with applicable laws or regulations, we may become subject to fines, product reformulations, container changes, changes in the usage or sale of our energy drink products and/or changes in our advertising, marketing and promotion practices, each of which could have an adverse effect on our business, financial condition or results of operations.
In addition, from time to time, government and/or quasi-governmental agencies may investigate the safety of caffeine and energy drinks. For example, in January 2013, the Company received and responded to inquiries from U.S. legislators in response to FDA’s investigation into the safety of caffeine in food products, particularly its effects on children and adolescents. These legislators ultimately released a report in January 2015, recommending, inter alia, that the energy drink industry not market to consumers under the age of 18 and not market their products for hydration, and that the FDA develop and release definitions and guidance for this market sector. In addition, other organizations, such as the European Food Safety Authority, have also published reports, studies, articles and opinions on caffeine and energy drinks.
Litigation regarding our products, and related unfavorable media attention, could expose us to significant liabilities and reduce demand for our products.
We have been and are currently named as a defendant in personal injury lawsuits which allege that consumption of our products has been responsible for wrongful deaths and/or injuries. We do not believe that our products are responsible for such wrongful deaths and/or injuries, and we intend to vigorously defend such lawsuits.
In July 2012, we received a subpoena from the Attorney General for the State of New York in connection with an investigation relating to the advertising, marketing, promotion, ingredients, usage and sale of our Monster Energy® brand energy drinks. On August 6, 2014, the Attorney General for the State of New York issued a second subpoena seeking additional documents and the deposition of a Company employee. We have complied with both subpoenas. We cannot predict the outcome of this inquiry and what, if any, effect it may have on our business, financial condition or results of operations.
Several other lawsuits have been filed against us claiming that certain statements made in our advertisements and/or on the labels of our products were false and/or misleading or otherwise not in compliance with food standards under local law, and/or that our products are not safe. Putative class action lawsuits have also recently been filed against certain of our competitors asserting that certain claims in their advertisements amount to false advertising. We do not believe any statements made by us in our promotional materials or set forth on our product labels are false or misleading or noncompliant with local law, or that our products are in any way unsafe and we vigorously defend these lawsuits.
Any of the foregoing matters or other litigation, the threat thereof, or unfavorable media attention arising from pending or threatened product-related litigation could consume significant financial and managerial resources and result in decreased demand for our products, significant monetary awards against us and injury to our reputation.
Criticism of our energy drink products and/or criticism or a negative perception of energy drinks generally, could adversely affect us.
An unfavorable report on the health effects of caffeine, such as those related to obesity,other ingredients in energy drinks or energy drinks generally, or criticism or negative publicity regarding the caffeine content and/or any other ingredients in our products or energy drinks generally, including product safety concerns, could have an adverse effect on our business, financial condition and results of operations. Articles critical of the caffeine content and/or other ingredients in energy drinks and/or articles indicating certain health risks of energy drinks have been published in recent years. We believe the overall growth of the energy drink market in the U.S. may have been negatively impacted by the ongoing negative publicity and comments that continue to appear in the media questioning the safety of energy drinks, and suggesting limitations on their ingredients (including caffeine), and/or the levels thereof, and/or imposing minimum age restrictions for consumers. In early 2018, certain retailers in the United Kingdom announced the introduction of voluntary retailer measures to prevent the sale of energy drinks to individuals under the age of 16. If reports, studies or articles critical of caffeine and/or energy drinks continue to be published or are published in the future, or additional voluntary measures are taken, they could adversely affect the demand for our products.
which we are a member, and/or any international beverage associations and the impact of our failure to satisfy such guidelines on our business, financial condition and results of operations.
Increased competition in the beverage industry and changing retail landscape could hurt our business.
The beverage industry is highly competitive. The principal areas of competition are pricing, packaging, development of new products, flavors, product positioning as well as promotion and marketing strategies. Our products compete with a wide range of drinks produced by a relatively large number of manufacturers, some of which have substantially greater financial, marketing and distribution resources than we do.
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Important factors affecting our ability to compete successfully include the efficacy, taste and flavor of our products, trade and consumer promotions, rapid and effective development of new and unique cutting edge products, attractive and different packaging, branded product advertising and pricing. The success of our sports marketing, social media and other general marketing endeavors may impact our business, financial condition and results of operation. Our products compete with all liquid refreshments and in some cases with products of much larger and substantially better financed competitors, including the products of numerous nationally and internationally known producers such as TCCC, PepsiCo, Red Bull GmbhGmbH and the DPS Group.KDP. We also compete with companies that are smaller or primarily national or local in operations. Our products also compete with private-label brands such as those carried by grocery store chains, convenience store chains and club stores.
The rapid growth in sales through e-commerce retailers, e-commerce websites, mobile commerce applications and subscription services, and closures of physical retail operations, particularly during, and potentially following, the COVID-19 pandemic, may result in a shift away from physical retail operations to digital channels and a reduction in impulse purchases. As we build our e-commerce capabilities, we may not be able to develop and maintain successful relationships with existing and new e-commerce retailers without experiencing a deterioration of our relationships with key customers operating physical retail channels. If we are unable to profitably expand our own e-commerce capabilities and/or if e-commerce retailers take significant market share away from traditional retailers our business may be adversely affected. Further, the ability of consumers to compare prices on a real-time basis using digital technology puts additional pressure on us to maintain competitive prices. Sales in gas chains may also be affected by improvements in fuel efficiency and increased consumer preferences for electric or alternative fuel-powered vehicles, which may result in fewer trips by consumers to gas stations and a corresponding reduction in purchases by consumers in convenience gas retailers. If we are unable to successfully adapt to the rapidly changing retail landscape, our share of sales, volume growth and overall financial results could be negatively affected.
Due to competition in the beverage industry, there can be no assurance that we will not encounter difficulties in maintaining our current revenues, market share or position in the beverage industry. If our revenues decline, our business, financial condition and results of operations could be adversely affected.
Our inability to innovate successfully and to provide new cutting edge products could adversely affect our business and financial results.
Our ability to compete in the highly competitive beverage industry and to achieve our business growth objectives depends, in part, on our ability to develop new flavors, products and packaging. The success of our innovation, in turn, depends on our ability to identify consumer trends and cater to consumer preferences. If we are not successful in our innovation activities, our business, financial condition and results of operation could be adversely affected.
Uncertainty in the financial markets and other adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our industry, business and results of operations.
Global economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. There can be no assurance that economic improvements will occur, or that they would be sustainable, or that they would enhance conditions in markets relevant to us. In addition, we cannot predict the duration and severity of disruptions in any of our markets or the impact they may have on our customers or business, as our expansion outside of the United States has increased our exposure to any developments or crisis in African, Asian, European and other international markets. If economic conditions deteriorate, our industry, business and results of operations could be materially and adversely affected.
Changes in consumer product and shopping preferences may reduce demand for some of our products.
The beverage industry is subject to changing consumer preferences and shifts in consumer preferences may adversely affect us. There is increasing awareness of and concern for health, wellness and nutrition considerations, including concerns regarding caloric intake associated with sugar-sweetened beverages and the health consequencesperceived undesirability of obesity.artificial ingredients. Some consumer advocacy groups and others have expressed concerns regarding certain ingredients in diet sodas, which are contained in certain of our energy drinks. There are also changes in demand for different packages, sizes and configurations. This may reduce demand for our non-diet beverages, which could reduce our revenues and adversely affect our results of operations. Recently, concerns have emerged regarding diet sodas and in particular, aspartame, which is contained in certain of our Strategic Brands energy drinks.
Consumers are seeking greater variety in their beverages. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages that appeal to consumers. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of efficacy, taste, quality and price, although there can be no assurance of our ability to do so. There is no assurance that consumers will continue to purchase our products in the future. Product lifecycles for some beverage brands, products and/or packages may be limited to a few years before consumers’ preferences change. The beverages we currently market are in varying stages of their product lifecycles, and there can be no assurance that such beverages will become or remain profitable for us. We may be unable to achieve volume growth through product and packaging initiatives. We may also be unable to penetrate new markets. Additionally, as shopping patterns are being affected by the digital evolution, with customers embracing shopping by way of mobile device applications, e-commerce retailers and e-commerce websites or platforms, we may be unable to address or anticipate changes in consumer shopping preferences or engage with our customers on their preferred platforms. If our revenues decline, our business, financial condition and results of operations could be adversely affected.
Our continued expansion outside of the United States exposes us to uncertain conditions and other risks in international markets.
We have continued expanding our operations internationally into a variety of new markets, including launches in China and various African and Middle Eastern countries.markets. Our grossnet sales to customers outside of the United States were approximately 28%33%, 25%32% and 23%29% of consolidated grossnet sales for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. As our growth strategy includes further expanding our international business, if we are unable to continue to expand distribution of our products outside the United States, our growth rate could be adversely affected. In many international markets, we have limited operating experience and in some areasinternational markets we have no operating experience. It is costly to establish, develop and maintain international operations and develop and promote our brands in international markets. Our percentage gross profit margins in many international markets are expected to be less than the comparable percentage gross profit margins obtained in the United States. We face and will continue to face substantial risks associated with having foreign operations, including;including: economic and/or political instability in our international markets; fluctuations in foreign currency exchange rates; restrictions on or costs relating to the repatriation of foreign profits to the United States, including possible taxes and/or withholding obligations on any repatriations; and tariffs and/or trade restrictions. These risks could have a significant impact on our ability to sell our products on a competitive basis in international markets and could have a material adverse effect on our business, financial condition and results of operations. Also, our operations outside of the United States are subject to risks relating to appropriate compliance with legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations, higher product damages, particularly when products are shipped long distances, potentially higher incidence of fraud and/or corruption, credit risk of local customers and distributors and potentially adverse tax consequences.
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Global or regional catastrophic events could impact our operations and affect our ability to grow our business.
If we are unablenot able to growpass on increases in the costs of raw materials, including aluminum cans and/or ingredients and/or fuel and/or costs of co-packing, such inability could harm our business internationally as a result of these factors, our growth rate could decline.
Fluctuations in foreign currency exchange rates may adversely affect our operating results.
We are exposed to foreign currency exchange rate risk with respect to our sales, expenses, profits, assets and liabilities denominated in currencies other than the U.S. dollar. We may enter into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries’ non-functional currency denominated assets and liabilities. We have not used instruments to hedge against all foreign currency risks and are therefore not protected against all foreign currency fluctuations. As a result, our reported earnings may be affected by changes in foreign currency exchange rates. Moreover, any favorable impacts to profit margins or financial results from fluctuations in foreign currency exchange rates are likely to be unsustainable over time. Foreign currency transaction losses were $3.3 million, $9.7 million and $5.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
We rely on bottlers and other contract packers to manufacture our products. If we are unable to maintain good relationships with our bottlers and contract packers and/or their ability to manufacture our products becomes constrained or unavailable to us, our business could suffer.
Our acquisition of AFF brought our primary flavor supplier in-house for the majority of our Monster Energy® brand energy drinks. However, we also procure flavors from other independent flavor suppliers. We do not manufacture finished goods, but instead outsource manufacturing of our finished goods to bottlers and other contract packers. As a result in the event of a disruption and/or delay, we may be unable to procure alternative packing facilities at commercially reasonable rates and/or within a reasonably short time period. In addition, there are limited alternative packing facilities in our domestic and international markets with adequate capacity and/or suitable equipment for many of our products, including our Monster Energy® brand energy drinks, our Muscle Monster® product line, our Java Monster® product line, our Espresso MonsterTM product line, our Monster Hydro® product line and certain of our other products. For example, in the second half of 2016 and into the fourth quarter of 2017, sales of our Java Monster® and Muscle Monster® product lines were adversely impacted by production capacity constraints resulting from production and maintenance issues with certain of our co-packers. While this short-term disruption in production did not significantly affect our revenues, a lengthy disruption or delay in the production of any our products could significantly adversely affect our revenues from such products because alternative co-packing facilities in the United States and abroad with adequate long-term capacity may not be available for such products either at commercially reasonable rates and/or costs and/or within a reasonably short time period, if at all.
We rely on bottlers and distributors to distribute our products. If we are unable to maintain good relationships with our existing bottlers and distributors and/or secure such bottlers and distributors, our business could suffer.
Many of our bottlers/distributors are affiliated with and manufacture and/or distribute other soda, carbonated and non-carbonated brands and other beverage products (both alcoholic and non-alcoholic). In many cases, such products compete directly with our products.
Unilateral decisions could be taken by our bottlers/distributors, convenience and gas chains, grocery chains, specialty chain stores, club stores and other customers, to discontinue carrying certain or all of our products that they are carrying at any time, which could cause our business to suffer.
The TCCC North American Bottlers, Coca-Cola European Partners, Coca-Cola Hellenic and Coca-Cola FEMSA are our primary domestic and international distributors of our products. As a result, if we are unable to maintain good relationships with the TCCC North American Bottlers, Coca-Cola European Partners, Coca-Cola Hellenic and/or Coca-Cola FEMSA, or if the TCCC North American Bottlers, Coca-Cola European Partners, Coca-Cola Hellenic and/or Coca-Cola FEMSA do not effectively focus on marketing, promoting, selling and distributing our products, sales of our products could be adversely affected.
TCCC, through the TCCC Subsidiaries, accounted for approximately 18%, 41% and 43% of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively. A decision by certain TCCC North American Bottlers (including CCBCC Operations, LLC), Coca-Cola European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Wal-Mart, Inc. (including Sam’s Club), or any other large customer to decrease the amount purchased from us or to cease carrying our products could have a material adverse effect on our financial condition and consolidated results of operations.
The marketing efforts of our distributors are important for our success. If our brands prove to be less attractive to our existing bottlers and distributors, if we fail to attract additional bottlers and distributors, and/or our bottlers and/or distributors do not market, promote and distribute our products effectively, our business, financial condition and results of operations could be adversely affected.
Increases in costs and/or shortageshigher cost base. Shortages of raw materials including aluminum cans and/or ingredients and/or fuel and/or costs of co-packing could harmhave a material adverse effect on our business.
business and results of operations.
The principal raw materials used by us are aluminum cans, sleek aluminum cans, aluminum Cap Cans,cap cans, aluminum cans with re-sealable ends, PET plastic bottles, PET plastic cans, glass bottles,caps, flavors, juice concentrates, glucose, sugar, sucralose, milk, cream, protein, dietarycoffee, tea, cocoa, supplement ingredients and other packaging materials, the costs and availability of which are subject to fluctuations. For certain flavors purchased from third-party suppliers and used in a limited number of our Monster Energy® brand energy drinks and/or our Strategic Brands energy drinks, these third-party flavor suppliers own the proprietary rights to certain of their flavor formulas. We do not have possession of the list of such flavor ingredients or formulas used in the production of certain of our products and certain of our blended concentrates, and we may be unable to obtain comparable flavors or concentrates from alternative suppliers on short notice. Our third-party flavor suppliers generally do not make such flavors and/or blended concentrates available to other third-party customers. We have identified alternative suppliers for certain of the ingredients contained in many of our beverages. However, industry-wide shortages of certain flavors, fruits and fruit juices, coffee, tea, cocoa, dairy-based products, packaging materials (including aluminum cans) supplement ingredients and sweeteners have been, and could from time to time in the future be, encountered, which could interfere with and/or delay production of certain of our products. In addition, certain of our co-packing arrangements allow such co-packers to increase their chargesfees based on certain of their own cost increases. We are uncertain whether the prices of any of the above or any other raw materials or ingredients, certain of which have recently risen, will continue to rise or may rise in the future. We are unsure whether we will be able to pass any of such increases on to our customers. WeAlthough we generally do not use hedging agreements or alternative instruments to manage the risks associated with securing sufficient ingredients or raw materials, although we do, from time to time, we, through our aluminum can suppliers, enter into purchase agreements for a significant portionthe purchase of aluminum, as well as enter into purchase agreements for portions of our annual anticipated requirements for certain of our other raw materials such as aluminum cans, glucose, sugar and sucralose.
In addition, some2018, the United States imposed tariffs on steel and aluminum as well as on goods imported from China and certain other countries. Additional tariffs imposed by the United States on a broader range of these raw materials, including certain sizes of cans, are available from limited suppliers.
imports, or further trade measures taken by China or other countries, could result in an increase in supply chain costs.
Our failure to accurately estimate demand for our products or maintain sufficient inventory levels could adversely affect our business and financial results.
We may not correctly estimate demand for our existing products and/or new products. Our ability to estimate demand for our products is imprecise, particularly with regard to new products, and may be less precise during periods of rapid growth, particularlyincluding 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, aluminum cans, aluminum Cap Cans,cap cans, sleek aluminum cans, aluminum cans with re-sealable ends, PET plastic bottles, PET plastic cans, glass bottles,caps, labels, sucralose, flavors, dietarysupplement ingredients, juice concentrates, certain sweeteners, coffee, tea, cocoa, protein and packaging materials or experience difficulties with our co-packing arrangements, including production shortages or quality issues, we might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain juice concentrates, dietarysupplement ingredients and sweeteners have been and could, from time to time in the future, be experienced, resulting in production fluctuations and/or product shortages. We generally do not use hedging agreements or alternative instruments to manage this risk. Such shortages could interfere with and/or delay production of certain of our products and could have a material adverse effect on our business and financial results.
If we do not maintain sufficient inventory levels, if we are unable to deliver our products to our customers in sufficient quantities, and/or if our customers’ or retailers’ inventory levels are too high, our operating results could be adversely affected.
If we do not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, our inventory levels may be inadequate and our results of operations may be negatively impacted. If we fail to meet our shipping schedules, we could damage our relationships with distributors and/or retailers, increase our distribution costs and/or cause sales opportunities to be delayed or lost. In order to be able to deliver our products on a timely basis, we need to maintain adequate inventory levels of the desired products. If the inventory of our products held by our distributors and/or retailers is too high, they will not place orders for additional products, which could unfavorably impact our future sales and adversely affect our operating results.
The costs of packaging supplies are subject to price increases from time to time, and we may be unable to pass all or some of such increased costs on to our customers.
Many of our packaging supply contracts allow our suppliers to alter the costs they charge us for packaging supplies based on changes in the costs of the underlying commodities that are used to produce those packaging supplies, such as aluminum for cans, PET plastic for bottles and pulp and paper for cartons and/or trays. These changes in the prices we pay for our packaging supplies occur at certain predetermined times that vary by product and supplier. In some cases, we are able to fix the prices of certain packaging supplies and/or commodities for a reasonable period. In other cases, we bear the risk of increases in the costs of these packaging supplies, including the underlying costs of the commodities that comprise these packaging supplies. We do not use derivative instruments to manage this risk. If the costs of these packaging supplies increase, we may be unable to pass these costs along to our customers through corresponding adjustments to the prices we charge, which could have a material adverse effect on our results of operations.
Global or regional catastrophic events could impact our operations and affect our ability to grow our business.
Because of our increasingly global presence, our business could be affected by unstable political conditions, civil unrest, protests and demonstrations, large-scale terrorist acts, especially those directed against the United States or other major industrialized countries where our products are distributed, the outbreak or escalation of armed hostilities, major natural disasters and extreme weather conditions, such as hurricanes, wildfires, tornados, earthquakes or floods, or widespread outbreaks of infectious diseases (such as the COVID-19 pandemic). Such catastrophic events could impact our operations and our supply chain, including the production and/or distribution of our products. Materials and/or personnel may need to mobilize to other locations. Our headquarters and a large part of our operations are located in California, a state at greater risk of earthquakes and wildfires. Some of the raw materials we use, including certain sizes of cans, are available from limited suppliers, and a regional catastrophic event impacting such suppliers could adversely impact our operations. In addition, such events could disrupt global or regional economic activity, which could affect consumer purchasing power and consumers’ ability to purchase our products, thereby reducing demand for our products. If our operations are disrupted or we are unable to grow our business as a result of these factors, our growth rate could decline and our business, financial condition and results of operations could be adversely affected.
Climate change and natural disasters may affect our business.
There is concern that a gradual increase in global average temperatures due to increased carbon dioxide and other greenhouse gases in the atmosphere could cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Changing weather patterns could result in decreased agricultural productivity in certain regions, and/or outbreaks of diseases or other health issues, which may limit availability and/or increase the cost of certain key ingredients, juice concentrates, supplements and other ingredients used in our products and could impact the food security of communities around the world. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain and/or impact demand for our products.
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Natural disasters and extreme weather conditions, such as hurricanes, wildfires, earthquakes or floods, and outbreaks of diseases (such as the COVID-19 pandemic) or other health issues may affect our operations and the operation of our supply chain, impact the operations of our bottlers/distributors and unfavorably impact our consumers’ ability to purchase our products. The predicted effects of climate change may also result in challenges regarding availability and quality of water, or less favorable pricing for water, which could adversely impact our business and results of operations. In addition, public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs, and may require us to make additional investments in facilities and equipment. Changes in applicable laws, regulations, standards or practices related to greenhouse gas emissions, packaging and water scarcity, as well as initiatives by advocacy groups in favor of certain climate change-related laws, regulations, standards or practices, may result in increased compliance costs, capital expenditures and other financial obligations, which could affect our business, financial condition and results of operations. Sales of our products may also be influenced to some extent by weather conditions in the markets in which we operate. We, our bottlers and our contract packers, use a number of key ingredients in the manufacture of our beverage products that are derived from agricultural commodities such as sugar, coffee, tea and cocoa. Increased demand for food products and decreased agricultural productivity in certain regions of the world as a result of changing weather patterns and other factors may limit the availability or increase the cost of such agricultural commodities and could impact the food security of communities around the world. Weather conditions may influence consumer demand for certain of our beverages, which could have an effect on our operations, either positively or negatively.
If we are not able to retain the full-time services of senior management, there may be an adverse effect on our operations and/or our operating performance until we find suitable replacements.
Our business is dependent, to a large extent, upon the services of our senior management. We do not maintain key person life insurance on any members of our senior management. The loss of services of either Rodney Sacks, Chairman and Co-Chief Executive Officer, Hilton Schlosberg, Vice Chairman, and Co-Chief Executive Officer, or any other key members of our senior management could adversely affect our business until suitable replacements can be found. There may be a limited number of personnel with the requisite skills to serve in these positions, and we may be unable to locate or employ such qualified personnel on acceptable terms.
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Negative publicity (whether or not warranted) could damage our brand image and corporate reputation, and may cause our business to suffer.
Our success depends on our ability to build and maintain the brand image for our existing products, new products and brand extensions and maintain our corporate reputation. There can be no assurance that our advertising, marketing and promotional programs and our commitment to product safety and quality, human rights and environmental sustainability will have the desired impact on our products’ brand image and on consumer preferences and demand. Claims regarding product safety, quality and/or ingredient content issues, efficacy or lack thereof (real or imagined), our culture and our workforce, our environmental impact and the sustainability of our operations, or allegations of product contamination, even if false or unfounded, could tarnish the image of our brands and may cause consumers to choose other products. Consumer demand for our products could diminish significantly if we, our employees, bottlers/distributors, suppliers or business partners fail to preserve the quality of our products, act or are perceived to act in an unethical, illegal, discriminatory, unequal or socially irresponsible manner, including with respect to the sourcing, content or sale of our products, service and treatment of our customers, or the use of customer data. Furthermore, our brand image or perceived product quality could be adversely affected by litigation, unfavorable reports in the media (internet or elsewhere), studies in general and regulatory or other governmental inquiries (in each case whether involving our products or those of our competitors) and proposed or new legislation affecting our industry. Negative postings or comments on social media or networking websites about the Company or any one of our brands, even if inaccurate or malicious, could generate adverse publicity that could damage the reputation of our brands or the Company. Business incidents, whether isolated or recurring and whether originating from us, our bottlers/distributors, suppliers or business partners, that erode consumer trust can significantly reduce brand value or potentially trigger boycotts of our products and can have a negative impact on consumer demand for our products as well as our reputation and financial results. The impact of such incidents may be exacerbated if they receive considerable publicity, including rapidly through social or digital media (including for malicious reasons) or result in litigation.
In addition, from time to time, there are public policy endeavors that are either directly related to our products and packaging or to our business. These public policy debates can occasionally be the subject of backlash from advocacy groups that have a differing point of view and could result in adverse media and consumer reaction, including product boycotts. Similarly, our sponsorship relationships could subject us to negative publicity as a result of actual or alleged misconduct by individuals or entities associated with organizations we sponsor or support. Likewise, campaigns by activists connecting us, or our supply chain, with human and workplace rights, environmental or animal rights issues could adversely impact our corporate image and reputation. We have made a number of commitments to respect human rights, including the policies and initiatives described in our California Transparency in Supply Chains Act & United Kingdom Modern Slavery Act statement. Allegations, even if untrue, that we are not respecting the human rights found in the United Nations Universal Declaration of Human Rights; actual or perceived failure by our suppliers or other business partners to comply with applicable labor and workplace rights laws, including child labor laws, or their actual or perceived abuse or misuse of migrant workers; adverse publicity surrounding obesity and health concerns related to our products, water usage, our environmental impact and the sustainability of our operations, labor relations, our culture and our workforce or the like could negatively affect our Company’s overall reputation and brand image, which in turn could have a negative impact on our products’ acceptance by consumers.
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Government Regulation and Litigation Risks
Changes in government regulation, or failure to comply with existing regulations, could adversely affect our business, financial condition and results of operations.
Legislation has been proposed and/or adopted at the U.S. federal, state and/or municipal level and proposed and/or adopted in certain foreign jurisdictions to restrict the sale of energy drinks (including, prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limit the content of caffeine and other ingredients in beverages, require certain product labeling disclosures and/or warnings, impose excise taxes, limit product size or impose age restrictions for the sale of energy drinks. For a discussion of certain of such legislation, see “Part I, Item 1 – Business – Government Regulation.” Furthermore, additional legislation may be introduced in the United States and other countries at the federal, state, local, municipal and supranational level in respect of each of the foregoing subject areas. For instance, on January 1, 2020, a reform to a Mexican excise tax went into effect that expanded the definition of an “energy drink” subject to this tax to include products with any amount of caffeine (the prior version of the tax required a threshold of 20 milligrams of caffeine per 100 millimeters for the tax to be applicable) and “taurine or glucuronolactone or thiamine and/or any other substance that produces similar stimulating effects.” Public health officials and health advocates are increasingly focused on the public health consequences associated with obesity, especially as it affects children, and are seeking legislative change to reduce the consumption of sweetened beverages. There also has been increased focus on caffeine content in beverages, and we are seeing some attention to other ingredients in energy drinks. To the extent any such legislation is enacted in one or more jurisdictions where a significant amount of our products are sold, individually or in the aggregate, it could result in a reduction in demand for, or availability of, our energy drinks, and adversely affect our business, financial condition and results of operations.
The production, distribution and sale in the United States of many of our products are also currently subject to various federal and state regulations, including, but not limited to: the FD&C Act; the Occupational Safety and Health Act; various environmental statutes; data privacy laws; California Proposition 65; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling, packaging and ingredients of such products.
Outside the United States, the production, distribution and sale of many of our products are also subject to numerous statutes and regulations.
If a regulatory authority finds that a current or future product, its label, or a production run is not in compliance with any of these regulations, we may be fined, or the products in question may have to be recalled, removed from the market, reformulated and/or have the packaging changed, which could adversely affect our business, financial condition and results of operations.
We cannot predict the effect of possible inquiries from and/or actions by attorneys general, other government agencies and/or quasi-government agencies into the production, advertising, marketing, promotion, labeling, ingredients, usage and/or sale of our energy drink products.
We are subject to the risks of investigations and/or enforcement actions by state attorneys general and/or other government and/or quasi-governmental agencies relating to the advertising, marketing, promotion, ingredients, usage and/or sale of our energy drinks, and we are a party, from time to time, to various government and regulatory inquiries and/or proceedings. Defending these proceedings can result in significant ongoing expenditures and the diversion of our management’s time and attention from the operation of our business, which could have a negative effect on our business operations.
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In addition, from time to time, government and/or quasi-governmental agencies may investigate the safety of caffeine and other ingredients in energy drinks. If an inquiry by a state attorney general or other government or quasi-government agency finds that our products and/or the advertising, marketing, promotion, ingredients, usage and/or sale of such products are not in compliance with applicable laws or regulations, we may become subject to fines, product reformulations, container changes, changes in the usage or sale of our energy drink products and/or changes in our advertising, marketing and promotion practices, each of which could have an adverse effect on our business, financial condition or results of operations.
Litigation regarding our products, and related unfavorable media attention, could expose us to significant liabilities and reduce demand for our products, thus negatively affecting our financial results.
We have been and are a party, from time to time, to various litigation claims and legal proceedings, including, but not limited to, intellectual property, fraud, unfair business practices, false advertising, product liability, breach of contract claims, claims from prior distributors, labor and employment matters, personal injury matters, consumer class actions, securities actions and shareholder derivative actions.
Other lawsuits have been filed against us claiming that certain statements made in our advertisements and/or on the labels of our products were false and/or misleading or otherwise not in compliance with food standards under local law, and/or that our products are not safe. Putative class action lawsuits have also been filed against certain of our competitors asserting that certain claims in their advertisements amount to false advertising. We do not believe any statements made by us in our promotional materials or set forth on our product labels are false or misleading or noncompliant with local law, or that our products are in any way unsafe and we vigorously defend such lawsuits.
Any of the foregoing matters or other litigation, the threat thereof, or unfavorable media attention arising from pending or threatened product-related litigation could consume significant financial and managerial resources and result in decreased demand for our products, significant monetary awards against us, an injunction barring the sale of any of our products and injury to our reputation. Our failure to successfully defend or settle any litigation or legal proceedings could result in liabilities that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenue and profitability, and could cause the market value of our common stock to decline.
If we encounter material product recalls, our business may suffer material losses and such recalls could damage our brand image and corporate reputation, also potentially resulting in material losses.
We may be required from time to time to recall products entirely or from specific co-packers, markets, retailers or batches if such products become contaminated, damaged, mislabeled, defective or otherwise materially non-compliant with applicable regulatory requirements. A material product recall could adversely affect our profitability and our brand image and corporate reputation. We do not maintain recall insurance.
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Intellectual Property, Information Technology and Data Privacy Risks
Our intellectual property rights are critical to our success, and the loss of such rights could materially adversely affect our business.
We own numerous trademarks that are very important to our business. We also own the copyright in, and to, a portion of the content on the packaging of our products. We regard our trademarks, copyrights and similar intellectual property as critical to our success and attempt to protect such intellectual property through registration and enforcement actions. However, there can be no assurance that other parties will not infringe or misappropriate our trademarks, copyrights and similar proprietary rights. The Company currently has several proceedings ongoing with VPX to adjudicate claims, including claims for false advertising and trademark infringement and trade dress infringement, brought by the Company against VPX and by VPX against the Company. Certain proceedings could result in an injunction barring us from selling certain of our products and/or require changes to be made to our current trade dress. If we lose some or all of our intellectual property rights, or an injunction prevents us from selling any of our products, our business may be materially adversely affected.
If we are We also have been, and may in the future be, unable to maintainuse our brand imagetrademarks, trade names or product quality, our businessdesigns and/or trade dress in certain countries, which may suffer.
Our success depends on our ability to build and maintain the brand image for our existing products, new products and brand extensions. There can be no assurance that our advertising, marketing and promotional programs will have the desired impact on our products’ brand image and on consumer preference and demand. Product quality and/or ingredient content issues, efficacy or lack thereof, (real or imagined), or allegations of product contamination, even if false or unfounded, could tarnish the imagesales of the affected brands and may cause consumers to choose other products. Furthermore, our brand image or perceived product quality could be adversely affected by litigation, unfavorable reports in the media (internet or elsewhere), studies in general and regulatory or other governmental inquiries, (in each case whether involving our products or those of our competitors) and proposed or new legislation affecting our industry.
If we encounter product recalls, our business may suffer and we may incur material losses.
We may be required from time to time to recall products entirely or from specific co-packers, markets or batches if such products become contaminated, damaged, mislabeled or otherwise materially non-compliant with applicable regulatory requirements. Material product recalls could adversely affect our profitability and our brand image. We do not maintain recall insurance.
If we are not able to retain the full-time services of senior management there may be an adverse effect on our operations and/or our operating performance until we find suitable replacements.
Our business is dependent, to a large extent, upon the services of our senior management. We do not maintain key person life insurance on any members of our senior management. The loss of services of either Mr. Sacks, Chairman and Chief Executive Officer, Mr. Schlosberg, President and Chief Financial Officer, or any other key members of our senior management could adversely affect our business until suitable replacements can be found. There may be a limited number of personnel with the requisite skills to serve in these positions, and we may be unable to locate or employ such qualified personnel on acceptable terms.
Climate change may negatively affect our business.
There is concern that a gradual increase in global average temperatures could cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. While warmer weather has historically been associated withrequire increased sales of our products, changing weather patterns could result in decreased agricultural productivity in certain regions, which may limit availability and/or increase the cost of certain key ingredients, juice concentrates and dietary and other ingredients used in our products. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain (including, without limitation, the availability of, and/or result in higher prices for, juice concentrates, natural flavors and dietary and other ingredients) and/or impact demand for our products. In addition, public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs, and may require us to make additional investments in facilities and equipment. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations. Sales of our products may also be influenced to some extent by weather conditions in the markets in which we operate. Weather conditions may influence consumer demand for certain of our beverages,expenditures, which could have an adverse effect on our business, financial condition or results of operations.
We must continually maintain, protect and/or upgrade our information technology systems, including protecting us from internal and external cybersecurity threats.
Information technology enables us to operate efficiently, interface with customers, maintain financial accuracy and efficiency and accurately produce our financial statements. If we do not appropriately allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, and/or the loss of and/or damage to intellectual property through security breaches, including internal and external cybersecurity threats. Cybersecurity attacks are evolving and include, but are not limited to, malicious software (malware, ransomware and viruses), phishing and social engineering, attempts to gain unauthorized access to networks, computer systems and data, malicious or negligent actions of employees (including misuse of information they are entitled to access) and other forms of electronic security breaches that could lead to disruptions in business systems, an inability to process customer orders and/or lost customer orders, unauthorized release of confidential or otherwise protected information and corruption of data.
We rely on relationships with third parties, including suppliers, distributors, bottlers, contract packers, contractors, cloud data storage and other information technology service providers and other external business partners, for certain functions or for services in support of our operations. These third-party service providers and partners, with whom we may share data, are subject to similar risks as we are relating to cybersecurity, privacy violations, business interruption, and systems, as well as employee failures. While we have procedures in place for selecting and managing our relationships with third-party service providers and other business partners, we do not have control over their business operations or governance and compliance systems, practices and procedures, which increases our financial, legal, reputational and operational risk. These third parties may experience cybersecurity incidents that may involve data we share with them or rely on them to provide to us, and the need to coordinate with such third-parties, including with respect to timely notification and access to personnel and information concerning an incident, may complicate our efforts to resolve any issues that arise.
We believe that we have adopted appropriate measures including ongoing cybersecurity risk assessments to mitigate potential risks to our technology and our operations from these information technology-related disruptions. However, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to operational interruption, damage to our brand image and private data exposure.
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Moreover, if our data management systems, including our SAP enterprise resource planning system, do not effectively collect, store, process and report relevant data for the operation of our business (whether due to equipment malfunction or constraints, software deficiencies, cybersecurity attack and/or human error), our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows and the timeliness with which we report our internal and external operating results.
If we fail to comply with data privacy and personal data protection laws, we could be subject to adverse publicity, government enforcement actions and/or private litigation, which may negatively impact our business and operating results.
We receive, process, transmit and store information relating to certain identified or identifiable individuals (“personal data”), including current and former employees, in the ordinary course of business. As a result, we are subject to various U.S. federal and state and foreign laws and regulations relating to personal data. These laws are subject to change, and new personal data legislation may be enacted in other jurisdictions at any time. In the European Union, the General Data Protection Regulation (“GDPR”) became effective in May 2018 for all member states. The GDPR includes operational requirements for companies receiving or processing personal data of residents of the European Union different from those that were previously in place and also includes significant penalties for noncompliance. Additionally, the California Consumer Privacy Act of 2018 (“CCPA”), which was enacted in June 2018 and came into effect on January 1, 2020, provides a new private right of action and statutory damages for certain data breaches and imposes operational requirements on companies that process personal data of California residents, including making new disclosures to consumers about data collection, processing and sharing practices and allowing consumers to opt out of certain data sharing with third parties.
Changes introduced by the GDPR and the CCPA, as well as other changes to existing personal data protection laws and the introduction of such laws in other jurisdictions, subject the Company to, among other things, additional costs and expenses and may require costly changes to our business practices and security systems, policies, procedures and practices. There can be no assurances that our security controls over personal data, training of personnel on data privacy and data security, vendor management processes, and the policies, procedures and practices we implement will prevent the improper processing or breaches of personal data. Data breaches or improper processing, or breaches of personal data in violation of the GDPR, the CCPA and/or of other personal data protection or privacy laws and regulations, could harm our reputation, cause loss of consumer confidence, subject us to government enforcement actions (including fines), or result in private litigation against us, which may result in potential loss of revenue, increased costs, liability for monetary damages or fines and/or criminal prosecution, thereby negatively impacting our business and operating results.
Financial Risks
Fluctuations in our effective tax rate could adversely affect our financial condition and results of operations.
We are subject to income and other taxes in both the U.S. and certain foreign jurisdictions. Therefore, we are subject to audits for multiple tax years in various jurisdictions at once.
We are in various stages of examination with certain states and certain foreign jurisdictions including the United Kingdom and Ireland. Our 2017 through 2019 U.S. federal income tax returns are subject to examination by the IRS. Our state income tax returns are subject to examination for the 2016 through 2019 tax years.
At any given time, events may occur which change our expectation about how any such tax audits will be resolved and thus, there could be significant variability in our quarterly and/or annual tax rates, because these events may change our plans for uncertain tax positions.
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Changes in U.S. tax laws as a result of any legislation proposed by the new U.S. Presidential Administration or U.S. Congress, which may include efforts to change or repeal the 2017 Tax Cuts and Jobs Act and the federal corporate income tax rate reduction, could adversely affect our provision for income taxes, resulting in an adverse impact on our financial condition or results of operations. In addition, changes in the manner in which U.S. multinational corporations are taxed on foreign earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our financial condition or results of operations. For example, the Organization for Economic Cooperation and Development (“OECD”) has recommended changes to numerous long-standing international tax principles through its base erosion and profit shifting (“BEPS”) project. These changes, to the extent adopted, may increase tax uncertainty, result in higher compliance costs and adversely affect our provision for income taxes, results of operations and/or cash flow. In connection with the OECD’s BEPS project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in various countries. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation could differ from our historical provisions and accruals, resulting in an adverse impact on our financial condition or results of operations.
We may be required in the future to record a significant charge to earnings if our goodwill or intangible assets become impaired.
Under United States Generally Accepted Accounting Principles (“GAAP”), we are required to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include, declining or slower than anticipated growth rates for certain of our existing products, a decline in stock price and market capitalization, and slower growth rates in our industry.
We may be required in the future to record a significant charge to earnings during the period in which we determine that our intangible assets have been impaired. Any such charge would adversely impact our results of operations. As of December 31, 2020, our goodwill totaled approximately $1.33 billion and other intangible assets totaled approximately $1.06 billion.
Fluctuations in foreign currency exchange rates may adversely affect our operating results.
We are exposed to foreign currency exchange rate risk with respect to our sales, expenses, profits, assets and liabilities denominated in currencies other than the U.S. dollar. We may enter into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries’ non-functional currency denominated assets and liabilities. We have not used instruments to hedge against all foreign currency risks and are therefore not protected against all foreign currency fluctuations. As a result, our reported earnings may be affected by changes in foreign currency exchange rates. Moreover, any favorable impacts to profit margins or financial results from fluctuations in foreign currency exchange rates are likely to be unsustainable over time. Foreign currency transaction losses were $11.2 million, $4.1 million and $4.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Potential changes in accounting standards or practices and/or taxation may adversely affect our financial results.
We cannot predict the impact that future changes in accounting standards or practices may have on our financial results. New accounting standards could be issued that change the way we record revenues, expenses, assets and liabilities. These changes in accounting standards could adversely affect our reported earnings. Increases in direct and indirect income tax rates could affect after-tax income. Equally, increases in indirect taxes (including environmental taxes pertaining to the disposal of beverage containers and/or indirect taxes on beverages generally or energy drinks in particular) could affect our products’ affordability and reduce our sales.
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If we fail to maintain effective disclosure controls and procedures and internal control over financial reporting on a consolidated basis, our stock price and investor confidence in the Company could be materially and adversely affected.
We are required to maintain both disclosure controls and procedures as well as internal control over financial reporting that are effective for the purposes described in “Part II, Item 9A – Controls and Procedures.” If we fail to maintain such controls and procedures, our business, results of operations, financial condition and/or the value of our stock could be materially harmed.
FluctuationsUncertainty in our effective tax ratethe financial markets and other adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our financial conditionindustry, business and results of operationsoperations..
We are subjectGlobal economic uncertainties, including foreign currency exchange rates, affect businesses such as ours in a number of ways, making it difficult to income taxesaccurately forecast and plan our future business activities. There can be no assurance that economic improvements will occur, or that they would be sustainable, or that they would enhance conditions in bothmarkets relevant to us. In addition, we cannot predict the U.S.duration and certain foreign jurisdictions. Therefore, weseverity of disruptions in any of our markets or the impact they may be subjected to audits for multiple tax years in various jurisdictions at once. At any given time, events may occur which changehave on our expectation about how any such tax audits will be resolved and thus, there could be variability incustomers or business, as our quarterly and/or annual tax rates, because these events may change our plans for uncertain tax positions. On December 22, 2017, the Presidentexpansion outside of the United States signedhas increased our exposure to any developments or crises in African, Asian, European and other international markets. Unfavorable economic conditions and financial uncertainties in our major international markets and unstable political conditions, including civil unrest and governmental changes, in certain of our other international markets could undermine global consumer confidence and reduce consumers’ purchasing power, thereby reducing demand for our products. Included in the foregoing are long-term uncertainties surrounding the United Kingdom’s withdrawal from the European Union on January 31, 2020 (commonly referred to as “Brexit”) and any resulting increases in tariffs, importation restrictions, out of stocks, volatility in currency exchange rates, including the valuation of the euro and the British pound in particular, changes in the laws and regulations applied in the United Kingdom or impacts on economic and market conditions in the United Kingdom, the European Union and its member states and elsewhere.
Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses.
As part of any hedging activities that we may conduct, we may enter into lawtransactions involving derivative financial instruments, including forward contracts, commodity futures contracts, option contracts, collars and swaps, with various financial institutions. We also have significant amounts of cash, cash equivalents and other investments on deposit or in accounts with banks or other financial institutions both in the TaxUnited States and Jobs Act (the “Tax Reform Act”) which imposes broad and complex changesabroad, exposing us to risk of default by or failure of such counterparty financial institutions. This risk of counterparty default or failure is greater during periods of economic downturn or uncertainty in financial markets. If one of our counterparties became insolvent or filed for bankruptcy, our ability to recover losses incurred due to the U.S. tax code. While we have provided a provisional estimatedefault or to retrieve assets deposited or held in accounts with such counterparty may be limited by the counterparty’s liquidity or applicable laws governing insolvency and bankruptcy proceedings. Default by or failure of the effect of the Tax Reform Act in our financial statements, in particular as it relates to the reductionone or more of our net deferred tax assets, actual amounts may vary materially from these estimates duecounterparties could cause us to a numberincur significant losses and negatively impact our results of uncertaintiesoperations and factors, including further analysis and clarification of the Tax Reform Act that cannot be reasonably estimated at this time.financial condition.
Volatility of stock price may restrict sale opportunities.
Our stock price is affected by a number of factors, including stockholder expectations, financial results, the introduction of new products by us and our competitors, general economic and market conditions, estimates and projections by the investment community and public comments by other parties as well as many other factors including litigation, many of which are beyond our control. We do not provide guidance on our future performance, including, but not limited to, our revenues, margins, product mix, operating expenses or net income. We may be unable to achieve analysts’ net revenue and/or earnings forecasts, which are based on their own projected revenues, sales volumes and sales mix of many product types and/or new products, certain of which are more profitable than others, as well as their own estimates of gross margin and operating expenses. There can be no assurance that we will achieve any such projected levels or mixesmix of product sales, revenues, gross margins, operating profits and/or net income. As a result, our stock price is subject to significant volatility, and stockholders may not be able to sell our stock at attractive prices. In addition, periods of volatility in the market price of our stock could result in the initiation of securities class action litigation against us. During the fiscal year ended December 31, 2017,2020, the high of our stock price was $64.79$91.68 and the low was $41.02.
$50.06.
Provisions in our organizational documents and control by insiders may prevent changes in control even if such changes would be beneficial to other stockholders.
Our organizational documents may limit changes in control. Furthermore, as of February 12, 2018, Mr. Sacks and Mr. Schlosberg together may be deemed to beneficially own and/or exercise voting control over approximately 9.3% of our outstanding common stock. As of February 12, 2018, TCCC owned approximately 18.0% of our common stock. Consequently, Mr. Sacks, Mr. Schlosberg and TCCC could exercise significant control over matters submitted to a vote of our stockholders, including electing directors, amending organizational documents and disapproving extraordinary transactions such as a takeover attempt, even though such actions may be favorable to the other common stockholders.
Our cash flow may not be sufficient to fund our long-term goals.
Although we currently have sufficient cash to support our planned operating activities in the current year, we may be unable to generate sufficient cash flow to support our capital expenditure plans and general operating activities in the future. In addition, the terms and/or availability of our credit facility and/or the activities of our debtors and/or creditors could affect the financing of our future growth.
Our investments in marketable securities are subject to risks which may cause losses and affect the liquidity of these investments.
At December 31, 2017,2020, we had $528.6 million$1.18 billion in cash and cash equivalents $672.9and $925.6 million in short-term and long-term investments, and $2.4 million of long-term investments. We have historically invested these amounts in U.S. Treasury bills,including certificates of deposit, commercial paper, U.S. government agenciesagency securities, U.S. treasuries, and to a lesser extent, municipal securities (which may have an auction reset feature), variable rate demand notes and money market funds meeting certain criteria.securities. Certain of these investments are subject to general credit, liquidity, market and interest rate risks. These risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition.
We may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired.
Under GAAP, we are required to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include, declining or slower than anticipated growth rates for certain of our existing products, a decline in stock price and market capitalization, and slower growth rates in our industry.
We may be required to record a significant charge to earnings in our financial statements during the period in which we determine that our intangible assets have been impaired. Any such charge would adversely impact our results of operations. As of December 31, 2017, our goodwill totaled approximately $1,331.6 million and our intangible assets totaled approximately $1,034.1 million.
If we fail to maintain effective disclosure controls and procedures and internal control over financial reporting on a consolidated basis, our stock price and investor confidence in the Company could be materially and adversely affected.
We are required to maintain both disclosure controls and procedures as well as internal control over financial reporting that are effective for the purposes described in “Part II, Item 9A – Controls and Procedures.” If we fail to maintain such controls and procedures, our business, results of operations, financial condition and/or the value of our stock could be materially harmed.
Litigation, legal proceedings, government and regulatory inquiries and/or proceedings could expose us to significant liabilities and thus negatively affect our financial results.
We are a party, from time to time, to various litigation claims and legal proceedings, government and regulatory inquiries and/or proceedings, including, but not limited to, intellectual property, fraud, unfair business practices, false advertising, product liability, breach of contract claims, securities actions and shareholder derivative actions. Material legal proceedings are described more fully in, “Part I, Item 3 – Legal Proceedings” and in “Part II, Item 8, Note 11” to our consolidated financial statements contained in this Form 10-K.
Defending these proceedings can result in significant ongoing expenditures and the diversion of our management’s time and attention from the operation of our business, which could have a negative effect on our business operations. Our failure to successfully defend or settle any litigation or legal proceedings could result in liabilities that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenue and profitability, and could cause the market value of our common stock to decline.
We must continually maintain, protect and/or upgrade our information technology systems, including, protecting us from internal and external cybersecurity threats.
Information technology enables us to operate efficiently, interface with customers, maintain financial accuracy and efficiency and accurately produce our financial statements. If we do not appropriately allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, and/or the loss of and/or damage to intellectual property through security breaches, including internal and external cybersecurity threats. Cybersecurity attacks are evolving and include, but are not limited to, malicious software (malware and virus), attempts to gain unauthorized access to networks, computer systems and data and other forms of electronic security breaches that could lead to disruptions in business systems, an inability to process customer orders and/or lost customer orders, unauthorized release of confidential or otherwise protected information and corruption of data. We believe that we have adopted appropriate measures including ongoing cybersecurity risk assessments to mitigate potential risks to our technology and our operations from these information technology-related disruptions. However, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to operational interruption, damage to our brand image and private data exposure. Moreover, if our data management systems, including our SAP enterprise resource planning system, do not effectively collect, store, process and report relevant data for the operation of our business (whether due to equipment malfunction or constraints, software deficiencies, cybersecurity attack and/or human error), our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows and the timeliness with which we report our internal and external operating results.
ITEM 1B.UNRESOLVED STAFF COMMENTS
Not applicable.
Our principal properties include our corporate headquarters as well as our Southern California warehouse and distribution center.
Our owned corporate headquarters arefacilities located at 1 Monster Way,in Corona, California, 92879, consistingconsist of (i) an approximately 141,000 square-foot, free-standing, six-story building (ENERGY STAR certified), (ii) an approximately 147,625 square-foot three-story parking structure and storage facility, which houses our approximately 14,000 square-foot quality control laboratory, (iii) an adjacent approximately 75,426 square foot, free-standing, three-story building (pursuing ENERGY STAR certification)., (iv) an approximately 20,661 square-foot, free-standing, single-story building and (v) an approximately 49,617 square-foot, free-standing, two-story building.
In September 2016, we completed the acquisition of approximately 49 acres of land,Our owned Southern California warehouse and distribution center is located in Rialto, CA, for a purchase price of approximately $39.1 million. In the fourth quarter of 2017, we completed the constructionCalifornia, consisting of an approximately 1,000,000 square-foot building (the “Rialto Warehouse”) on this land, which is LEED certified.
During 2020, we anticipate will be LEED certified, to replace our leased warehouses and distribution facilitiespurchased a three-story office building located in Corona, CA.Uxbridge, United Kingdom.
During 2019, we acquired a manufacturing plant and adjoining land in Athy, County Kildare, Ireland. We enteredintend to utilize the facility to produce and supply ingredients for certain of our international markets.
38
During 2019, we purchased approximately 7.66 acres of land in San Fernando, California. We are in the process of constructing a new production facility in order to consolidate AFF’s operations into an approximately $38.1 million guaranteed maximum price construction contract for the construction of the building, of which $4.6 million remained outstanding as of December 31, 2017. During the three-months ended September 30, 2017, we transitioned our Southern California warehouse and distribution operations to the Rialto Warehouse, which was fully operational by December 31, 2017.
a single location.
In addition, we lease many smaller office and/or warehouse spaces, both domestically and in certain international locations.
The Company is currently a defendant in a number of personal injury lawsuits, claiming that the death or other serious injury of the plaintiffs was caused by consumption of Monster Energy® brand energy drinks. The plaintiffs in these lawsuits allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The Company believes that each complaint is without merit and plans a vigorous defense. The Company also believes that any damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.
State Attorney General Inquiry – In July 2012, the Company received a subpoena from the Attorney General for the State of New York in connection with its investigation concerning the Company’s advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand energy drinks. Production of documents pursuant to that subpoena was completed in approximately May 2014.
On August 6, 2014, the Attorney General for the State of New York issued a second subpoena seeking additional documents and the deposition of a Company employee. On September 8, 2014, the Company moved to quash the second subpoena in the Supreme Court, New York County. The motion was fully briefed and was argued on March 17, 2015. On January 13, 2017, the Court issued an opinion in which it agreed with certain Company arguments regarding the scope of the subpoena and the Attorney General’s investigation, but denied the motion to quash and granted the Attorney General’s cross-motion to compel compliance. The Company has complied with the second subpoena. It is unknown what, if any, action the state Attorney General may take against the Company, the relief which may be sought in the event of any such proceeding or whether such proceeding could have a material adverse effect on the Company’s business, financial condition or results of operations.
Furthermore, fromFrom time to time in the normal course of business, the Company is named in other litigation, including labor and employment matters, personal injury matters, consumer class actions, intellectual property litigationmatters and claims from prior distributors. Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to the Company, management believes that such litigation in the aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.
On September 18, 2020, a derivative complaint was filed on purported behalf of the Company in the United States District Court for the Central District of California. The action is styled Falat v. Sacks, et al., 8:20-cv-01782, and asserts claims against certain officers, current and former directors, and employees of the Company, including Rodney C. Sacks, Hilton H. Schlosberg, Guy P. Carling, Thomas J. Kelly, Emelie C. Tirre, Mark J. Hall, Kathleen E. Ciaramello, Gary P. Fayard, Jeanne P. Jackson, Steven G. Pizula, Benjamin M. Polk, Sydney Selati and Mark S. Vidergauz (collectively, the “Individual Defendants”). The Company is named as a nominal defendant.
The derivative complaint alleges, among other things, that the Individual Defendants breached their fiduciary duties to the Company by allowing others to cause, or themselves causing, the Company to hide discrimination and failing to ensure sufficient diversity, including by permitting conduct to occur that was inconsistent with statements made in the Company’s policies and disclosures, and failing to ensure the Company’s compliance with laws regarding diversity and anti-discrimination. The complaint also asserts claims for abuse of control, unjust enrichment and violation of Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The complaint seeks from the Individual Defendants an unspecified amount of damages, restitution, punitive damages and costs to be paid to the Company, and seeks to require the Company to adopt corporate governance reforms, and other equitable relief.
On January 15, 2021, the Company filed a motion to dismiss the action because the plaintiff failed to make a demand on the Company as required by Federal Rule of Civil Procedure 23.1 or to show that demand would have been futile. The Individual Defendants also filed a motion to dismiss the complaint for failure to state a claim against the Individual Defendants, among other reasons. Those motions are scheduled for hearing in the 2021 second quarter. While the Company continues to evaluate these claims, management believes that such litigation will likely not have a material adverse effect on the Company’s financial position or results of operations.
The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, or in the amount ofand any related insurance reimbursements recorded.reimbursements. As of December 31, 2017,2020, the Company’s condensed consolidated balance sheet includesincluded accrued loss contingencies of approximately $1.9$18.4 million.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
39
PART II
ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Principal Market
The Company’s common stock began trading in the over-the-counter market on November 8, 1990 and was subsequently quoted on the Nasdaq Capital Market under the symbol “HANS”. On July 5, 2007, the Company’s common stock began tradingtrades on the Nasdaq Global Select Market under the same symbol, “HANS”. On January 5, 2012, stockholders of the Company approved the Company’s name change from Hansen Natural Corporation to Monster Beverage Corporation. In addition, on January 9, 2012, the Company’s common stock began trading under the symbol, “MNST”. As of February 12, 2018,19, 2021, there were 566,402,748528,137,036 shares of the Company’s common stock outstanding held by approximately 213188 holders of record. The holders of record do not include those stockholders whose shares are held of record by banks, brokers and other financial institutions.
Stock Price and Dividend Information
The following table sets forth high and low per share sales price of our common stock for the periods indicated:
Year Ended December 31, 2017 |
| High |
| Low |
| ||
First Quarter |
| $ | 48.94 |
| $ | 41.02 |
|
Second Quarter |
| $ | 52.41 |
| $ | 44.35 |
|
Third Quarter |
| $ | 57.25 |
| $ | 49.03 |
|
Fourth Quarter |
| $ | 64.79 |
| $ | 54.80 |
|
|
|
|
|
|
| ||
Year Ended December 31, 2016 |
| High |
| Low |
| ||
First Quarter |
| $ | 49.79 |
| $ | 37.69 |
|
Second Quarter |
| $ | 53.62 |
| $ | 40.30 |
|
Third Quarter |
| $ | 55.50 |
| $ | 47.44 |
|
Fourth Quarter |
| $ | 50.63 |
| $ | 40.64 |
|
The per share sales prices of our common stock set forth above represent bid quotations between dealers, do not include retail markups, mark-downs or commissions and bid quotations may not necessarily represent actual transactions and “real time” sale prices. The source of the bid information is the NASDAQ Stock Market, Inc.
We have not paid cash dividends to our stockholders since our inception and do not anticipate paying cash dividends in the foreseeable future.
On February 28, 2017,26, 2019, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “February 20172019 Repurchase Plan”). During the year ended December 31, 2017,2020, the Company purchased 4.60.6 million shares of common stock at an average purchase price of $54.91$58.16 per share, for a total amount of $249.9$36.6 million (excluding broker commissions), which exhausted the availability under the February 20172019 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020.
On February 27, 2018, ourNovember 6, 2019, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $250.0$500.0 million of the Company’s outstanding common stock (the “February 2018“November 2019 Repurchase Plan”). During the year ended December 31, 2020, the Company purchased 9.1 million shares of common stock at an average purchase price of $54.86 per share, for a total amount of $499.9 million (excluding broker commissions), which exhausted the availability under the November 2019 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020.
On March 13, 2020, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “March 2020 Repurchase Plan”). During the year ended December 31, 2020, the Company purchased 1.0 million shares of common stock at an average purchase price of $55.85 per share, for a total amount of $58.5 million (excluding broker commissions), under the March 2020 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020. As $250.0of March 1, 2021, $441.5 million remainsremained available for grantrepurchase under the February 2017March 2020 Repurchase Plan, the aggregate amount available to repurchase the Company’s common stock is currently $500.0 million.
Plan.
During the year ended December 31, 2017, 1.82020, 0.02 million shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $111.2$1.0 million. While such purchases are considered common stock repurchases, they are not counted as purchases against ourthe Company’s authorized share repurchase programs. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2017.2020.
The following tabular summary reflects the Company’s repurchase activityNo shares were repurchased during the quarter ended December 31, 2017:2020.
40
Period |
| Total Number |
| Average Price |
| Total Number of |
| Maximum Number (or |
| |
Oct 1 – Oct 31, 2017 |
| 20,129 |
| $ 54.99 |
| 20,129 |
| $ | 250,000 |
|
¹Excluding broker commissions paid.
²Net of broker commissions paid.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2017 with respect to shares of our common stock that may be issued under our equity compensation plans.
Plan category |
| Number of securities to |
| Weighted-average |
| Number of securities remaining |
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by stockholders |
| 18,348,024 |
| $29.62 |
| 20,877,908 |
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by stockholders |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
Total |
| 18,348,024 |
| $29.62 |
| 20,877,908 |
|
Performance Graph
The following graph shows a five-year comparison of cumulative total returns:1
1Annual return assumes reinvestment of dividends. Cumulative total return assumes an initial investment of $100 on December 31, 2012.2015. The Company’s current self-selected peer group is comprised of TCCC, DPSDr. Pepper Snapple Group, Inc. (through July 9, 2018),Keurig Dr. Pepper Inc. (after July 10, 2018), National Beverage Corporation, Jones Soda Company and PepsiCo, Inc. The Company’s former self-selected peer group is comprised of TCCC, DPS Group, National Beverage Corporation, Jones Soda Company and Cott Corporation (Cott Corporation’s carbonated soft drink and juice business was sold in 2018).
41
ITEM 6.SELECTED FINANCIAL DATA
The consolidated statements of operations data set forth below with respect to each of the fiscal years ended December 31, 20152018 through 20172020 and the balance sheet data as of December 31, 20172020 and 2016,2019, are derived from our audited consolidated financial statements included herein, and should be read in conjunction with those financial statements and notes thereto, and with Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Part II, Item 7 of this Annual Report on Form 10-K. The consolidated statements of operations data for the fiscal years ended December 31, 20142017 and 20132016 and the balance sheet data as of December 31, 2015, 20142018, 2017 and 20132016 are derived from the Company’s audited consolidated financial statements not included herein.
| | | | | | | | | | | | | | | |
(in thousands, except per share information) |
| | 2020 |
| | 2019 |
| | 2018 |
| | 2017 |
| | 2016 |
Net sales1 | | $ | 4,598,638 | | $ | 4,200,819 | | $ | 3,807,183 | | $ | 3,369,045 | | $ | 3,049,393 |
Gross profit1 | | $ | 2,723,880 | | $ | 2,518,585 | | $ | 2,295,375 | | $ | 2,137,690 | | $ | 1,942,000 |
Gross profit as a percentage to net sales | | | 59.2% | | | 60.0% | | | 60.3% | | | 63.5% | | | 63.7% |
Operating income1,2 | | $ | 1,633,153 | | $ | 1,402,939 | | $ | 1,283,619 | | $ | 1,198,787 | | $ | 1,085,338 |
Net income1,2 | | $ | 1,409,594 | | $ | 1,107,835 | | $ | 993,004 | | $ | 820,678 | | $ | 712,685 |
Net income per common share: | |
| | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 2.66 | | $ | 2.04 | | $ | 1.78 | | $ | 1.45 | | $ | 1.21 |
Diluted | | $ | 2.64 | | $ | 2.03 | | $ | 1.76 | | $ | 1.42 | | $ | 1.19 |
Cash, cash equivalents and investments | | $ | 2,106,058 | | $ | 1,343,925 | | $ | 958,163 | | $ | 1,203,921 | | $ | 600,530 |
Total assets | | $ | 6,202,716 | | $ | 5,150,352 | | $ | 4,526,891 | | $ | 4,791,012 | | $ | 4,153,471 |
Stockholders’ equity | | $ | 5,160,860 | | $ | 4,171,281 | | $ | 3,610,901 | | $ | 3,895,212 | | $ | 3,329,709 |
(in thousands, except |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| |||||
Net sales1 |
| $ | 3,369,045 |
| $ | 3,049,393 |
| $ | 2,722,564 |
| $ | 2,464,867 |
| $ | 2,246,428 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gross profit1 |
| $ | 2,137,690 |
| $ | 1,942,000 |
| $ | 1,632,301 |
| $ | 1,339,810 |
| $ | 1,172,931 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gross profit as a percentage to net sales |
| 63.5% |
| 63.7% |
| 60.0% |
| 54.4% |
| 52.2% |
| |||||
Operating income1,2 |
| $ | 1,198,787 |
| $ | 1,085,338 |
| $ | 893,653 |
| $ | 747,505 |
| $ | 572,916 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income1,2 |
| $ | 820,678 |
| $ | 712,685 |
| $ | 546,733 |
| $ | 483,185 |
| $ | 338,661 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
| |||||
Basic |
| $ | 1.45 |
| $ | 1.21 |
| $ | 0.97 |
| $ | 0.96 |
| $ | 0.68 |
|
Diluted |
| $ | 1.42 |
| $ | 1.19 |
| $ | 0.95 |
| $ | 0.92 |
| $ | 0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash, cash equivalents and investments |
| $ | 1,203,921 |
| $ | 600,530 |
| $ | 2,935,375 |
| $ | 1,194,397 |
| $ | 623,388 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total assets |
| $ | 4,791,012 |
| $ | 4,153,471 |
| $ | 5,571,277 |
| $ | 1,938,875 |
| $ | 1,420,509 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stockholders’ equity |
| $ | 3,895,212 |
| $ | 3,329,709 |
| $ | 4,809,410 |
| $ | 1,515,150 |
| $ | 992,279 |
|
¹Includes $42.1 million, $46.3 million, $44.3 million, $43.4 million $40.3 million, $62.8 million, $15.0 million and $14.8$40.3 million for the years ended December 31, 2020, 2019, 2018, 2017 2016, 2015, 2014 and 2013,2016, respectively, related to the recognition of deferred revenue. Included in the $43.4
2 Includes $0.2 million, $40.3$11.3 million, $26.6 million, $35.4 million and $62.8 million recognition of deferred revenue for the years ended December 31, 2017, 2016 and 2015, respectively, is $0.6 million, $5.7 million and $39.8 million related to the accelerated amortization of the deferred revenue balances associated with certain of the Company’s prior distributors who were sent notices of termination during the relevant periods.
²Includes $35.4 million, $79.8 million, $224.0 million, ($0.2) million and $10.8 million for the years ended December 31, 2020, 2019, 2018, 2017 2016, 2015, 2014 and 2013,2016, respectively, related to expenditures attributable to the costs associated with terminatingexisting distributors.distributors.
42
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to – and should be read in conjunction with – our financial statements and the accompanying notes (“Notes”) included in Part II, Item 8 of this Form 10-K. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See “Forward-Looking Statements” and “Part I.I, Item 1A – Risk Factors.”
This overview provides our perspective on the individual sections of MD&A. MD&A includes the following sections:
The COVID – 19 Pandemic The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the global economy and financial markets. The human and economic consequences of the COVID-19 pandemic as well as the measures taken or that may be taken in the future by governments, and consequently businesses (including the Company and its suppliers, full service beverage bottlers/distributors (“bottlers/distributors”), co-packers and other service providers) and the public at large to limit the COVID-19 pandemic, has directly and indirectly impacted our business. The duration and severity of this impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the COVID-19 pandemic, the actions taken to limit its spread and the economic impact on local, regional, national and international markets. See “Part I, Item 1A – Risk Factors.” We have been actively addressing the COVID-19 pandemic with a global task force team working to mitigate the potential impacts to our people and business.·Our Business● The COVID-19 Pandemic – a discussion of the impact of the COVID-19 pandemic on our business employees and operations; ● Our Business – a general description of our business, the value drivers of our business, and opportunities and risks facing our Company, stock repurchases, acquisitions and divestitures; ● Results of Operations – an analysis of our consolidated results of operations for the three years presented in our financial statements; ● Sales – details of our sales measured on a quarterly basis in both dollars and cases; ● Inflation – information about the impact that inflation may or may not have on our results; ● Liquidity and Capital Resources – an analysis of our cash flows, sources and uses of cash and contractual obligations; ● Accounting Policies and Pronouncements – a discussion of accounting policies that require critical judgments and estimates including newly issued accounting pronouncements; ● Forward-Looking Statements – cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from the Company’s historical results or our current expectations or projections; and ● Market Risks – information about market risks and risk management. (See “Forward-Looking Statements” and “Part II, Item 7A – Qualitative and Quantitative Disclosures About Market Risks”).
43
Health and Safety of our business,Employees and Business Partners
From the value driversbeginning of the COVID-19 pandemic, our top priority has been the health, safety and well-being of our business,employees. Early in March 2020, we implemented global travel restrictions and opportunities and risks facing our Company, stock repurchases, acquisitions and divestitures;
·Results of Operations – an analysis of our consolidated results of operationswork-from-home policies for the three years presented in our financial statements;
·Sales – details of our sales measured on a quarterly basis in both dollars and cases;
·Inflation – information about the impact that inflation may or may not have on our results;
·Liquidity and Capital Resources – an analysis of our cash flows, sources and uses of cash and contractual obligations;
·Accounting Policies and Pronouncements – a discussion of accounting policies that require critical judgments and estimates including newly issued accounting pronouncements;
·Forward-Looking Statements – cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual resultsemployees who are able to differ materially from the Company’s historical results or our current expectations or projections; and
·Market Risks – information about market risks and risk management. (See “Forward-Looking Statements” and “Part II, Item 7A – Qualitative and Quantitative Disclosures About Market Risks”).
Our Business
Acquisitions and Divestitures
On April 1, 2016, we completed our acquisition of flavor supplier and long-time business partner American Fruits & Flavors (“AFF”), in an asset acquisition that brought our primary flavor supplier in-house, secured the intellectual property of our most important flavors in perpetuity and further enhanced our flavor development and global flavor footprint capabilities (the “AFF Transaction”). Pursuantwork remotely. For those employees who are unable to the terms of the AFF Transaction, we purchased AFF for $688.5 million in cash after adjustments. (See Note 2 “Acquisitions and Divestitures” in the notes to the consolidated financial statements).
We incurred $4.5 million in AFF Transaction related expenses for the year ended December 31, 2016.
On June 12, 2015, we completed the TCCC Transaction which provided for a long-term strategic relationship in the global energy drink category with TCCC. As part of the TCCC Transaction, we transitioned certain distribution rights to TCCC’s distribution network.
In accordance with FASB ASC No. 420 “Exit or Disposal Cost Obligations”, we expense distributor termination costs in the period in which the written notification of termination occurs. We incurred distributor termination costs of $35.4 million, $79.8 million and $224.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. Such termination costswork remotely, safety precautions have been expensedinstituted, which were developed and adopted in fullline with guidance from public health authorities and are included in operating expenses for the years ended December 31, 2017, 2016 and 2015. We recognized as income $0.6 million, $5.7 million and $39.8 million for the years ended December 31, 2017, 2016 and 2015, respectively, related to the accelerated amortization of the deferred revenue balances associated withprofessional consultants. Currently, certain of our prior offices have partially reopened in the U.S. and in certain countries, and generally, our field sales teams are working with our bottler/distributors and retailers subject to certain safety protocols. During the COVID-19 pandemic, we have taken a number of steps to support our employees, including increasing employee communications, including topics such as mental health and family welfare; creating wellness hotlines and enhancing employee assistance programs; and conducting employee surveys to evaluate employee morale. We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers/distributors around the world who are ensuring the integrity of our supply chain.
Customer Demand
Despite the ongoing impact of the COVID-19 pandemic, we achieved record fourth quarter net sales. While the performance in Europe, Middle East and Africa (“EMEA”) was solid in the fourth quarter, EMEA remained adversely affected by the COVID-19 pandemic.
Since mid-March 2020, we have seen a shift in consumer channel preferences and package configurations, including an increase in at-home consumption and a decrease in food service on-premise consumption. Our sales in the 2020 second quarter were sent noticesinitially adversely affected as a result of termination duringa decrease in foot traffic in the relevant periods.
convenience and gas channel (which is our largest channel) but improved sequentially from the latter half of the 2020 second quarter and throughout the 2020 third and fourth quarters. Our e-commerce, club store, mass merchandiser and grocery and related business continued to increase in 2020, while our food service on-premise business, which is a small channel for the Company, remained challenged. The duration of these trends and the magnitude of such impacts on future periods cannot be precisely estimated at this time, as they are affected by a number of factors (many of which are outside our control).
We incurred $15.5 million in TCCC Transaction related expenses for the year ended December 31, 2015. We incurred no TCCC Transaction related expenses for the years ended December 31, 2017 and 2016.
Factors Impacting Profitability
The following table summarizes the selected items discussed above for the years ended December 31, 2017, 2016 and 2015:
Income Statement Items (in thousands): |
| 2017 |
| 2016 |
| 2015 |
| |||
|
|
|
|
|
|
|
| |||
Included in Net Sales: |
|
|
|
|
|
|
| |||
Accelerated recognition of deferred revenue |
| $ | 585 |
| $ | 5,713 |
| $ | 39,761 |
|
|
|
|
|
|
|
|
| |||
Included in Operating Expenses: |
|
|
|
|
|
|
| |||
Stock Repurchase expenses |
| $ | - |
| $ | (1,556) |
| $ | - |
|
AFF Transaction expenses |
| - |
| (4,483) |
| - |
| |||
Distributor termination costs |
| (35,410) |
| (79,751) |
| (224,000) |
| |||
TCCC Transaction expenses |
| - |
| - |
| (15,496) |
| |||
|
|
|
|
|
|
|
| |||
Gain on sale of Monster Non-Energy |
| $ | - |
| $ | - |
| $ | 161,470 |
|
|
|
|
|
|
|
|
| |||
Net Impact on Operating Income |
| $ | (34,825) |
| $ | (80,077) |
| $ | (38,265) |
|
On December 22, 2017, the Presidenthave recently seen a resurgence of the United States signed into lawCOVID-19 pandemic in the Tax Reform Act. The legislation significantlyNorthern Hemisphere while cases in the Southern Hemisphere continue to increase. As a result, a number of countries, particularly in EMEA, have reinstituted lockdowns and other restrictions, which could further impact customer demand.
A reduction in demand for our products or changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax systemin consumer purchasing and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. Asconsumption patterns, as well as continued economic uncertainty as a result of the reductionCOVID-19 pandemic, could adversely affect the financial conditions of retailers and consumers, resulting in reduced or canceled orders for our products, purchase returns and closings of retail or wholesale establishments or other locations in which our products are sold.
Our Distribution and Supply Chain
As of the date of this filing, we do not foresee a material impact on the ability of our co-packers to manufacture and our bottlers/distributors to distribute our products as a result of the COVID-19 pandemic. We are continually addressing the increase in our aluminum can requirements given our volume growth and the current supply constraints in the U.S. corporate income tax rate from 35%aluminum can industry. Overall, we are not experiencing significant raw material or finished product shortages and our supply chain remains intact. Depending on the duration of any COVID-19 pandemic related issues, we may experience material disruptions in our supply chain as the pandemic continues.
44
Liquidity and Capital Resources
As of the date of this filing, we expect to 21% undermaintain substantial liquidity as we manage through the Tax Reform Act, we revalued our net deferred tax assets at December 31, 2017, resulting in a provisional $39.8 million charge includedcurrent environment as described in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided for a one-time deemed mandatory repatriation of Post-1986 undistributed foreign subsidiary earnings“Liquidity and profits (“E&P”) through the year ended December 31, 2017. As a result, we recognized a provisional $2.1 million charge in the provision for income taxes for the year ended December 31, 2017 related to the deemed mandatory repatriation.Capital Resources” section below.
Our Business
Overview
We develop, market, sell and distribute energy drink beverages sodas and/orand concentrates for energy drink beverages, primarily under the following brand names:
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● Monster Rehab® ● Monster MAXX® ● Java Monster® ● Muscle Monster® ● Espresso Monster® ● Punch Monster® ● Juice Monster® ● Monster Hydro® Energy Water ● Monster Hydro® Super Sport ● Monster HydroSport Super Fuel® ● Monster Super Fuel® ● Monster Dragon Tea® ● Reign Total Body Fuel® ● Reign Inferno® Thermogenic Fuel |
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● Full Throttle® ●Burn® |
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● Relentless® ● BPM® ● BU® ● Gladiator® ● Samurai® ● Live+® |
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| ● Fury® |
Our Monster Energy® brand energy drinks, which represented 90.1%, 90.1% and 92.5% of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively, primarily include the following energy drinks1:
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1Discontinued products have been omitted.
We have three operating and reportable segments, (i) Monster Energy® Drinks segment which is comprised of our Monster Energy® drinks as well as Mutant® Super Soda drinks, (ii) Strategic Brands segment which includes the various energy drink brands acquired from TCCC as a result of the TCCC Transaction and (iii) Other segment (“Other”), the principal products of which include the non-energy brands disposed of as a result of the TCCC Transaction in June 2015, as well as the AFF Third-Party Products acquired as part of the AFF Transaction in April 2016.
During 2017, we continued to expand our existing portfolio of drinks and further develop our distribution markets. During 2017, we introduced the following products:
·Espresso MonsterTM Espresso and Cream (October 2017)
·Espresso MonsterTM Vanilla Espresso (October 2017)
·NOS® Nitro Mango (October 2017)
·Monster Energy® Fury (September 2017)
·Monster Energy® Lewis Hamilton 44 (April 2017)
·Mutant® Super Soda White Lightning (April 2017)
·Monster Hydro® Mean Green® (May 2017)
·Monster Hydro® Manic Melon® (May 2017)
·Monster Hydro® Tropical Thunder® (May 2017)
·Juice Monster® Mango Loco (May 2017)
·Full Throttle® Orange (March 2017)
Subsequent to December 31, 2017, we introduced Caffé MonsterTM Vanilla, Caffé MonsterTM Mocha and Caffé MonsterTM Salted Caramel.
In the normal course of business we discontinue certain products and/or product lines. Those products or product lines discontinued in 2017, either individually or in aggregate, did not have a material adverse impact on our financial position, results of operations or liquidity.
Our net sales of $3,369.0$4.60 billion for the year ended December 31, 2020 represented record annual net sales. Net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to product returns from our customers as a result of a European formulation issue with a limited number of products in Europe and a labeling issue concerning one product in Japan (the “Product Returns”). Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $48.2 million for the year ended December 31, 2017 represented record annual net sales. 2020.
The vast majority of our net sales are derived from our Monster Energy® brand energy drinks.Drinks segment. Net sales of our Monster Energy® brand energy drinksDrinks segment were $3,035.2$4.31 billion for the year ended December 31, 2020. Net sales of our Strategic Brands segment were $266.4 million for the year ended December 31, 2017, an increase of $287.4 million, or 89.9%2020. Our Monster Energy® Drinks segment represented 93.6% and 92.9% of our overall increase in net sales for the years ended December 31, 2020 and 2019, respectively. Our Strategic Brands segment represented 5.8% and 6.5% of our net sales for the years ended December 31, 2020 and 2019, respectively. Our Other segment represented 0.6% and 0.5% of our net sales for the years ended December 31, 2020 and 2019, respectively. Net sales for the Monster Energy® Drinks segment for the year ended December 31, 2017. Any decrease in net sales of our Monster Energy® brand energy drinks could have a significant adverse effect on our future revenues and net income. Competitive pressure in2020 were negatively impacted by $15.2 million related to the energy drink category could also adversely affect our operating results. Net sales of our Strategic Brands acquired as part of the TCCC Transaction were $299.8 million for the year ended December 31, 2017.
Product Returns.
Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Monster Energy® Drinks segment of approximately $7.6$44.0 million for the year ended December 31, 2017. Net changes in foreign currency exchange rates had a favorable impact on net sales in the Strategic Brands segment of approximately $3.7 million for the year ended December 31, 2017.
Our growth strategy includes expanding our international business. Gross sales to customers outside the United States amounted to $1,094.8 million, $888.7 million and $713.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Such sales were approximately 28%, 25% and 23% of gross sales for the years ended December 31, 2017, 2016 and 2015, respectively.2020. Net changes in foreign currency exchange rates had an unfavorable impact on grossnet sales in the Strategic Brands segment of approximately $4.2 million for the year ended December 31, 2020.
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Our growth strategy includes expanding our international business. Net sales to customers outside the United States of approximately 1%, 3%amounted to $1.51 billion, $1.33 billion and 14%$1.09 billion for the years ended December 31, 2017, 2016,2020, 2019 and 2015,2018, respectively.
Such sales were approximately 33%, 32% and 29% of net sales for the years ended December 31, 2020, 2019 and 2018, respectively. Net sales to customers outside the United States for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.
Our customers are primarily full service beverage bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food servicefoodservice customers, value stores, e-commerce retailers and the military. Percentages of our gross salesbillings to our various customer types for the years ended December 31, 2017, 20162020, 2019 and 20152018 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our full service beverage bottlers/distributors in the United States. Such full service beverage bottlers/distributors in turn sell certain of our products to some of the same customer types listed below. We limit our description of our customer types to include only our sales to our full service bottlers/distributors without reference to such bottlers/distributors’ sales to their own customers.
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| 2020 |
| 2019 |
| 2018 |
U.S. full service bottlers/distributors |
| 56% | | 58% | | 61% |
International full service bottlers/distributors |
| 34% | | 33% | | 31% |
Club stores and e-commerce retailers |
| 8% | | 7% | | 6% |
Retail grocery, direct convenience, specialty chains and wholesalers |
| 1% | | 1% | | 1% |
Direct value stores and other |
| 1% | | 1% | | 1% |
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| 2017 |
| 2016 |
| 2015 |
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U.S. full service bottlers/distributors |
| 63% |
| 65% |
| 65% |
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International full service bottlers/distributors |
| 28% |
| 25% |
| 23% |
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Club stores and mass merchandisers |
| 7% |
| 8% |
| 9% |
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Retail grocery, specialty chains and wholesalers |
| 1% |
| 1% |
| 2% |
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Other |
| 1% |
| 1% |
| 1% |
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Our customers include the TCCC North American Bottlers (including CCBCC Operations, LLC)Coca-Cola Canada Bottling Limited, Coca-Cola Consolidated, Inc., Coca-Cola Bottling Company United, Inc., Reyes Coca-Cola Bottling, LLC, Great Lakes Coca-Cola Distribution, LLC, Coca-Cola Southwest Beverages LLC, The Coca-Cola Bottling Company of Northern New England, Inc., Swire Pacific Holdings, Inc. (USA), Liberty Coca-Cola Beverages, LLC, Coca-Cola European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola group in China,(China), COFCO Coca-Cola, group in China, Coca-Cola Beverages Africa, Coca-Cola Içİçecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Kalil Bottling Group, Wal-Mart, Inc. (including Sam’s Club), Costco Wholesale Corporation Big Geyser,and Amazon.com, Inc. and select AB Distributors. TCCC, through the TCCC Subsidiaries, accounted for approximately 18%, 41% and 43% of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively. As part of the North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottler/distributors. Accordingly, our percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the year ended December 31, 2017. CCBCC Operations, LLC accounted for approximately 13%, 9% and 6% of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively. A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material negativeadverse effect on our financial condition and consolidated results of operations.
Coca-Cola Consolidated, Inc. accounted for approximately 12%, 13% and 13% of our net sales for the years ended December 31, 2020, 2019 and 2018, respectively.
Reyes Coca-Cola Bottling, LLC accounted for approximately 11%, 11% and 12% of our net sales for the years ended December 31, 2020, 2019 and 2018, respectively.
Coca-Cola European Partners accounted for approximately 10% of our net sales for the years ended December 31, 2020, 2019 and 2018.
We continue to incur expenditures in connection with the development and introduction of new products and flavors.
Value Drivers of our Business
We believe that the key value drivers of our business include the following:
| ● | International Growth – The introduction, development and sustained profitability of our Monster Energy® brand internationally remains a key value driver for our corporate growth. One or more of our products are distributed in approximately 154 countries and territories worldwide. |
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·International Growth – The introduction, development and sustained profitability of our Monster Energy® brand internationally remains a key value driver for our corporate growth. The TCCC Transaction is expected to secure fully aligned access to TCCC’s leading global distribution system, which we anticipate will accelerate our international performance. In addition, we anticipate that the TCCC Transaction will provide scale and platform synergies in a range of international geographies where we currently have limited presence, which is expected to increase our energy business in a number of international markets and establish a presence in additional countries for our Monster Energy® drinks brand.
·Profitable Growth – We believe “functional” value-added brands supported by marketing and innovation and targeted to a diverse consumer base, drive profitable growth. We continue to broaden our family of products. In particular, we have expanded our range of energy drinks, including through the addition of TCCC’s existing energy product lines in connection with the TCCC Transaction, to provide more alternatives to consumers. We are focused on increasing the profit margins for both our Monster Energy® Drinks segment and our Strategic Brands segment, and believe that tailored branding, packaging, pricing and distribution channel strategies help achieve profitable growth. We are implementing these strategies with a view to continuing profitable growth.
·Cost Management – The principal focus of cost management will continue to be on reducing input procurement and production costs on a per-case basis, including raw material costs and co-packing fees, as well as reducing freight costs by securing additional co-packing facilities strategically localized. Another key area of focus is to decrease promotional allowances, selling and general and administrative costs, including sponsorships, sampling, promotional and marketing expenses, as a percentage of net sales.
·Efficient Capital Structure – Our capital structure is designed to optimize our working capital in order to finance expansion, both domestically and internationally. We believe that with our strong capital position, our ability to raise funds, if necessary, at a relatively low effective cost of borrowings, provides a competitive advantage. The reduction of accounts receivable and inventory days on hand will remain an area of focus.
| ● | Profitable Growth – We believe “functional” value-added beverage brands supported by marketing and innovation and targeted to a diverse consumer base, drive profitable growth. We continue to broaden our family of products to provide more alternatives to consumers and launched Reign Total Body Fuel® high performance energy drinks in the first quarter of 2019. We are focused on increasing the profit margins for both our Monster Energy® Drinks segment and our Strategic Brands segment, and believe that tailored branding, packaging, pricing and distribution channel strategies help achieve profitable growth. We are implementing these strategies with a view to continuing profitable growth. |
| ● | Cost Management – The principal focus of cost management will continue to be on reducing input procurement and production costs on a per-case basis, including raw material costs and co-packing fees, as well as reducing freight costs by securing additional co-packing facilities strategically localized. Another key area of focus is to decrease promotional allowances, selling and general and administrative costs, including sponsorships, sampling, promotional and marketing expenses, as a percentage of net sales. |
| ● | Efficient Capital Structure – Our capital structure is designed to optimize our working capital in order to finance expansion, both domestically and internationally. We believe that with our strong capital position, our ability to raise funds, if necessary, at a relatively low effective cost of borrowings, provides a competitive advantage. The reduction of days outstanding for accounts receivable and inventory days on hand will remain an area of focus. |
We believe that, subject to increases in the costs of certain raw materials being contained, these value drivers, when implemented and/or achieved in the United States and internationally, will result in: (1) improving or maintaining our product gross profit margins; (2) providing additional leverage over time through reduced expenses as a percentage of net operating revenues; and (3) enhancing our cost of capital. The ultimate measure of success is and will be reflected in our current and future results of operations.
Gross and netNet sales, gross profit, operating income, net income and net income per share represent key measurements of the above value drivers. These measurements will continue to be a key management focus in 20172021 and beyond (See (See “Part II, Item 7 – Results of Operations – Results of Operations for the Year Ended December 31, 20172020, Compared to the Year Ended December 31, 2016”2019”).
As of December 31, 2017,2020, the Company had working capital of $1,526.0 million$2.39 billion compared to $961.7 million$1.66 billion as of December 31, 2016.2019. The increase in working capital was primarily the result of retained profits reflected in an overall increase in cash, cash equivalents and short-term investments.the $1.41 billion of net income earned during the year ended December 31, 2020. For the year ended December 31, 2017,2020, our net cash provided by operating activities was approximately $987.7 million$1.36 billion as compared to $701.4 million$1.11 billion for the year ended December 31, 2016.2019. Principal uses of cash flows in 2017,2020, were purchases of investments, repurchase of our common stock, development of our Monster Energy® brand internationally and acquisitionacquisitions of real property, and other property and equipment. These principal uses of cash flows are expected to be and remain our principal recurring use of cash and working capital funds in the future (See “Part II, Item 7 – Liquidity and Capital Resources”).
Opportunities, Challenges and Risks
Looking forward, our management has identified certain challenges and risks for the beverage industry and the Company, including our significant commercial relationship with TCCC and TCCC’s status as a significant shareholderstockholder of the Company, in each case as described above under “Part I, Item 1A – Risk Factors.”
In addition, legislation has been proposed and/or adopted at the U.S., state, county and/or municipal level and proposed and/or adopted in certain foreign jurisdictions to restrict the sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limit caffeine content, in beverages, require
47
certain product labeling disclosures and/or warnings, impose taxes, limit product sizes or impose age restrictions for the sale of energy drinks. In addition, articles critical of the caffeine content in energy drinks and their perceived benefits and articles indicating certain health risks of energy drinks have been published. The proposal and/or adoption of such legislation and the publication of such articles, or the future proposal and/or adoption of similar legislation or publication of similar articles, may adversely affect our Company. In addition, uncertainty and/or volatility in our domestic and/or our international economic markets could negatively affect both the stability of our industry and our Company. Furthermore, our growth strategy includes
expanding our international business, which exposes us to risks inherent in conducting international operations, including the risks associated with foreign currency exchange rate fluctuations. Consumer discretionary spending also represents a challenge to the successful marketing and sale of our products. Increases in consumer and regulatory awareness of the health problems arising from obesity and inactive lifestyles continue to represent a challenge. We recognize that obesity is a complex and serious public health problem. Our commitment to consumers begins with our broad product line and a wide selection of diet, light and low calorie beverages within our energy drink product line.lines. We continuously strive to meet changing consumer needs through beverage innovation, choice and variety. (See “Part I, Item 1A – Risk Factors”).
Our historical success is attributable, in part, to our introduction of different and innovative beverages which have been positively accepted by consumers. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages that meet consumer preferences, although there can be no assurance of our ability to do so. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of price, quality, method of distribution, brand image and intellectual property protection. The beverage industry is subject to changing consumer preferences that may adversely affect us if we misjudge such preferences.
In addition, other key challenges and risks that could impact our Company’s future financial results include, but are not limited to:
| ● | the continuation or worsening of the COVID-19 pandemic; |
| ● | the risks associated with the realization of benefits from our relationship with TCCC; |
| ● | the |
| ● | changes in consumer preferences and demand for our products; |
| ● | economic uncertainty in the United States, Europe and other countries in which we operate; |
| ● | the risks associated with foreign currency exchange rate fluctuations; |
| ● | maintenance of our brand image, product quality and |
| ● | increasing concern over various environmental, human rights and health matters, including obesity, caffeine consumption and energy drinks generally, and changes in regulation and consumer preferences in response to those concerns; |
| ● | profitable expansion and growth of our family of brands in the competitive market place (See “Part I, Item 1 – Business – Competition” and “Part I, Item 1 – Business – Sales and Marketing”); |
| ● | costs of establishing and promoting our brands internationally; |
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| increases in costs of raw materials used by us; |
| ● | restrictions on imports and sources of supply, duties or tariffs, changes in related government regulations and disruptions in the timely import or export of our products and/or ingredients due to port strikes and/or port congestion, delays due to the COVID-19 pandemic, related labor issues or other importation impediments; |
| ● | protection of our existing intellectual property portfolio of trademarks and copyrights and the continuous pursuit to develop and protect new and innovative trademarks and copyrights for our expanding product lines; |
| ● | limitations on available quantities of aluminum cans in general, and in particular, in certain package |
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| ● | limitations on co-packing availability, particularly for retort |
| ● | the long-term impact of Brexit on our business in Europe and the United Kingdom; and |
| ● | the imposition of additional regulation, including regulation restricting the sale of energy drinks, limiting caffeine content in beverages, requiring product labeling and/or warnings, imposing excise taxes and/or sales taxes, and/or limiting product size and/or age restrictions. |
See “Part I, Item 1A – Risk Factors” for additional information about risks and uncertainties facing our Company.
We believe that the following opportunities exist for us:
·domestic and international growth potential of our products due to our continued transition to a leading global distribution network and the scale and platform synergies expected in connection with the TCCC Transaction;
·growth potential of the energy drink category, both domestically and internationally;
·planned and future new product and product line introductions with the objective of increasing sales and/or contributing to higher profitability;
·the introduction of new package formats designed to generate strong revenue growth;
·package, pricing and channel opportunities to increase profitable growth;
·effective strategic positioning to capitalize on industry growth;
·broadening distribution/expansion opportunities in both domestic and international markets;
·launching and/or relaunching our products and new products into new geographic markets; and
·continued focus on reducing our cost base.
| ● | domestic and international growth potential of our products; |
| ● | growth potential of the energy drink category, both domestically and internationally; |
| ● | planned and future new product and product line introductions with the objective of increasing sales and/or contributing to higher profitability; |
| ● | the introduction of new package formats designed to generate strong revenue growth; |
| ● | package, pricing and channel opportunities to increase profitable growth; |
| ● | effective strategic positioning to capitalize on industry growth; |
| ● | broadening distribution/expansion opportunities in both domestic and international markets; |
| ● | launching and/or relaunching our products and new products into new domestic and international markets and channels; and |
| ● | continued focus on reducing our cost base. |
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Results of Operations
The following table sets forth key statistics for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
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(In thousands, except per share amounts) |
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| | |
| | Percentage | | Percentage |
| | | | | | | | | | | Change | | Change |
|
| 2020 | | 2019 | | 2018 | | 20 vs. 19 | | 19 vs. 18 | |||
Net sales1 | | $ | 4,598,638 | | $ | 4,200,819 | | $ | 3,807,183 | | 9.5% | | 10.3% |
Cost of sales | |
| 1,874,758 | |
| 1,682,234 | |
| 1,511,808 | | 11.4% | | 11.3% |
Gross profit*1 | |
| 2,723,880 | |
| 2,518,585 | |
| 2,295,375 | | 8.2% | | 9.7% |
Gross profit as a percentage of net sales | |
| 59.2% | |
| 60.0% | |
| 60.3% | |
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|
| | | | | | | | | | | | | |
Operating expenses2 | |
| 1,090,727 | |
| 1,115,646 | |
| 1,011,756 | | (2.2)% | | 10.3% |
Operating expenses as a percentage of net sales | |
| 23.7% | |
| 26.6% | |
| 26.6% | |
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| | | | | | | | | | | | | |
Operating income1,2 | |
| 1,633,153 | |
| 1,402,939 | |
| 1,283,619 | | 16.4% | | 9.3% |
Operating income as a percentage of net sales | |
| 35.5% | |
| 33.4% | |
| 33.7% | |
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| | | | | | | | | | | | | |
Other (expense) income, net | |
| (6,996) | |
| 13,023 | |
| 9,653 | | (153.7)% | | 34.9% |
| | | | | | | | | | | | | |
Income before provision for income taxes1,2 | |
| 1,626,157 | |
| 1,415,962 | |
| 1,293,272 | | 14.8% | | 9.5% |
| | | | | | | | | | | | | |
Provision for income taxes | |
| 216,563 | |
| 308,127 | |
| 300,268 | | (29.7)% | | 2.6% |
| | | | | | | | | | | | | |
Income taxes as a percentage of income before taxes | |
| 13.3% | |
| 21.8% | |
| 23.2% | |
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| | | | | | | | | | | | | |
Net income1,2 | | $ | 1,409,594 | | $ | 1,107,835 | | $ | 993,004 | | 27.2% | | 11.6% |
Net income as a percentage of net sales | |
| 30.7% | |
| 26.4% | |
| 26.1% | |
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Net income per common share: | |
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Basic | | $ | 2.66 | | $ | 2.04 | | $ | 1.78 | | 30.3% | | 14.6% |
Diluted | | $ | 2.64 | | $ | 2.03 | | $ | 1.76 | | 30.0% | | 15.2% |
| | | | | | | | | | | | | |
Case sales (in thousands) (in 192‑ounce case equivalents) | |
| 504,821 | |
| 448,770 | |
| 410,886 | | 12.5% | | 9.2% |
(In thousands, except per share |
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| Percentage |
| Percentage |
| |||
|
| 2017 |
| 2016 |
| 2015 |
| 17 vs. 16 |
| 16 vs. 15 |
| |||
Net sales¹ |
| $ | 3,369,045 |
| $ | 3,049,393 |
| $ | 2,722,564 |
| 10.5% |
| 12.0% |
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Cost of sales |
| 1,231,355 |
| 1,107,393 |
| 1,090,263 |
| 11.2% |
| 1.6% |
| |||
Gross profit*¹ |
| 2,137,690 |
| 1,942,000 |
| 1,632,301 |
| 10.1% |
| 19.0% |
| |||
Gross profit as a percentage of net sales¹ |
| 63.5% |
| 63.7% |
| 60.0% |
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Operating expenses² |
| 938,903 |
| 856,662 |
| 900,118 |
| 9.6% |
| (4.8%) |
| |||
Operating expenses as a percentage of net sales |
| 27.9% |
| 28.1% |
| 33.1% |
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| |||
Gain on sale of Monster Non-Energy |
| - |
| - |
| 161,470 |
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| |||
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|
|
| |||
Operating income¹‚² |
| 1,198,787 |
| 1,085,338 |
| 893,653 |
| 10.5% |
| 21.4% |
| |||
Operating income as a percentage of net sales |
| 35.6% |
| 35.6% |
| 32.8% |
|
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|
| |||
|
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|
|
|
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| |||
Other income (expense), net |
| 2,836 |
| (5,653) |
| (2,105) |
| 150.2% |
| (168.6%) |
| |||
|
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|
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| |||
Income before provision for income taxes¹‚² |
| 1,201,623 |
| 1,079,685 |
| 891,548 |
| 11.3% |
| 21.1% |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Provision for income taxes |
| 380,945 |
| 367,000 |
| 344,815 |
| 3.8% |
| 6.4% |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Income taxes as a percentage of income before taxes |
| 31.7% |
| 34.0% |
| 38.7% |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income¹‚² |
| $ | 820,678 |
| $ | 712,685 |
| $ | 546,733 |
| 15.2% |
| 30.4% |
|
Net income as a percentage of net sales |
| 24.4% |
| 23.4% |
| 20.1% |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 1.45 |
| $ | 1.21 |
| $ | 0.97 |
| 19.4% |
| 25.6% |
|
Diluted |
| $ | 1.42 |
| $ | 1.19 |
| $ | 0.95 |
| 19.7% |
| 25.6% |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Case sales (in thousands) |
|
|
|
|
|
|
|
|
|
|
| |||
(in 192-ounce case equivalents) |
| 359,957 |
| 320,960 |
| 274,621 |
| 12.2% |
| 16.9% |
| |||
¹Includes $43.4$42.1 million, $40.3$46.3 million and $62.8$44.4 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, related to the recognition of deferred revenue. Included in the $43.4
2 Includes $0.2 million, $40.3$11.3 million and the $62.8 million recognition of deferred revenue for the years ended December 31, 2017, 2016 and 2015, respectively, is $0.6 million, $5.7 million and $39.8million related to the accelerated amortization of the deferred revenue balances associated with certain of the Company’s prior distributors who were sent notices of termination during the relevant periods.
²Includes $35.4 million, $79.8 million and $224.0$26.6 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, related to distributor termination costs.
*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. We include out-bound freight and warehouse costs in operating expenses rather than in cost of sales.
Results of Operations for the Year Ended December 31, 20172020 Compared to the Year Ended December 31, 2016.
2019.
Net Sales. Net sales were $3,369.0 million$4.60 billion for the year ended December 31, 2017,2020, an increase of approximately $319.7$397.8 million, or 10.5%9.5% higher than net sales of $3,049.4 million$4.20 billion for the year ended December 31, 2016.2019. The increase in net sales of our Monster Energy® brand energy drinks represented approximately $287.4 million of the overall increase in net sales. Net sales of our Monster Energy® brand energy drinks increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Net sales of our Strategic Brands were $299.8 million for the year ended December 31, 2017,COVID-19 pandemic had an increase of $27.3 million, or 10.0% higher than net sales of $272.5 million for the year ended December 31, 2016. Net sales of our AFF Third-Party Products were $21.6 million for the year ended December 31, 2017, an increase of $4.6 million, or 27.0% higher than net sales of $17.0 million (effectively from April 1, 2016 to December 31, 2016) for the year ended December 31, 2016. No other individual product line contributed either a material increase or decrease toadverse impact on net sales for the year ended December 31, 2017.
2020. Net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Monster Energy® Drinks segment of approximately $7.6$48.2 million for the year ended December 31, 2017.2020.
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Net sales for the Monster Energy® Drinks segment were $4.31 billion for the year ended December 31, 2020, an increase of approximately $401.2 million, or 10.3% higher than net sales of $3.90 billion for the year ended December 31, 2019. Net sales for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks and increased sales by volume for our Reign Total Body Fuel® high performance energy drinks, both as a result of increased consumer demand. The COVID-19 pandemic had an adverse impact on net sales of the Monster Energy® Drinks segment for the year ended December 31, 2020. Net sales for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Net changes in foreign currency exchange rates had a favorablean unfavorable impact on net sales infor the Strategic BrandsMonster Energy® Drinks segment of approximately $3.7$44.0 million for the year ended December 31, 2017.2020.
Net sales for the Strategic Brands segment were $266.4 million for the year ended December 31, 2020, a decrease of approximately $8.6 million, or 3.1% lower than net sales of $274.9 million for the year ended December 31, 2019. The COVID-19 pandemic had a material adverse impact on net sales of the Strategic Brands segment for the year ended December 31, 2020. The impact of the COVID-19 pandemic was more pronounced in the Strategic Brand segment, particularly in EMEA, as our largest revenue generating countries for this segment experienced extended lockdowns. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Strategic Brands segment of approximately $4.2 million for the year ended December 31, 2020.
Net sales for the Other segment were $27.0 million for the year ended December 31, 2020, an increase of approximately $5.2 million, or 23.7% higher than net sales of $21.9 million for the year ended December 31, 2019.
Case sales, in 192-ounce case equivalents, were 360.0504.8 million cases for the year ended December 31, 2017,2020, an increase of approximately 39.056.1 million cases or 12.2%12.5% higher than case sales of 321.0448.8 million cases for the year ended December 31, 2016.2019. The overall average net sales per case (excluding net sales of AFF Third-Party Products of $21.6$27.0 million and $17.0$21.9 million for the years ended December 31, 20172020 and 2016,2019, respectively, as these sales do not have unit case equivalents) decreased to $9.30$9.06 for the year ended December 31, 2017,2020, which was 1.6%2.8% lower than the average net sales per case of $9.45$9.31 for the year ended December 31, 2016. The lower average net sales price per case2019.
Gross Profit. Gross profit was primarily attributable to the changes in geographic sales mix.
Net sales for the Monster Energy® Drinks segment were $3,047.6 million$2.72 billion for the year ended December 31, 2017,2020, an increase of approximately $287.7$205.3 million, or 10.4%8.2% higher than net salesthe gross profit of $2,759.9 million$2.52 billion for the year ended December 31, 2016.
Net sales for the Strategic Brands segment were $299.8 million for the year ended December 31, 2017, an increase of approximately $27.3 million, or 10.0% higher than net sales of $272.5 million for the year ended December 31, 2016.
Net sales for the Other segment were $21.6 million for the year ended December 31, 2017, an increase of approximately $4.6 million, or 27.0% higher than net sales of $17.0 million (effectively from April 1, 2016 to December 31, 2016) for the year ended December 31, 2016.
Gross Profit. Gross profit was $2,137.7 million for the year ended December 31, 2017, an increase of approximately $195.7 million, or 10.1% higher than the gross profit of $1,942.0 million for the year ended December 31, 2016. Gross profit as a percentage of net sales decreased to 63.5% for the year ended December 31, 2017 from 63.7% for the year ended December 31, 2016.2019. The increase in gross profit dollars was primarily the result of the $287.4$401.2 million increase in net sales of our Monster Energy® brand energy drinks as well as an approximately $58.3 million increase in raw material cost savingsDrinks segment for the year ended December 31, 20172020.
Gross profit as a percentage of net sales decreased to 59.2% for the year ended December 31, 2020 from 60.0% for the AFF Transaction.year ended December 31, 2019. The decrease in gross profit as a percentage of net sales for the year ended December 31, 2020 was primarily attributable tothe result of the impact of the Product Returns, associated inventory provisions and other related costs as well as geographical sales mix (our foreign operations generally have lower grossmix. Gross profit margins)as a percentage of net sales (excluding the Product Returns, associated inventory provisions and to certain increases in other costs, which were partially offset by raw material cost savings fromrelated costs) was 59.6% for the AFF Transaction and changes in domestic product sales mix.
year ended December 31, 2020.
Operating Expenses. Total operating expenses were $938.9$1.09 billion for the year ended December 31, 2020, a decrease of approximately $24.9 million, or 2.2% lower than total operating expenses of $1.12 billion for the year ended December 31, 2019. The decrease in operating expenses was primarily due to decreased expenditures of $46.7 million for sponsorship and endorsements, decreased expenditures of $27.7 million for travel and entertainment, each largely as a consequence of the COVID-19 pandemic, decreased expenditures of $14.7 million for legal settlements and decreased expenditures of $11.1 million related to the costs associated with distributor terminations. The costs for certain postponed or rescheduled events have been, or may be, deferred to future periods. Due to the uncertainty surrounding the COVID-19 pandemic, we are unable to estimate in what future periods, if any, such deferred sponsorship and endorsement costs will be recognized. Provision for legal settlements for the year ended December 31, 2020 was lower by $14.7 million than in the comparable 2019 period. The decrease in operating expenses was partially offset by increased payroll expenses of $43.1 million (of
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which $6.9 million was related to an increase in stock-based compensation), increased expenditures of $25.3 million for social media and digital marketing, and increased out-bound freight and warehouse costs of $21.7 million.
Operating Income. Operating income was $1.63 billion for the year ended December 31, 2020, an increase of approximately $230.2 million, or 16.4% higher than operating income of $1.40 billion for the year ended December 31, 2019. Operating income as a percentage of net sales was 35.5% and 33.4% for the years ended December 31, 2020 and December 31, 2019, respectively. Operating income was $270.8 million and $229.2 million for the years ended December 31, 2020 and 2019, respectively, in connection with our operations in Europe, Middle East and Africa (“EMEA”), Asia Pacific and South America.
Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $1.82 billion for the year ended December 31, 2020, an increase of approximately $254.4 million, or 16.2% higher than operating income of $1.57 billion for the year ended December 31, 2019. The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the $401.2 million increase in net sales of our Monster Energy® Drinks segment for the year ended December 31, 2020.
Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $155.0 million for the year ended December 31, 2017, an increase2020, a decrease of approximately $82.2$9.0 million, or 9.6% higher5.5% lower than total operating expensesincome of $856.7$164.1 million for the year ended December 31, 2016.2019.
Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $5.9 million for the year ended December 31, 2020, an increase of approximately $2.3 million, or 62.3% higher than operating income of $3.7 million for the year ended December 31, 2019.
Other (Expense) Income, net. Other non-operating (expense) income, net, was $(7.0) million for the year ended December 31, 2020, as compared to other non-operating (expense) income, net, of $13.0 million for the year ended December 31, 2019. Foreign currency transaction losses were $11.2 million and $4.1 million for the years ended December 31, 2020 and 2019, respectively. Interest income was $8.1 million and $17.8 million for the years ended December 31, 2020 and 2019, respectively.
Provision for Income Taxes. Provision for income taxes was $216.6 million for the year ended December 31, 2020, a decrease of $91.6 million, or 29.7% lower than the provision for income taxes of $308.1 million for the year ended December 31, 2019. The effective combined federal, state and foreign tax rate decreased to 13.3% from 21.8% for the year ended December 31, 2020 and 2019, respectively. The decrease in the effective tax rate was primarily attributable to a non-recurring tax benefit of approximately $165.1 million due to an intra-entity transfer of intangible assets between certain of the Company’s foreign subsidiaries which resulted in a step-up of the tax-deductible basis in the transferred assets in a foreign jurisdiction, and created a temporary difference between the tax basis and the book basis for such intangible assets. The decrease in the effective tax rate was partially offset by the decrease in the equity compensation deduction.
Net Income. Net income was $1.41 billion for the year ended December 31, 2020, an increase of $301.8 million, or 27.2% higher than net income of $1.11 billion for the year ended December 31, 2019. The increase in net income was primarily due to the $205.3 million increase in gross profit, the decrease in the provision for income taxes of $91.6 million and the decrease in operating expenses of $24.9 million.
Results of Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018.
Net Sales. Net sales were $4.20 billion for the year ended December 31, 2019, an increase of approximately $393.6 million, or 10.3% higher than net sales of $3.81 billion for the year ended December 31, 2018. Net sales for the year ended December 31, 2019 were positively impacted by approximately $101.9 million as a result of a price increase effective from November 1, 2018 in the United States (“the U.S. Price Increase”) and effective from February 1, 2019 in Canada (the
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“Canada Price Increase”), on certain of our Monster Energy® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $69.2 million for the year ended December 31, 2019.
Net sales for the Monster Energy® Drinks segment were $3.90 billion for the year ended December 31, 2019, an increase of approximately $405.6 million, or 11.6% higher than net sales of $3.50 billion for the year ended December 31, 2018. Net sales for the Monster Energy® Drinks segment increased primarily due to (i) sales of our Reign Total Body Fuel® high performance energy drinks, introduced in the first quarter of 2019, (ii) the price increases described above, and (iii) increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Monster Energy® Drinks segment of approximately $59.6 million for the year ended December 31, 2019.
Net sales for the Strategic Brands segment were $274.9 million for the year ended December 31, 2019, a decrease of approximately $10.9 million, or 3.8% lower than net sales of $285.8 million for the year ended December 31, 2018. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Strategic Brands segment of approximately $9.6 million for the year ended December 31, 2019.
Net sales for the Other segment were $21.9 million for the year ended December 31, 2019, a decrease of approximately $1.1 million, or 4.6% lower than net sales of $22.9 million for the year ended December 31, 2018.
Case sales, in 192-ounce case equivalents, were 448.8 million cases for the year ended December 31, 2019, an increase of approximately 37.9 million cases or 9.2% higher than case sales of 410.9 million cases for the year ended December 31, 2018. The overall average net sales per case (excluding net sales of AFF Third-Party Products of $21.9 million and $22.9 million for the years ended December 31, 2019 and 2018, respectively, as these sales do not have unit case equivalents) increased to $9.31 for the year ended December 31, 2019, which was 1.1% higher than the average net sales per case of $9.21 for the year ended December 31, 2018. The increase in the average net sales per case was primarily attributable to a price increase effective from November 1, 2018 in the United States and effective from February 1, 2019 in Canada, on certain of our Monster Energy® brand energy drinks.
Gross Profit. Gross profit was $2.52 billion for the year ended December 31, 2019, an increase of approximately $223.2 million, or 9.7% higher than the gross profit of $2.30 billion for the year ended December 31, 2018. The increase in gross profit dollars was primarily the result of the $405.6 million increase in net sales of our Monster Energy® Drinks segment for the year ended December 31, 2019.
Gross profit as a percentage of net sales decreased to 60.0% for the year ended December 31, 2019 from 60.3% for the year ended December 31, 2018. The decrease for the year ended December 31, 2019 was primarily the result of geographical and product sales mix. Such decrease was partially offset by the sales price increases discussed above.
Operating Expenses. Total operating expenses were $1.12 billion for the year ended December 31, 2019, an increase of approximately $103.9 million, or 10.3% higher than total operating expenses of $1.01 billion for the year ended December 31, 2018. The increase in operating expenses was primarily due to increased payroll expenses of $40.5$36.0 million (of which $6.4$6.2 million was related to an increase in stock-based compensation), increased expenditures of $26.6$25.1 million for professional service fees, including legal and accounting costs, increased expenditures of $13.4 million for sponsorships and endorsements, increased expenditures of $15.9 million for commissions, increased out-bound freight and warehouse costs of $11.1 million, increased expenditures of $9.9 million for allocated trade development and increased expenditures of $8.3$19.1 million for merchandise displays.in other marketing expenses. The increase in operating expenses was partially offset by the $44.3decreased expenditures of $15.4 million decrease inrelated to the costs associated with distributor terminationsterminations. Operating expenses for the year ended December 31, 2019 included a $15.5 million provision in connection with an intellectual property claim brought by the descendants of Hubert Hansen in relation to the Company’s use of the Hubert Hansen name prior to the transaction with TCCC, that closed in 2015.
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Operating Income. Operating income was $1.40 billion for the year ended December 31, 2019, an increase of approximately $119.3 million, or 9.3% higher than operating income of $1.28 billion for the year ended December 31, 2018. Operating income as a percentage of net sales was 33.4% and to decreased expenditures of $13.933.7% for the years ended December 31, 2019 and December 31, 2018, respectively. Operating income was $229.2 million and $180.8 million for professional service fees, including legalthe years ended December 31, 2019 and accounting costs.2018, respectively, in connection with our operations in Europe, Middle East and Africa (“EMEA”), Asia Pacific and South America.
Contribution Margin. Contribution marginOperating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $1,264.6 million$1.57 billion for the year ended December 31, 2017,2019, an increase of approximately $116.2$195.0 million, or 10.1%14.2% higher than contribution marginoperating income of $1,148.4 million$1.37 billion for the year ended December 31, 2016.2018. The increase in contribution marginoperating income for the Monster Energy® Drinks segment was primarily the result of the $287.4$405.6 million increase in net sales of our Monster Energy® brand energy drinks as well an approximately $58.3 million increase in raw material cost savingsDrinks segment for the year ended December 31, 2017 from the AFF Transaction.2019.
Contribution marginOperating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $174.5$164.1 million for the year ended December 31, 2017, an increase2019, a decrease of approximately $11.3$12.5 million, or 7.0% higher7.1% lower than contribution marginoperating income of $163.1$176.5 million for the year ended December 31, 2016. The increase in contribution margin for the Strategic Brands segment was primarily due to an increase in net sales.2018.
Contribution marginOperating income for the Other segment, exclusive of corporate and unallocated expenses, was $5.6$3.7 million for the year ended December 31, 2017, an increase2019, a decrease of approximately $3.3$1.7 million, or 143.3% higher31.9% lower than contribution marginoperating income of $2.3$5.4 million for the year ended December 31, 2016.
2018.
Operating Income.Other Income, net Operating. Other non-operating income, net, was $1,198.8$13.0 million for the year ended December 31, 2017, an increase of approximately $113.4 million, or 10.5% higher than operating income of $1,085.3 million for the year ended December 31, 2016. Operating income as a percentage of net sales was 35.6% for both the years ended December 31, 2017 and 2016. Operating income was $139.3 million and $101.7 million for the year ended December 31, 2017 and 2016, respectively, in connection with our operations in Africa, Asia, Australia, Europe, the Middle East and South America.
Other Income (Expense), net. Other non-operating income (expense), net, was $2.8 million for the year ended December 31, 2017,2019, as compared to other non-operating income, (expense), net, of ($5.7) million for the year ended December 31, 2016. Foreign currency transaction losses were $3.3 million and $9.7 million for the year ended December 31, 20172018. Foreign currency transaction losses were $4.1 million and 2016,$4.0 million for the years ended December 31, 2019 and 2018, respectively. Interest income net was $5.9$17.8 million and $4.0$13.8 million for the years ended December 31, 2019 and 2018, respectively.
Provision for Income Taxes. Provision for income taxes was $308.1 million for the year ended December 31, 2017 and 2016, respectively.
Provision for Income Taxes. Provision for income taxes was $380.9 million for the year ended December 31, 2017,2019, an increase of $13.9$7.9 million, or 3.8%2.6% higher than the provision for income taxes of $367.0$300.3 million for the year ended December 31, 2016.2018. The effective combined federal, state and foreign tax rate decreased to 31.7%21.8% from 34.0%23.2% for the year ended December 31, 20172019 and 2016,2018, respectively. The decrease in the effective tax rate was primarily dueattributable to the increase in profits earned by foreign subsidiaries in lower tax jurisdictions relative to the United States as well as to thean increase in equity compensation deductions, due in part to the increase in the related excess tax benefits recorded in net income.deductions. The decrease in the effective tax rate was partially offset by the recognition of $39.8 million of tax expense related to the revaluation of the U.S. net deferred tax asset at December 31, 2017, from 35% to the newly enacted U.S. corporateincreased income tax rate of 21% due to the Tax Reform Act enacted on December 22, 2017.
taxes in certain foreign jurisdictions.
Net Income. Net income was $820.7$1.11 billion for the year ended December 31, 2019, an increase of $114.8 million, or 11.6% higher than net income of $993.0 million for the year ended December 31, 2017, an increase of $108.0 million, or 15.2% higher than net income of $712.7 million for the year ended December 31, 2016. 2018.The increase in net income was primarily due to the $195.7$223.2 million increase in gross profit. The increase in net income was partially offset by the increase in operating expenses of $82.2$103.9 million and the increase in the provision for income taxes of $13.9 million.
Results of Operations for the Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015.
Net Sales. Net sales were $3,049.4 million for the year ended December 31, 2016, an increase of approximately $326.8 million, or 12.0% higher than net sales of $2,722.6 million for the year ended December 31, 2015. The increase in net sales of our Monster Energy® brand energy drinks represented approximately $229.4 million of the overall increase in net sales. Net sales of our Monster Energy® brand energy drinks increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Net sales of our Strategic Brands were $272.5 million for the year ended December 31, 2016, as compared with $143.3 million for the year ended December 31, 2015 (effectively from June 13, 2015 to December 31, 2015). There were no net sales during the year ended December 31, 2016 for the non-energy brands disposed of as a result of the TCCC Transaction on June 12, 2015, which resulted in a decrease in net sales of $60.8 million from the year ended December 31, 2015. Net sales of our AFF Third- Party Products were $17.0 million for the year ended December 31, 2016. There were no net sales of our AFF Third-Party Products for the year ended December 31, 2015. Net sales included $5.7 million and $39.8 million for the years ended December 31, 2016 and 2015, respectively, related to the acceleration of deferred revenue balances associated with certain of the Company’s prior distributors. No other individual product line contributed either a material increase or decrease to net sales for the year ended December 31, 2016.
Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Monster Energy® Drinks segment of approximately $17.6 million for the year ended December 31, 2016, primarily due to our operations in Europe, Mexico, Canada and South Africa, partially offset by our operations in Japan. Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Strategic Brands segment of approximately $4.7 million for the year ended December 31, 2016, primarily due to our operations in Europe.
Case sales, in 192-ounce case equivalents, were 321.0 million cases for the year ended December 31, 2016, an increase of approximately 46.3 million cases or 16.9% higher than case sales of 274.6 million cases for the year ended December 31, 2015. The overall average net sales per case (excluding AFF Third-Party Products’ net sales of $17.0 million, as these sales do not have unit case equivalents) decreased to $9.45 for the year ended December 31, 2016, which was 4.7% lower than the average net sales per case of $9.91 for the year ended December 31, 2015. The lower net sales per case was primarily attributable to sales of concentrates and/or beverage bases in the Strategic Brands segment, which generally generate lower net operating revenues than products within the Monster Energy® Drinks segment.
Net sales for the Monster Energy® Drinks segment were $2,759.9 million for the year ended December 31, 2016, an increase of approximately $241.4 million, or 9.6% higher than net sales of $2,518.5 million for the year ended December 31, 2015. No other individual product line contributed either a material increase or decrease to net sales for the year ended December 31, 2016.
Net sales for the Strategic Brands segment were $272.5 million for the year ended December 31, 2016, an increase of approximately $129.2 million, or 90.2% higher than net sales of $143.3 million for the year ended December 31, 2015 (effectively from June 13, 2015 to December 31, 2015).
Net sales for the Other segment were $17.0 million for the year ended December 31, 2016, a decrease of approximately $43.8 million, or 72.0% lower than net sales of $60.8 million for the year ended December 31, 2015. Net sales for the Other segment for the year ended December 31, 2016 are comprised of sales of the AFF Third-Party Products. Net sales for the Other segment for the year ended December 31, 2015 are comprised of sales of the non-energy brands disposed of as a result of the TCCC Transaction on June 12, 2015 (effectively from January 1, 2015 to June 12, 2015).
Gross Profit. Gross profit was $1,942.0 million for the year ended December 31, 2016, an increase of approximately $309.7 million, or 19.0% higher than the gross profit of $1,632.3 million for the year ended December 31, 2015. Gross profit as a percentage of net sales increased to 63.7% for the year ended December 31, 2016 from 60.0% for the year ended December 31, 2015. The increase in gross profit dollars was primarily the result of the $229.4 million and $129.2 million increase in net sales of our Monster Energy® brand energy drinks and our Strategic Brands, respectively. The increase in gross profit as a percentage of net sales was primarily attributable to (i) the Strategic Brands segment, which generally has higher gross margins than the Monster Energy® Drinks segment, (ii) no sales in the year ended December 31, 2016 for the non-energy brands disposed of as a result of the TCCC Transaction on June 12, 2015, which generally had lower gross margins than the Monster Energy® Drinks segment, (iii) lower costs of certain raw materials, (iv) the raw material cost savings resulting from the AFF Transaction and (v) changes in product sales mix.
Operating Expenses. Total operating expenses were $856.7 million for the year ended December 31, 2016, a decrease of approximately $43.5 million, or 4.8% lower than total operating expenses of $900.1 million for the year ended December 31, 2015. The decrease in operating expenses was primarily due to the $144.2 million decrease in costs associated with distributor terminations. To a lesser extent, the decrease in operating expenses was also due to decreased expenditures of $15.4 million of professional service costs and transaction expenses related to the TCCC Transaction, decreased expenditures of $3.5 million for distribution costs and decreased expenditures of $3.5 million for advertising. The decrease in operating expenses was partially offset by increased payroll expenses of $29.5 million (of which $13.1 million was related to an increase in stock-based compensation), increased expenditures of $27.3 million for sponsorships and endorsements, increased expenditures of $15.7 million for professional service costs (exclusive of expenditures related to the Auction Stock Repurchase Tender, the AFF Transaction and the TCCC Transaction), including legal and accounting fees, increased expenditures of $8.4 million for premiums, increased expenditures of $7.9 million for other marketing expenses, increased expenditures of $6.5 million for commissions, increased intangible asset amortization of $6.6 million and $6.0 million of professional service costs and transaction expenses related to the Auction Stock Repurchase Tender and the AFF Transaction, respectively.
Contribution Margin. Contribution margin for the Monster Energy® Drinks segment was $1,148.4 million for the year ended December 31, 2016, an increase of approximately $312.4 million, or 37.4% higher than contribution margin of $836.1 million for the year ended December 31, 2015. The increase in contribution margin for the Monster Energy® Drinks segment was primarily the result of the $144.2 million decrease in costs associated with distributor terminations as well as the $229.4 million increase in net sales of our Monster Energy® brand energy drinks. The increase in contribution margin for the Monster Energy® Drinks segment was partially offset by the $39.8 million of accelerated amortization of deferred revenue during the year ended December 31, 2015 related to distributor terminations, as compared to $5.7 million during the year ended December 31, 2016.
Contribution margin for the Strategic Brands segment was $163.1 million for the year ended December 31, 2016, an increase of approximately $73.3 million, or 81.6% higher than contribution margin of $89.8 million for the year ended December 31, 2015 (effectively from June 13, 2015 to December 31, 2015).
Contribution margin for the Other segment was $2.3 million for the year ended December 31, 2016, as compared to contribution margin of $165.2 million for the year ended December 31, 2015. Included in contribution margin for the Other segment for the year ended December 31, 2015 was the $161.5 million gain on the sale of the rights in and to our non-energy business (“Monster Non-Energy”) to TCCC.
Operating Income. Operating income was $1,085.3 million for the year ended December 31, 2016, an increase of approximately $191.7 million, or 21.4% higher than operating income of $893.7 million for the year ended December 31, 2015. Operating income as a percentage of net sales increased to 35.6% for the year ended December 31, 2016 from 32.8% for the year ended December 31, 2015. The increase in operating income in dollars was primarily due to the $144.2 million decrease in costs associated with distributor terminations, as well as the $309.7 million increase in gross profit. The increase in operating income was partially offset by the $161.5 million gain on the sale of Monster Non-Energy for the year ended December 31, 2015. Operating income was $101.7 million and $67.0 million for the year ended December 31, 2016 and 2015, respectively, in relation to our operations in Africa, Asia, Australia, Europe, the Middle East and South America.
Other Income (Expense), net. Other expense, net was ($5.7) million for the year ended December 31, 2016, as compared to other expense, net of ($2.1) million for the year ended December 31, 2015. Foreign currency transaction losses were $9.7 million and $5.5 million for the years ended December 31, 2016 and 2015, respectively. Interest income, net was $4.0 million and $3.1 million for the years ended December 31, 2016 and 2015, respectively.
Provision for Income Taxes. Provision for income taxes was $367.0 million for the year ended December 31, 2016, an increase of $22.2 million or 6.4% higher than the provision for income taxes of $344.8 million for the year ended December 31, 2015. The effective combined federal, state and foreign tax rate decreased to 34.0% from 38.7% for the years ended December 31, 2016 and 2015, respectively. The decrease in the effective tax rate was primarily due to the increase in the stock compensation deduction as well as the increase in the domestic production deduction taken in the year ended December 31, 2016. The decrease in the effective tax rate was partially offset by the disallowance of a tax deduction for certain costs related to the TCCC Transaction and the release of the valuation allowance against the deferred tax assets of a certain foreign jurisdiction in the year ended December 31, 2015.
Net Income. Net income was $712.7 million for the year ended December 31, 2016, an increase of $165.9 million or 30.4% higher than net income of $546.7 million for the year ended December 31, 2015. The increase in net income was primarily attributable to the $144.2 million decrease in costs associated with distributor terminations as well as the increase in gross profit of $309.7 million. The increase in net income was partially offset by the $161.5 million gain on the sale of Monster Non-Energy for the year ended December 31, 2015 as well as an increase in the provision for income taxes of $22.2$7.9 million.
Key Business Metrics
We use certain key metrics and financial measures not prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) to evaluate and manage our business. For a further discussion of how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures and Other Key Metrics”.
Non-GAAP Financial Measures
and Other Key Metrics
Year Ended December 31, 2020 compared to the Year Ended December 31, 2019.
Gross Sales*Billings**. Gross salesBillings were $3,861.4 million$5.33 billion for the year ended December 31, 2017,2020, an increase of approximately $375.9$507.3 million, or 10.8%10.5% higher than gross salesbillings of $3,485.5 million$4.82 billion for the year ended December 31, 2016. 2019.
54
The increase inCOVID-19 pandemic had an adverse impact on gross sales of our Monster Energy® brand energy drinks represented approximately $345.1 million of the overall increase in gross sales. Gross sales of our Monster Energy® brand energy drinks increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Gross sales of our Strategic Brands were $318.5 millionbillings for the year ended December 31, 2017, an increase of $23.8 million, or 8.1% higher than gross sales of $294.6 million2020. Gross billings for the year ended December 31, 2016. Gross sales of our AFF Third-Party Products2020 were $21.6negatively impacted by $15.2 million forrelated to the year ended December 31, 2017, an increase of $4.4 million, or 25.7% higher than gross sales of $17.2 million for the year ended December 31, 2016. No other individual product line contributed either a material increase or decrease to net sales for the year ended December 31, 2017.
Promotional and other allowances, as described in the footnote below, were $492.3 million for the year ended December 31, 2017, an increase of $56.3 million, or 12.9% higher than promotional and other allowances of $436.1 million for the year ended December 31, 2016. Promotional and other allowances as a percentage of gross sales increased to 12.7% from 12.5% for the year ended December 31, 2017 and 2016, respectively.
Product Returns. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales in the Monster Energy® Drinks segmentbillings of approximately $11.9$50.0 million for the year ended December 31, 2017. Net changes in foreign currency exchange rates had a favorable impact on gross sales in2020.
Gross billings for the Strategic BrandsMonster Energy® Drinks segment of approximately $3.7 millionwere $4.99 billion for the year ended December 31, 2017.
Gross sales**. Gross sales were $3,485.52020, an increase of approximately $509.4 million, or 11.4% higher than gross billings of $4.49 billion for the year ended December 31, 2016, an increase of approximately $379.8 million, or 12.2% higher than gross sales of $3,105.7 million2019. Gross billings for the year ended December 31, 2015. The increase in grossMonster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks represented approximately $300.7 million of the overall increase in gross sales. Gross sales of our Monster Energy® brand energy drinks increased partially due toand increased sales by volume for our Reign Total Body Fuel® high performance energy drinks, both as a result of increased domestic and international consumer demand. Gross salesThe COVID-19 pandemic had an adverse impact on gross billings of our Strategic Brands were $294.6 millionthe Monster Energy® Drinks segment for the year ended December 31, 2016, as compared with $156.3 million2020. Gross billings for the Monster Energy® Drinks segment for the year ended December 31, 2015 (effectively from June 13, 20152020 were negatively impacted by $15.2 million related to December 31, 2015). There were no gross sales during the year ended December 31, 2016 for the non-energy brands disposed of as a result of the TCCC Transaction on June 12, 2015, which resulted in a decrease in gross sales of $68.5 million from the year ended December 31, 2015 for the Other segment. Gross sales of our AFF Third-Party Products were $17.2 million for the year ended December 31, 2016. There were no sales of our AFF Third-Party Products for the year ended December 31, 2015. No other individual product line contributed either a material increase or decrease to gross sales for the year ended December 31, 2016.
Promotional and other allowances, as described in the footnote below, were $436.1 million for the year ended December 31, 2016, an increase of $53.0 million, or 13.8% higher than promotional and other allowances of $383.1 million for the year ended December 31, 2015. Promotional and other allowances as a percentage of gross sales increased to 12.5% for the year ended December 31, 2016 from 12.3% for the year ended December 31, 2015.
Product Returns. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales inbillings for the Monster Energy® Drinks segment of approximately $26.2$45.8 million for the year ended December 31, 2016, primarily due to2020.
Gross billings for the Strategic Brands segment were $305.4 million for the year ended December 31, 2020, a decrease of approximately $7.3 million, or 2.3% lower than gross billings of $312.7 million for the year ended December 31, 2019. The COVID-19 pandemic had a material adverse impact on gross billings of the Strategic Brands segment for the year ended December 31, 2020. The impact of the COVID-19 pandemic was more pronounced in the Strategic Brands segment, particularly in EMEA, as our operations in Europe, Mexico, Canada and South Africa.largest revenue generating countries for this segment experienced extended lockdowns. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Strategic Brands segment of approximately $4.2 million for the year ended December 31, 2020.
Gross billings for the Other segment were $27.0 million for the year ended December 31, 2020, an increase of approximately $5.2 million, or 23.7% higher than gross billings of $21.9 million for the year ended December 31, 2019.
Promotional allowances, commissions and other expenses***. Promotional allowances, commissions and other expenses, as described in the footnote below, were $772.2 million for the year ended December 31, 2020, an increase of $105.3 million, or 15.8% higher than promotional allowances, commissions and other expenses of $666.9 million for the year ended December 31, 2019. Promotional allowances, commissions and other expenses as a percentage of gross billings increased to 14.5% from 13.8% for the years ended December 31, 2020 and 2019, respectively.
Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution contract, generally 20 years, or through completion of the sales/marketing program. Revenue recognized was $42.1 million and $46.3 million for the years ended December 31, 2020 and 2019, respectively.
Year Ended December 31, 2019 compared to the Year Ended December 31, 2018.
Gross Billings. Gross billings were $4.82 billion for the year ended December 31, 2019, an increase of approximately $436.1 million, or 9.9% higher than gross billings of $4.39 billion for the year ended December 31, 2018. Gross billings for the year ended December 31, 2019 were positively impacted by approximately $101.9 million as a result of the U.S. Price Increase and the Canada Price Increase, on certain of our Monster Energy® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $82.5 million for the year ended December 31, 2019.
Gross billings for the Monster Energy® Drinks segment were $4.49 billion for the year ended December 31, 2019, an increase of approximately $451.6 million, or 11.2% higher than gross billings of $4.04 billion for the year ended
55
December 31, 2018. Gross billings for the Monster Energy® Drinks segment increased primarily due to (i) sales of our Reign Total Body Fuel® high performance energy drinks, introduced in the first quarter of 2019, (ii) the price increases described above, and (iii) increased sales by volume of our Monster Energy® brand energy drinks as a result of increased domestic and international consumer demand. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Monster Energy® Drinks segment of approximately $72.9 million for the year ended December 31, 2019.
Gross billings for the Strategic Brands segment were $312.7 million for the year ended December 31, 2019, a decrease of $14.4 million, or 4.4% lower than gross billings of $327.1 million for the year ended December 31, 2018. Net changes in foreign currency exchange rates had an unfavorable impact on gross billings in the Strategic Brands segment of approximately $4.7$9.6 million for the year ended December 31, 2016, primarily due2019.
Gross billings for the Other segment were $21.9 million for the year ended December 31, 2019, a decrease of $1.1 million, or 4.6% lower than gross billings of $22.9 million for the year ended December 31, 2018.
Promotional allowances, commissions and other expenses. Promotional allowances, commissions and other expenses, as described in the footnote below, were $666.9 million for the year ended December 31, 2019, an increase of $44.5 million, or 7.2% higher than promotional allowances, commissions and other expenses of $622.3 million for the year ended December 31, 2018. Promotional allowances, commissions and other expenses as a percentage of gross billings decreased to our operations in Europe.13.8% from 14.2% for the years ended December 31, 2019 and 2018, respectively.
Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution contract, generally 20 years, or through completion of the sales/marketing program. Revenue recognized was $46.3 million and $44.3 million for the years ended December 31, 2019 and 2018, respectively.
**Gross sales isBillings (titled Gross Sales in prior filings) represent amounts invoiced to customers net of cash discounts and returns. Gross billings are used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and is useful to investors in evaluating overall Company performance. The use of gross salesbillings allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross salesbillings provides a useful measure of our operating performance. Gross salesThe use of gross billings is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross salesbillings may not be comparable to similarly titled measures used by other companies, as gross salesbillings has been defined by our internal reporting practices. In addition, gross salesbillings may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers.
The following table reconciles the non-GAAP financial measure of gross salesbillings with the most directly comparable GAAP financial measure of net sales:
| | | | | | | | | | | | | |
|
| |
|
| |
|
| |
|
| Percentage | | Percentage |
In thousands | | | | | | | | | |
| Change | | Change |
|
| 2020 |
| 2019 |
| 2018 |
| 20 vs. 19 | | 19 vs. 18 | |||
Gross Billings | | $ | 5,328,683 | | $ | 4,821,411 | | $ | 4,385,262 |
| 10.5% | | 9.9% |
Deferred Revenue | | | 42,110 | | | 46,287 | | | 44,260 | | (9.0%) | | 4.6% |
Less: Promotional allowances, commissions and other expenses*** | |
| (772,155) | |
| (666,879) | |
| (622,339) |
| 15.8% | | 7.2% |
Net Sales | | $ | 4,598,638 | | $ | 4,200,819 | | $ | 3,807,183 |
| 9.5% | | 10.3% |
In thousands |
|
|
|
|
|
|
| Percentage |
| Percentage |
| |||
|
| 2017 |
| 2016 |
| 2015 |
| 17 vs. 16 |
| 16 vs. 15 |
| |||
Gross sales, net of discounts and returns |
| $ | 3,861,368 |
| $ | 3,485,463 |
| $ | 3,105,665 |
| 10.8% |
| 12.2% |
|
Less: Promotional and other allowances*** |
| 492,323 |
| 436,070 |
| 383,101 |
| 12.9% |
| 13.8% |
| |||
Net Sales |
| $ | 3,369,045 |
| $ | 3,049,393 |
| $ | 2,722,564 |
| 10.5% |
| 12.0% |
|
***Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the presentation thereof does not conform withto GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to the Company’sour bottlers/distributors or retail customers including, but not limited to the following: (i) discounts granted off list prices to support price promotions to end-consumers by retailers; (ii) reimbursements given to the Company’sour bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (iii) the Company’sour agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; (iv) the Company’sour agreed share of slotting, shelf space allowances and other fees given directly to retailers;retailers, club stores and/or wholesalers; (v) incentives given to the Company’sour bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; (vi) discounted or free products; (vii) contractual fees given to the Company’sour bottlers/distributors related to sales made by the Companyus direct to certain customers that fall within the bottler’s/bottlers’/distributors’ sales territories; and (viii) certain commissions paid based on sales to our customers.bottlers/distributors. The
56
presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances constitute a material portion of our marketing activities. The Company’sOur promotional allowance programs with itsour numerous bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The primary drivers of our promotional and other allowance activities for the years ended December 31, 2017, 20162020 and 20152019 were (i) to promote trial and increase sales volume and trial, (ii) to address market conditions, and (iii) to secure shelf and display space at retail.
Sales
The table set forth below discloses selected quarterly data regarding sales for the past five years. Data from any one or more quarters is not necessarily indicative of annual results or continuing trends.
Sales of beverages are expressed in unit case volume. A “unit case” means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings). Unit case volume means the number of unit cases (or unit case equivalents) of finished products or concentrates, as if converted into finished products, sold by us.
57
Our quarterly results of operations reflect seasonal trends that are primarily the result of increased demand in the warmer months of the year. It has been our experience that beverage sales tend to be lower during the first and fourth quarters of each calendar year. In addition, our experience with our energy drink products suggests they are less seasonal than the seasonality expected from traditional beverages. Quarterly fluctuations may also be affected by other factors including the introduction of new products, the opening of new markets where temperature fluctuations are more pronounced, the addition of new bottlers, bottlers/distributors and customers, changes in the sales mix of our products and changes in and/or increased advertising and promotional expenses. (See “Part I, Item 1 – Business – Seasonality”).
| | | | | | | | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 | |||||
Net Sales (in Thousands) | | | | | | | | | | | | | | | |
Quarter 1 | | $ | 1,062,097 | | $ | 945,991 | | $ | 850,921 | | $ | 742,146 | | $ | 680,186 |
Quarter 2 | |
| 1,093,896 | |
| 1,104,045 | |
| 1,015,873 | |
| 907,068 | |
| 827,488 |
Quarter 3 | |
| 1,246,362 | |
| 1,133,577 | |
| 1,016,160 | |
| 909,476 | |
| 787,954 |
Quarter 4 | |
| 1,196,283 | |
| 1,017,206 | |
| 924,229 | |
| 810,355 | |
| 753,765 |
Total | | $ | 4,598,638 | | $ | 4,200,819 | | $ | 3,807,183 | | $ | 3,369,045 | | $ | 3,049,393 |
| | | | | | | | | | | | | | | |
Less: AFF third party net sales (in Thousands) | | | | | | | | | | | | | | | |
Quarter 1 | | $ | (5,105) | | $ | (5,321) | | $ | (4,657) | | $ | (5,539) | | $ | — |
Quarter 2 | |
| (6,644) | |
| (5,791) | |
| (6,623) | |
| (6,174) | |
| (6,635) |
Quarter 3 | |
| (8,618) | |
| (5,860) | |
| (6,573) | |
| (5,200) | |
| (5,686) |
Quarter 4 | |
| (6,671) | |
| (4,893) | |
| (5,067) | |
| (4,692) | |
| (4,690) |
Total | | $ | (27,038) | | $ | (21,865) | | $ | (22,920) | | $ | (21,605) | | $ | (17,011) |
| | | | | | | | | | | | | | | |
Adjusted Net Sales (in Thousands)¹ | | | | | | | | | | | | | | | |
Quarter 1 | | $ | 1,056,992 | | $ | 940,670 | | $ | 846,264 | | $ | 736,607 | | $ | 680,186 |
Quarter 2 | |
| 1,087,252 | |
| 1,098,254 | |
| 1,009,250 | |
| 900,894 | |
| 820,853 |
Quarter 3 | |
| 1,237,744 | |
| 1,127,717 | |
| 1,009,587 | |
| 904,276 | |
| 782,268 |
Quarter 4 | |
| 1,189,612 | |
| 1,012,313 | |
| 919,162 | |
| 805,663 | |
| 749,075 |
Total | | $ | 4,571,600 | | $ | 4,178,954 | | $ | 3,784,263 | | $ | 3,347,440 | | $ | 3,032,382 |
| | | | | | | | | | | | | | | |
Unit Case Volume / Sales (in Thousands) | | | | | | | | | | | | | | | |
Quarter 1 | |
| 115,598 | |
| 101,284 | |
| 92,315 | |
| 79,992 | |
| 72,653 |
Quarter 2 | |
| 116,960 | |
| 119,595 | |
| 110,057 | |
| 97,233 | |
| 87,574 |
Quarter 3 | |
| 139,922 | |
| 121,854 | |
| 111,038 | |
| 96,184 | |
| 82,767 |
Quarter 4 | |
| 132,341 | |
| 106,037 | |
| 97,476 | |
| 86,548 | |
| 77,966 |
Total | |
| 504,821 | |
| 448,770 | |
| 410,886 | |
| 359,957 | |
| 320,960 |
| | | | | | | | | | | | | | | |
Adjusted Average Net Sales Per Case | | | | | | | | | | | | | | | |
Quarter 1 | | $ | 9.14 | | $ | 9.29 | | $ | 9.17 | | $ | 9.21 | | $ | 9.36 |
Quarter 2 | |
| 9.30 | |
| 9.18 | |
| 9.17 | |
| 9.27 | |
| 9.37 |
Quarter 3 | |
| 8.85 | |
| 9.25 | |
| 9.09 | |
| 9.40 | |
| 9.45 |
Quarter 4 | |
| 8.99 | |
| 9.55 | |
| 9.43 | |
| 9.31 | |
| 9.61 |
Total | | $ | 9.06 | | $ | 9.31 | | $ | 9.21 | | $ | 9.30 | | $ | 9.45 |
|
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| |||||
Net Sales (in Thousands) |
|
|
|
|
|
|
|
|
| |||||||
Quarter 1 |
| $ | 742,146 |
| $ | 680,186 |
| $ | 626,791 |
| $ | 536,129 |
| $ | 484,223 |
|
Quarter 2 |
| 907,068 |
| 827,488 |
| 693,722 |
| 687,199 |
| 630,934 |
| |||||
Quarter 3 |
| 909,476 |
| 787,954 |
| 756,619 |
| 635,972 |
| 590,422 |
| |||||
Quarter 4 |
| 810,355 |
| 753,765 |
| 645,432 |
| 605,567 |
| 540,849 |
| |||||
Total |
| $ | 3,369,045 |
| $ | 3,049,393 |
| $ | 2,722,564 |
| $ | 2,464,867 |
| $ | 2,246,428 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Less: AFF third party net sales (in Thousands) |
|
|
|
|
|
|
| |||||||||
Quarter 1 |
| $ | (5,539) |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
|
Quarter 2 |
| (6,174) |
| (6,635) |
| - |
| - |
| - |
| |||||
Quarter 3 |
| (5,200) |
| (5,686) |
| - |
| - |
| - |
| |||||
Quarter 4 |
| (4,692) |
| (4,690) |
| - |
| - |
| - |
| |||||
Total |
| $ | (21,605) |
| $ | (17,011) |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Adjusted Net Sales (in Thousands)¹ |
|
|
|
|
|
|
| |||||||||
Quarter 1 |
| $ | 736,607 |
| $ | 680,186 |
| $ | 626,791 |
| $ | 536,129 |
| $ | 484,223 |
|
Quarter 2 |
| 900,894 |
| 820,853 |
| 693,722 |
| 687,199 |
| 630,934 |
| |||||
Quarter 3 |
| 904,276 |
| 782,268 |
| 756,619 |
| 635,972 |
| 590,422 |
| |||||
Quarter 4 |
| 805,663 |
| 749,075 |
| 645,432 |
| 605,567 |
| 540,849 |
| |||||
Total |
| $ | 3,347,440 |
| $ | 3,032,382 |
| $ | 2,722,564 |
| $ | 2,464,867 |
| $ | 2,246,428 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unit Case Volume / Sales (in Thousands) |
|
|
|
|
|
|
| |||||||||
Quarter 1 |
| 79,992 |
| 72,653 |
| 57,779 |
| 51,926 |
| 47,749 |
| |||||
Quarter 2 |
| 97,233 |
| 87,574 |
| 68,037 |
| 65,587 |
| 61,615 |
| |||||
Quarter 3 |
| 96,184 |
| 82,767 |
| 81,274 |
| 62,204 |
| 59,204 |
| |||||
Quarter 4 |
| 86,548 |
| 77,966 |
| 67,531 |
| 58,563 |
| 52,780 |
| |||||
Total |
| 359,957 |
| 320,960 |
| 274,621 |
| 238,280 |
| 221,348 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Adjusted Average Net Sales Per Case |
|
|
|
|
|
|
| |||||||||
Quarter 1 |
| $ | 9.21 |
| $ | 9.36 |
| $ | 10.85 |
| $ | 10.32 |
| $ | 10.14 |
|
Quarter 2 |
| 9.27 |
| 9.37 |
| 10.20 |
| 10.48 |
| 10.24 |
| |||||
Quarter 3 |
| 9.40 |
| 9.45 |
| 9.31 |
| 10.22 |
| 9.97 |
| |||||
Quarter 4 |
| 9.31 |
| 9.61 |
| 9.56 |
| 10.34 |
| 10.25 |
| |||||
Total |
| $ | 9.30 |
| $ | 9.45 |
| $ | 9.91 |
| $ | 10.34 |
| $ | 10.15 |
|
11Excludes Other segment net sales of $27.0 million, $21.9 million, $22.9 million, $21.6 million and $17.0 million for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents.
The following represents case sales by segment for the years ended December 31:
| | | | | | | | | | | | | | | |
(In thousands, except average net sales per case) |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 | |||||
Net sales | | $ | 4,598,638 | | $ | 4,200,819 | | $ | 3,807,183 | | $ | 3,369,045 | | $ | 3,049,393 |
Less: AFF third-party sales | |
| (27,038) | |
| (21,865) | |
| (22,920) | |
| (21,605) | |
| (17,011) |
Adjusted net sales1 | | $ | 4,571,600 | | $ | 4,178,954 | | $ | 3,784,263 | | $ | 3,347,440 | | $ | 3,032,382 |
| | | | | | | | | | | | | | | |
Case sales by segment: | |
|
| |
|
| |
|
| |
|
| |
|
|
Monster Energy® Drinks | |
| 428,596 | |
| 377,551 | |
| 338,880 | |
| 289,105 | |
| 256,323 |
Strategic Brands | |
| 76,225 | |
| 71,219 | |
| 72,006 | |
| 70,852 | |
| 64,637 |
Other | |
| — | |
| — | |
| — | |
| — | |
| — |
Total case sales | |
| 504,821 | |
| 448,770 | |
| 410,886 | |
| 359,957 | |
| 320,960 |
Average net sales per case | | $ | 9.06 | | $ | 9.31 | | $ | 9.21 | | $ | 9.30 | | $ | 9.45 |
(In thousands, except average |
|
|
|
|
|
|
|
|
|
|
| |||||
|
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| |||||
Net sales |
| $ | 3,369,045 |
| $ | 3,049,393 |
| $ | 2,722,564 |
| $ | 2,464,867 |
| $ | 2,246,428 |
|
Less: AFF third-party sales |
| (21,605) |
| (17,011) |
| - |
| - |
| - |
| |||||
Adjusted net sales¹ |
| $ | 3,347,440 |
| $ | 3,032,382 |
| $ | 2,722,564 |
| $ | 2,464,867 |
| $ | 2,246,428 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Case sales by segment: |
|
|
|
|
|
|
|
|
|
|
| |||||
Monster Energy® Drinks |
| 289,105 |
| 256,323 |
| 228,628 |
| 210,444 |
| 191,830 |
| |||||
Strategic Brands |
| 70,852 |
| 64,637 |
| 34,791 |
| - |
| - |
| |||||
Other |
| - |
| - |
| 11,202 |
| 27,836 |
| 29,518 |
| |||||
Total case sales |
| 359,957 |
| 320,960 |
| 274,621 |
| 238,280 |
| 221,348 |
| |||||
Average net sales per case |
| $ | 9.30 |
| $ | 9.45 |
| $ | 9.91 |
| $ | 10.34 |
| $ | 10.15 |
|
1Excludes Other segment net sales of $27.0 million, $21.9 million, $22.9 million, $21.6 million and $17.0 million for the years ended December 31, 2020, 2019, 2018, 2017, and 2016, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the years ended December 31, 2017, 20162020, 2019 or 2015.2018.
Liquidity and Capital Resources
Cash flows provided by operating activities. Cash provided by operating activities was $987.7 million$1.36 billion for the year ended December 31, 2017,2020, as compared with cash provided by operating activities of $701.4 million$1.11 billion for the year ended December 31, 2016.
2019.
For the year ended December 31, 2017,2020, cash provided by operating activities was primarily attributable to net income earned of $820.7 million$1.41 billion and adjustments for certain non-cash expenses, consisting of $52.3$61.0 million of depreciation and amortization, $70.3 million of stock-based compensation and $48.9$8.7 million of depreciation and other amortization.intangible impairments. For the year ended December 31, 2017,2020, cash provided by operating activities also increased due to a $125.0$30.3 million decrease in the TCCC Transaction receivables,inventories, a $67.9$26.4 million decreaseincrease in deferred income taxes, a $29.6accrued liabilities, an $18.7 million increase in accounts payable, a $21.1$13.8 million increase in accrued promotional allowances, a $11.8$10.4 million decreaseincrease in accounts receivable,income taxes payable, a $4.5$7.5 million increase in accrued compensation, and a $4.7$5.5 million decrease in distributor receivables.prepaid income taxes and a $1.0 million decrease in prepaid expenses and other assets. For the year ended December 31, 2017,2020, cash used in operating activities was primarily attributable to a $71.3$156.9 million increase in prepaiddeferred income taxes, an $88.9a $120.1 million increase in inventories,accounts receivable and a $19.9$21.5 million decrease in deferred revenue, a $8.2 million decrease in accrued distributor terminations, a $4.5 million decrease in accrued liabilities, a $3.6 million decrease in income taxes payable and a $2.4 million increase in prepaid expenses and other current assets.
revenue.
For the year ended December 31, 2016,2019, cash provided by operating activities was primarily attributable to net income earned of $712.7 million$1.11 billion and adjustments for certain non-cash expenses, consisting of $45.8 million of stock-based compensation and $40.8$64.8 million of depreciation and other amortization.amortization and $63.4 million of stock-based compensation. For the year ended December 31, 2016,2019, cash provided by operating activities also increased due to a $45.3$28.8 million increase in accounts payable, a $20.9$21.9 million increase in accrued promotional allowances, a $9.5 million decrease in inventories, a $13.8 million increase in deferred revenue,prepaid income taxes, an $8.1 million increase in accrued compensation andincome taxes payable, a $4.4$7.2 million increase in accrued compensation, a $6.5 million decrease in distributor receivables and a $1.3 million decrease in deferred income taxes payable.taxes. For the year ended December 31, 2016,2019, cash used in operating activities was dueprimarily attributable to an $86.4$85.2 million increase in inventories, a $66.4 million increase in accounts receivable, a $48.0$24.9 million increase in prepaid income taxes, a $20.0 million increase in distributor receivables, a $19.1 million changedecrease in deferred income taxes,revenue, a $6.7$14.3 million decrease in accrued liabilities and a $13.8 million increase in prepaid expenses and other current assets, a $3.9 million decrease in accrued promotional allowances, a $3.3 million decrease in accrued distributor terminations and a $2.9 million decrease in accrued liabilities.assets.
Cash flows used in investing activities. Net cash used in investing activities was $531.5$472.5 million for the year ended December 31, 20172020 as compared to cash used in investing activities of $256.2$326.7 million for the year ended December 31, 2016.
2019.
For both the yearyears ended December 31, 2017,2020 and 2019, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For both the years ended December 31, 2020 and 2019, cash used in investing activities was primarily attributable to purchases of available-for-sale investments. For the year ended December 31, 2016, cash used in investing activities was primarily attributable to the purchase of AFF as well as purchases of held-to-maturity investments. For the year ended December 31, 2017, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For the year ended December 31, 2016, cash provided by investing activities was primarily attributable to maturities of held-to-maturity investments. For both the years ended December 31, 20172020 and 2016,2019, cash used in investing activities also included the acquisitionsacquisition of fixed assets consisting of vans and promotional vehicles, coolers and other equipment to support our marketing and promotional activities, production equipment, furniture and fixtures, office and computer equipment, real property, computer software, equipment used for sales and administrative activities, certain leasehold improvements, and improvements to real property.property as well as the acquisition, defense and maintenance of trademarks. We expect to continue to use a portion of our cash in excess of our requirements for operations for purchasing short-term and long-term investments, leasehold improvements, the acquisition of capital equipment (specifically, vans, trucks and promotional vehicles, coolers, other promotional equipment, merchandise displays, warehousing racks as well as items of production equipment required to produce certain of our existing and/or new products and to develop our brand in international markets) and for other corporate purposes. From time to time, we may also use cash to purchase additional real property related to our beverage business and/or acquire compatible businesses.
Cash flows used in financing activities. Cash used in financing activities was $311.1$526.1 million for the year ended December 31, 20172020 as compared to cash used in financing activities of $2,238.4$628.5 million for the year ended December 31, 2016. 2019. The cash flows used in financing activities for both the years ended December 31, 20172020 and 20162019 was primarily the result of the repurchases of our common stock. The cash flows provided by financing activities for both the years ended December 31, 2017,2020, and 20162019 was primarily attributable to the issuance of our common stock.
Purchases of inventories, increases in accounts receivable and other assets, acquisition of property and equipment (including real property, personal property and coolers), leasehold improvements, advances for or the purchase of equipment for our bottlers, acquisition and maintenance of trademarks, payments of accounts payable, income taxes payable and purchases of our common stock are expected to remain our principal recurring use of cash.
Cash and cash equivalents, short-term and long-term investments– As of December 31, 2017,2020, we had $528.6 million$1.18 billion in cash and cash equivalents, and $675.3$881.4 million in short-term investments and $44.3 million in long-term investments. We have historically invested these amounts in U.S. Treasury bills, U.S. government agency securities and municipal securities (which may have an auction reset feature),investments, including certificates of deposit, commercial paper, variable rate demand notesU.S. government agency securities, U.S. treasuries, and money market funds meeting certain criteria.to a lesser extent, municipal securities. We maintain our investments for cash management purposes and not for purposes of speculation. Our risk management policies emphasize credit quality (primarily based on short-term ratings by nationally recognized statistical rating organizations) in selecting and maintaining our investments. We regularly assess market risk of our investments and believe our current policies and investment practices adequately limit those risks. However, certain of these investments are subject to general credit, liquidity, market and interest rate risks. These risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition.
Of our $528.6 million$1.18 billion of cash and cash equivalents held at December 31, 2017, $266.52020, $677.1 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries at December 31, 2017. Previously, amounts held by foreign subsidiaries were generally subject to U.S. income tax upon repatriation to the U.S. However, the Tax Reform Act enacted in December 2017, requires us to pay a one-time deemed repatriation toll charge on cumulative undistributed foreign earnings for which we have not previously provided U.S. taxes. We estimated that our obligation associated with this one-time deemed repatriation toll charge to be $2.1 million, which was included in the provision for income taxes for the year ended December 31, 2017. The $2.1 million will be paid in installments over eight years. As a result of the Tax Reform Act, we can repatriate our cumulative undistributed foreign earnings back to the U.S. at any time with minimal U.S. income tax consequences, other than the one-time deemed repatriation toll charge and do not anticipate other material non-U.S. tax consequences resulting thereafter.
2020.
We believe that cash available from operations, including our cash resources and our revolving line of credit, will be sufficient for our working capital needs, including purchase commitments for raw materials and inventory, increases in accounts receivable, payments of tax liabilities, expansion and development needs, purchases of shares of our common stock, as well as purchases of capital assets, equipment and properties, through at least the next 12 months. Based on our current plans, at this time we estimate that capital expenditures (exclusive of common stock repurchases) are likelycurrently estimated to be approximately $100.0$150.0 million through December 31, 2018.2021. However, future business opportunities may cause a change in this estimate.
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The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of December 31, 2017:2020:
| | | | | | | | | | | | | | | |
| | Payments due by period (in thousands) | |||||||||||||
|
| | |
| Less than |
| 1‑3 |
| 3‑5 |
| More than | ||||
Obligations | | Total | | 1 year |
| years |
| years |
| 5 years | |||||
| | | | | | | | | | | | | | | |
Contractual Obligations¹ | | $ | 129,255 | | $ | 97,979 | | $ | 31,223 | | $ | 53 | | $ | — |
Finance Leases | |
| 828 | |
| 803 | |
| 22 | |
| 3 | |
| — |
Operating Leases | |
| 24,393 | |
| 3,785 | |
| 5,518 | |
| 3,502 | |
| 11,588 |
Purchase Commitments² | |
| 101,815 | |
| 101,815 | |
| — | |
| — | |
| — |
| | $ | 256,291 | | $ | 204,382 | | $ | 36,763 | | $ | 3,558 | | $ | 11,588 |
|
| Payments due by period (in thousands) |
| |||||||||||||
Obligations |
| Total |
| Less than |
| 1-3 |
| 3-5 |
| More than |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Contractual Obligations¹ |
| $ | 155,871 |
| $ | 96,774 |
| $ | 53,423 |
| $ | 5,674 |
| $ | - |
|
Capital Leases |
| 1,255 |
| 1,255 |
| - |
| - |
| - |
| |||||
Operating Leases |
| 16,715 |
| 2,588 |
| 3,566 |
| 3,214 |
| 7,347 |
| |||||
Purchase Commitments² |
| 37,759 |
| 37,759 |
| - |
| - |
| - |
| |||||
|
| $ | 211,600 |
| $ | 138,376 |
| $ | 56,989 |
| $ | 8,888 |
| $ | 7,347 |
|
¹1Contractual obligations include our obligations related to sponsorships and other commitments.
²2Purchase commitments include obligations made by us and our subsidiaries to various suppliers for raw materials used in the production of our products. These obligations vary in terms, but are generally satisfied within one year.
In September 2016, we completed the acquisition of approximately 49 acres of land, located in Rialto, CA, for a purchase price of approximately $39.1 million. In the fourth quarter of 2017, we completed the construction of an approximately 1,000,000 square-foot building (the “Rialto Warehouse”) on this land, which we anticipate will be LEED certified, to replace our leased warehouse and distribution facilities located in Corona, CA. We entered into an approximately $38.1 million guaranteed maximum price construction contract for the construction of the building, of which $4.6 million remained outstanding as of December 31, 2017. During the three-months ended September 30, 2017, we transitioned our Southern California warehouse and distribution operations to the Rialto Warehouse, which was fully operational by December 31, 2017.
In addition, $6.5approximately $0.7 million of recognizedunrecognized tax benefits have been recorded as liabilities as of December 31, 2017.2020. It is expected that any change in the amount of unrecognized tax benefitbenefits will not significantly change within the next 12 months will not be significant. In addition, $1.3 million of potential penalties and interest have been recorded as liabilities asmonths. As of December 31, 2017.2020, we had $0.1 million of accrued interest and penalties related to unrecognized tax benefits.
Accounting Policies and Pronouncements
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. The following summarizes our most significant accounting and reporting policies and practices:
Business Combinations – Business acquisitions are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. FASB ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Adjustments to fair value assessments are recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.
Cash and Cash Equivalents – The Company considers all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. Throughout the year, the Company has had amounts on deposit at financial institutions that exceed the federally insured limits. The Company has not experienced any loss as a result of these deposits and does not expect to incur any losses in the future.
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Investments – The Company’s investments in debt securities are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320. Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that the Company intends to sell in the near term. All other securities not included in the held-to-maturity or trading category are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost which approximates fair market value. Trading securities are carried at fair value with unrealized gains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive lossincome (loss) as a separate component of stockholders’ equity. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. Under FASB ASC 320-10-35,326-30-35, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference being defined as the “Credit Loss”) or if the fair value of the security is less than its amortized cost basis. Where the security’sdecline in fair value below the amortized cost basis andhas resulted from a credit loss, the investor intends, orCompany will be required,record an impairment relating to sellcredit losses through an allowance for credit losses. The allowance is limited by the security before recovery ofamount that the security’sfair value is less than the amortized cost basis. IfImpairment that has not been recorded through an other-than-temporary impairment exists, the charge to earningsallowance for credit losses is limited to the amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of the security’s amortized cost basis. Any remaining difference between fair
value and amortized cost is recognized inrecorded through other comprehensive loss,income (loss), net of applicable taxes. The Company evaluates whether the decline in fair value of its investments is other-than-temporaryhas resulted from credit loss or other factors at each quarter-end. This evaluation consists of a review by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer’s financial condition and, if applicable, information on the guarantors’ financial condition. Factors considered in determining whether aan impairment has resulted from credit loss is temporaryor other factors include the length of time and extent to which the investment’s fair value has been less than its cost basis, the financial condition and near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and our intent and ability to retain the investment for a reasonable period of time sufficient to allow for any anticipated recovery of fair value.
Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. In accordance with FASB ASC 210-20-45, in its consolidated balance sheets, the Company has presented accounts receivable, net of promotional allowances, only for those customers that it allows net settlement. All other accounts receivable and related promotional allowances are shown on a gross basis.
Inventories – Inventories are valued at the lower of first-in, first-out, cost or market value (net realizable value).
Property and Equipment – Property and equipment are stated at cost. Depreciation of furniture and fixtures, office and computer equipment, computer software, equipment, and vehicles is based on their estimated useful lives (three to ten years) and is calculated using the straight-line method. Amortization of leasehold improvements is based on the lesser of their estimated useful lives or the terms of the related leases and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.
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Goodwill – The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects. Goodwill is not amortized; instead goodwill is tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company reasonably determines that it is more-likely-than-not that the fair value is less than the carrying value, the Company will use a two-step process to determine the amount ofperforms its annual, or interim, goodwill impairment. The first step requiresimpairment test by comparing the fair value of thea reporting unit towith its net book value, including goodwill. A potentialcarrying amount. The Company will recognize an impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process, performed only if a potential impairment exists, involves determining the difference between the fair value of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit. An impairment charge is recognized for the excess ofamount by which the carrying value of goodwill over its impliedamount exceeds a reporting unit’s fair value. For the fiscal years ended December 31, 2017, 20162020, 2019 and 20152018 there were no impairments recorded.
recorded and there are no accumulated impairment balances.
Other Intangibles – Other Intangibles are comprised of trademarks that represent the Company’s exclusive ownership of the Monster Energy®, 
®, Monster Energy Ultra®, Monster Rehab®, Mutant®, Java Monster®, Unleash the Beast!®, Monster Rehab®, Java Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Monster Super Fuel®, Espresso MonsterTM, Caffé MonsterTMMonster®, Monster Energy Extra Strength Nitrous Technology®, Muscle Monster®, Punch Monster®, Juice Monster®, Reign Total Body Fuel®, Reign Inferno®, M3(stylized)®, Übermonster®, BU®, Nalu®, NOS®, Full Throttle®, Burn®, Mother®, Ultra Energy®, Play® and Power Play(stylized)®Play® (stylized), Gladiator®, Relentless®, Samurai®, Predator® and BPM® trademarks, all used in connection with the manufacture, sale and distribution of beverages. The Company also owns in its own right a number of other trademarks, flavors and formulas in the United States, as well as in a number of countries around the world. In addition, as a resultin 2016 through our acquisition of the AFF, Transaction, we secured the intellectual property of our most important flavors for certain of our Monster Energy® Brand energy drinks in perpetuity. In accordance with FASB ASC 350, intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists. The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. The Company amortizes its intangibles with finite useful lives over their respective useful lives. For the fiscalyear ended December 31, 2020, an impairment charge of $8.7 million was recorded to intangibles. For the years ended December 31, 2017, 20162019 and 2015 there were2018 no impairments were recorded.
Long-Lived Assets – Management regularly reviews property and equipment and other long-lived assets, including certain definite-lived intangible assets, for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks. Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. For the fiscal years ended December 31, 2017, 20162020, 2019 and 2015,2018, there were no impairment indicators identified. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.
63
Foreign Currency Translation and Transactions – The accounts of the Company’s foreign subsidiaries are translated in accordance with FASB ASC 830. Foreign currency transaction gains and losses are recognized in other expense,income, net, at the time they occur. Net foreign currency exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries whose functional currency is not the U.S. dollar are recorded as a part of accumulated other comprehensive lossincome (loss) in stockholders’ equity. Unrealized foreign currency exchange gains and losses on certain intercompany transactions that are of a long-term investment nature (i.e., settlement is not planned or anticipated in the foreseeable future) are also recorded in accumulated other comprehensive lossincome (loss) in stockholders’ equity. During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, we entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries non-functional currency denominated assets and liabilities. All foreign currency exchange contracts outstanding as of December 31, 20172020 have terms of one monththree months or less. We do not enter into forward currency exchange contracts for speculation or trading purposes.
Revenue Recognition – The Company’s Monster Energy® Drinks segment generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage distributors. In some cases, the Company recognizes revenue when persuasive evidencesells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value retailers, e-commerce retailers and the military.
The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold to other bottlers and full service distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores and the military. To a lesser extent, our Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage distributors.
The majority of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured.
Generally, ownership of, and title to, the Company’s finished products passes to customers upon deliveryrevenue is recognized when it satisfies a single performance obligation by transferring control of theits products to customers.a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, ownershipcontrol of and title to the Company’s products that are co-packed on the Company’s behalf by those co-packers who are also distributors, passes to such bottlers/distributors when they notify the Company is notified by them that they have taken transferpossession or possession oftransferred the relevant portion of the Company’s finished goods. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as of December 31, 2020 and December 31, 2019.
RevenueThe Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.
Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for the Strategic Brands segment is generally recognized when title to the concentrate is transferred to the customer. In particular, title to the concentrate usually passes upon shipment to the customers’ locations, as determined by the specific sales terms of the transactions.within operating expenses.
Net sales have been determined after deduction of promotionalPromotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s bottlers/distributors or retail customers including, but not limited to the following:
| ● | discounts granted off list prices to support price promotions to end-consumers by retailers; |
| ● | reimbursements given to the Company’s bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; |
| ● | the Company’s agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; |
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| ● | the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers; |
| ● | incentives given to the Company’s bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; |
| ● | discounted or free products; |
| ● | contractual fees given to the Company’s bottlers/distributors related to sales made directly by the Company to certain customers that fall within the bottlers’/distributors’ sales territories; and |
| ● | commissions paid to TCCC based on our sales to certain wholly-owned subsidiaries of TCCC and/or to certain companies accounted for under the equity method by TCCC. |
The Company’s promotional allowance programs with its bottlers/distributors and/or retailers are executed through separate agreements in accordance with FASB ASC 605-50.the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with its bottlers/distributors and retail customers, and accruals are established during the year for theits anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.
Amounts received pursuant to new and/or amended distribution agreements entered into with certain distributors, relating to the costs associated with terminating the Company’s prior distributors, are accounted for as revenue ratably over the anticipated life of the respective distribution agreement,agreements, generally 20 years.
The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing our trademarks including, but not limited to, clothing, hats, t-shirts, jackets, helmets and automotive wheels.
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
Cost of Sales– Cost of sales consists of the costs of flavors, concentrates, supplement ingredients and/or beverage bases, the costs of raw materials utilized in the manufacture of products,beverages, co-packing fees, repacking fees, in-bound freight charges, as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products and certain quality control costs. In addition, the Company includes in costs of sales certain costs such as depreciation, amortization and payroll costs that relate to the direct manufacture by the Company of certain flavors and concentrates. Raw materials account for the largest portion of the cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.
Operating Expenses – Operating expenses include selling expenses such as distribution expenses to transport products to customers and warehousing expenses after manufacture, as well as expenses for advertising, sampling and in-store demonstration costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), termination payments made to certain of the Company’s prior distributors, depreciation and other general and administrative costs.
Income Taxes – The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC 740. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred
65
tax assets will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies. If in the future the Company determines that it would not be able to realize its recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the Company’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.
Recent Accounting Pronouncements
See “Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 – Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on the Company’s consolidated financial position, results of operations or liquidity.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. Certain statements made in this report may constitute forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, as amended) regarding our expectations with respect to revenues, profitability, adequacy of funds from operations and our existing credit facility, among other things. All statements containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items, a statement of management’s plans and objectives for future operations, or a statement of future economic performance contained in management’s discussion and analysis of financial condition and results of operations, including statements related to new products, volume growth and statements encompassing general optimism about future operating results and non-historical information, are forward-looking statements within the meaning of the Act. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects,” “estimates,” and similar expressions are intended to identify forward-looking statements.
Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside our control and involve a number of risks, uncertainties and other factors, that could cause actual results and events to differ materially from the statements made including, but not limited to, the following:
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| The impact on consumer demand of the resurgence of the COVID-19 pandemic, resulting in a number of countries, particularly in EMEA, reinstituting lockdowns and other restrictions as well as the impact of possible resurgences in other countries; |
| ● | Fluctuations in growth and/or growth rates and/or decline in sales of the domestic and international energy drink categories generally, including in the convenience and gas channel (which is our largest channel) and the impact on demand for our products resulting from deteriorating economic conditions and/or financial uncertainties due to the COVID-19 pandemic; |
| ● | The |
| ● | The impact of the reduction in our sponsorship and endorsement activities as well as our sampling activities as a result of COVID-19 on our future sales and market share; |
| ● | We have extensive commercial arrangements with TCCC and, as a result, our future performance is substantially dependent on the success of our relationship with TCCC; |
| ● | The impact of TCCC’s bottlers/distributors distributing Coca-Cola brand energy drinks and possible reductions in the number of our SKUs carried by such bottlers/distributors and/or such bottlers/distributors imposing limitations on distributing new product SKUs; |
| ● | Closures of, and continued restrictions on, on-premise retailers and other establishments which sell our products as the result of the COVID-19 pandemic; |
| ● | The limitation or reduction by our suppliers, bottlers/distributors and/or co-packers of their activities and/or operations during the COVID-19 pandemic; |
| ● | The impact of the COVID-19 pandemic on our |
| The effect of TCCC |
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| |
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| |
| Disruption in distribution |
| Lack of anticipated demand for our products in domestic and/or international markets; |
| Fluctuations in the inventory levels of our bottlers/distributors, planned or otherwise, and the resultant impact on our revenues; |
| Unfavorable regulations, including taxation requirements, age restrictions imposed on the sale, purchase, or consumption of our products, marketing restrictions, product registration requirements, tariffs, trade restrictions, container size limitations and/or ingredient restrictions; |
| The effect of inquiries from, and/or actions by, state attorneys general, the Federal Trade Commission (the “FTC”), the Food and Drug Administration (the “FDA”), municipalities, city attorneys, other government agencies, quasi-government agencies, |
| Our ability to comply with laws, regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the General Data Protection Regulation and the California Consumer Privacy Act of 2018; |
| ● | Our ability to achieve profitability and/or repatriate cash from certain of our operations outside the United States; |
| Our ability to manage legal and regulatory requirements in foreign jurisdictions, potential difficulties in staffing and managing foreign operations and potentially higher incidence of fraud or corruption and credit risk of foreign customers and/or bottlers/distributors; |
| Changes in U.S. tax laws as a result of any legislation proposed by the new U.S. Presidential Administration or U.S. Congress, which may include efforts to change or repeal the 2017 Tax Cuts and Jobs Act and the federal corporate income tax rate reduction; |
| ● | Our ability to produce our products in international markets in which they are sold, thereby reducing freight costs and/or product damages; |
| Our ability to absorb, reduce or pass on to our bottlers/distributors increases in freight costs; |
| ● | Our ability to effectively manage our inventories and/or our accounts receivables; |
| Our foreign currency exchange rate risk with respect to our sales, expenses, profits, assets and liabilities denominated in currencies other than the U.S. dollar, which will continue to increase as foreign sales increase; |
| Uncertainties surrounding the long-term impact of the United Kingdom’s departure from the European Union (or “Brexit”); |
| ● | Changes in accounting standards may affect our reported profitability; |
| Implications of the Organization for Economic Cooperation and Development’s base erosion and profit shifting project; |
| ● | Any proceedings which may be brought against us by the Securities and Exchange Commission (the “SEC”), the FDA, the FTC or other governmental agencies or bodies; |
| The outcome and/or possibility of future shareholder derivative actions or shareholder securities litigation that may be filed against us and/or against certain of our officers and directors, and the possibility of other private shareholder litigation; |
| The outcome of product liability or consumer fraud litigation and/or class action litigation (or its analog in foreign jurisdictions) regarding the safety of our products and/or the ingredients in and/or claims made in connection with our products and/or alleging false advertising, marketing and/or promotion, and the possibility of future product liability and/or class action lawsuits; |
| Exposure to significant liabilities due to litigation, legal or regulatory proceedings; |
| ● |
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| Unfavorable resolution of tax matters; |
| Uncertainty and volatility in the domestic and global |
| Our ability to address any significant deficiencies or material weakness in our internal controls over financial reporting; |
| Our ability to continue to generate sufficient cash flows to support our expansion plans and general operating activities; |
| Decreased demand for our products resulting from changes in consumer preferences, including changes in demand for different packages, sizes and configurations, obesity and other perceived health concerns, including concerns relating to certain ingredients in our products or packaging, product safety concerns and/or from decreased consumer discretionary spending power; |
| Adverse publicity surrounding obesity and health concerns related to our products, product safety and quality, water usage, environmental impact and sustainability, human rights, our culture, workforce and labor and workplace laws; |
| ● | Changes in demand that are weather related and/or for other reasons, including changes in product category |
| The impact of unstable political conditions, civil unrest, large scale terrorist acts, the outbreak or escalation of armed hostilities, major natural disasters and extreme weather conditions, or widespread outbreaks of infectious diseases (such as the COVID-19 pandemic); |
| ● | The impact on our business of competitive products and pricing pressures and our ability to gain or maintain our share of sales in the marketplace as a result of actions by |
| The impact on our business of trademark and trade dress infringement proceedings brought against us relating to our brands, including our Reign Total Body Fuel® high performance energy drinks, which could result in an injunction barring us from selling certain of our products and/or require changes to be made to our current trade dress; |
| ● | Our ability to introduce new |
| Our ability to implement and/or maintain price increases; |
| ● | An inability to achieve volume growth through product and packaging initiatives; |
| Our ability to sustain the current level of sales and/or achieve growth for our Monster Energy® brand energy drinks and/or our other products, including |
| The impact of criticism of our energy drink products and/or the energy drink market generally and/or legislation enacted (whether as a result of such criticism or otherwise) that restricts the marketing or sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), |
| caffeine content in beverages, |
| Our ability to comply with and/or resulting lower consumer demand and/or lower profit margins for energy drinks due to proposed and/or future U.S. federal, state and local laws and regulations and/or proposed or existing laws and regulations in certain foreign jurisdictions and/or any changes therein, including changes in taxation requirements (including tax rate changes, new tax laws, new and/or increased excise, sales and/or other taxes on our products and revised tax law interpretations) and environmental laws, as well as the Federal Food, Drug, |
| Disruptions in the timely import or export of our products and/or ingredients due to port strikes and related labor issues; |
| ● | Our ability to satisfy all criteria set forth in any model energy drink guidelines, including, without limitation, those adopted by the American Beverage Association, of which | |
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| The effect of unfavorable or adverse public relations, press, articles, comments and/or media attention; |
| Changes in the cost, quality and availability of containers, packaging materials, aluminum cans, the Midwest and other premiums, raw materials and other ingredients and juice concentrates, and our ability to obtain and/or maintain favorable supply arrangements and relationships and procure timely and/or sufficient production of all or any of our products to meet customer demand; |
| Any shortages that may be experienced in the procurement of containers and/or other raw materials including, without limitation, |
| The impact on our cost of sales of corporate activity among the limited number of suppliers from whom we purchase certain raw |
| Our ability to pass on to our customers all or a portion of any increases in the costs of raw materials, ingredients, commodities and/or other cost inputs affecting our business; |
| Our ability to achieve both internal domestic and international forecasts, which may be based on projected volumes and sales of many product types and/or new products, certain of which are more profitable than others; there can be no assurance that we will achieve projected levels of sales as well as forecasted product and/or geographic mixes; |
| Our ability to penetrate new domestic and/or international markets and/or gain approval or mitigate the delay in securing approval for the sale of our products in various countries; |
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| |
| The effectiveness of sales and/or marketing efforts by us and/or by the |
| Unilateral decisions by |
| The impact of possible trading disputes between our bottler/distributors and their customers and/or one or more buying groups which may result in the delisting of certain of the Company products, temporarily or otherwise; |
| ● | The effects of retailer consolidation on our |
| Our ability to adapt to the changing retail landscape with the rapid growth in e-commerce retailers; |
| ● | The effects of bottler/distributor consolidation on our business; |
| ● | The costs and/or effectiveness, now or in the future, of our advertising, marketing and promotional strategies; |
| The success of our sports marketing, social media and other general marketing endeavors both domestically and internationally; |
| Our ability to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic; |
| ● | Unforeseen economic and political changes and local or international catastrophic events; |
| Possible recalls of our products and/or the consequence and costs of defective production; |
| Our ability to make suitable arrangements and/or procure sufficient capacity for the co-packing of any of our products both domestically and internationally, the timely replacement of discontinued co-packing arrangements and/or limitations on co-packing availability, including for retort production; |
| Our ability to make suitable arrangements for the timely procurement of non-defective raw materials; |
| Our inability to protect and/or the loss of our intellectual property rights and/or our inability to use our trademarks, trade names or designs and/or trade dress in certain countries; |
| Volatility of stock prices which may restrict stock sales, stock purchases or other |
| Provisions in our organizational documents and/or control by insiders which may prevent changes in control even if such changes would be beneficial to other stockholders; |
| The failure of our bottlers and/or |
| The impact of any reductions in productivity and disruptions to our business routines while most office-based employees of the Company are working remotely; |
| ● |
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| Any disruption in and/or lack of effectiveness of our information technology systems, including a breach of cyber security, that disrupts our business or negatively impacts customer |
| Recruitment and retention of senior management, other key employees and our employee base in general. |
The foregoing list of important factors and other risks detailed from time to time in our reports filed with the Securities and Exchange Commission is not exhaustive. See “Part I, Item 1A – Risk Factors,” for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, our actual results could be materially different from the results described or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.
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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business our financial position is routinely subject to a variety of risks. The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which we are exposed are fluctuations in commodity and other input prices affecting the costs of our raw materials (including, but not limited to, increases in the costs of juice concentrates, increases in the price of aluminum for cans, as well as sugar, sucralose and other sweeteners, glucose, sucrose, milk, cream, protein, coffee and protein,tea, all of which are used in some or many of our products), fluctuations in energy and fuel prices, and limited availability of aluminum cans and certain other raw materials. We generally do not use hedging agreements or alternative instruments to manage the risks associated with securing sufficient ingredients or raw materials. We are also subject to market risks with respect to the cost of commodities and other inputs because our ability to recover increased costs through higher pricing is limited by the competitive environment in which we operate.
We do not use derivative financial instruments to protect ourselves from fluctuations in interest rates and generally do not hedge against fluctuations in commodity prices.
Our grossnet sales to customers outside of the United States were approximately 28%33% and 25%32% of consolidated grossnet sales for the years ended December 31, 20172020 and 2016,2019, respectively. Our growth strategy includes expanding our international business. As a result, we are subject to risks from changes in foreign currency exchange rates. During the year ended December 31, 2017,2020, we entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries’ non-functional currency denominated assets and liabilities. All foreign currency exchange contracts entered into by us as of December 31, 20172020 have terms of one monththree months or less. We do not enter into forward currency exchange contracts for speculation or trading purposes.
We have not designated our foreign currency exchange contracts as hedge transactions under FASB ASC 815. Therefore, gains and losses on our foreign currency exchange contracts are recognized in other expense,income, net, in the consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item. We do not consider the potential loss resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates as of December 31, 20172020 to be significant.
As of December 31, 2017,2020, we had $528.6 million$1.18 billion in cash and cash equivalents and $675.3$925.6 million in short-term and long-term investments including certificates of deposit, commercial paper, U.S. government agency securities, variable rate demand notesU.S. treasuries, and to a lesser extent, municipal securities (which may have an auction reset feature).securities. Certain of these investments are subject to general credit, liquidity, market and interest rate risks.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be furnished in response to this ITEMItem 8 follows the signature page and Index to Exhibits hereto at pages 7279 through 116.126.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures –Under the supervision and with the participation of the Company’s management, including our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, the ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and (2) accumulated and communicated to our management, including our principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting – Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017,2020, based on the framework in Internal Control – Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our management’s evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2017.
2020.
Our internal control over financial reporting as of December 31, 2017,2020, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report, which is included herein.
Changes in Internal Control Over Financial Reporting – There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2017,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Monster Beverage Corporation
Corona, California
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Monster Beverage Corporation and subsidiaries (the “Company”) as of December 31, 2017,2020, based on criteria established in Internal Control —Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB)(“PCAOB”), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2017,2020, of the Company and our report dated March 1, 2018,2021, expressed an unqualified opinion on those financial statements and financial statement schedule.statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 1, 20182021
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ITEM 9B.OTHER INFORMATION
None.
On February 27, 2018, our Board of Directors authorized a new share repurchase program for the purchase of up to $250.0 million of the Company’s outstanding common stock (the “February 2018 Repurchase Plan”). As $250.0 million remains available for grant under the February 2017 Repurchase Plan, the aggregate amount available to repurchase the Company’s common stock is currently $500.0 million.
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item regarding our directors is included under the caption “Proposal One – Election of Directors” in our Proxy Statement for our 20172021 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 20172020 (the “2018“2021 Proxy Statement”) and is incorporated herein by reference.
Information concerning compliance with Section 16(a) of the Exchange Act is included under the caption “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in our 20182021 Proxy Statement and is incorporated herein by reference.
Information concerning the Audit Committee and the Audit Committee Financial expertExpert is reported under the caption “Audit Committee; Report of the Audit Committee; Duties and Responsibilities” in our 20182021 Proxy Statement and is incorporated herein by reference.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers (including our principal executive officer,officers, principal financial officer, principal accounting officer and controllers) and employees and is available at http://investors.monsterbevcorp.com/governance.cfm.employees. The Code of Business Conduct and Ethics and any amendment thereto, as well as any waivers that are required to be disclosed by the rules of the SEC or NASDAQ, may be obtained at http://investors.monsterbevcorp.com/corporate-governance or at no cost to you by writing or telephoning us at the following address or telephone number:
Monster Beverage Corporation
1 Monster Way
Corona, CA 92879
(951) 739-6200
(800) 426-7367
ITEM 11.EXECUTIVE COMPENSATION
Information concerning the compensation of our directors and executive officers and Compensation Committee Interlocks and Insider Participation is reported under the captions “Compensation Discussion and Analysis,” and “Compensation Committee,” respectively, in our 20182021 Proxy Statement and is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The disclosure set forth in Item 5, “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities”, of this report is incorporated herein.
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Information concerning the beneficial ownership of the Company’s Common Stock of (a) those persons known to the Company to be the beneficial owners of more than 5% of the Company’s common stock; (b) each of the Company’s directors and nominees for director; and (c) the Company’s executive officers and all of the Company’s current directors and executive officers as a group is reported under the caption “Principal Stockholders and Security Ownership of Management” in our 20182021 Proxy Statement and is incorporated herein by reference.
67Information concerning shares of the Company’s Common Stock authorized for issuance under the Company’s equity compensation plans is reported under the caption “Employee Equity Compensation Plan Information” in our 2021 Proxy Statement and is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions is reported under the caption “Certain Relationships and Related Transactions and Director Independence” in our 20182021 Proxy Statement and is incorporated herein by reference.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning our accountant fees and our Audit Committee’s pre-approval of audit and permissible non-audit services of independent auditors is reported under the captions “Principal Accounting Firm Fees” and “Pre-Approval of Audit and Non-Audit Services,” respectively, in our 20182021 Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | The following documents are filed as a part of this Form 10-K: |
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| 80 | |||
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| Financial Statements: | | |
| | Consolidated Balance Sheets as of December 31, |
| 83 |
| | Consolidated Statements of Income for the years ended December 31, |
| 84 |
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| 87 | |
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| 89 | |
| | | | |
| | Financial Statement Schedule: | | |
| | Valuation and Qualifying Accounts for the years ended December 31, |
| 126 |
| | | | |
|
| Exhibits: | | |
| | The Exhibits listed in the Index of Exhibits, which appears immediately preceding the signature page and is incorporated herein by reference, as filed as part of this Form 10-K. | | |
None
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INDEX TO EXHIBITS
The following designated exhibits, as indicated below, are either filed or furnished, as applicable herewith or have heretofore been filed or furnished with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, as indicated by footnote.
2.1 | |
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2.2 | |
3.1 | |
3.2 | |
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10.1 | |
10.2 | |
10.3 | |
10.4+* | |
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10.12+ | |
10.13+* | |
10.14+* | |
10.15+ | |
10.16+ | |
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21* | |
23* |
31.1* | |
31.2* | |
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32.1* | |
32.2* | |
| |
101* | The following materials from Monster Beverage Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, |
104* | The cover page from Monster Beverage Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101. |
* | Filed herewith. |
+ | Management contract or compensatory plans or arrangements. |
*Filed herewith.
+Management contract or compensatory plans or arrangements.
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SIGNATURES
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MONSTER BEVERAGE CORPORATION
/s/ RODNEY C. SACKS | Rodney C. Sacks | Date: March 1, | ||
| | Chairman of the Board of | | |
| | Directors and Co-Chief | | |
| | Executive Officer | | |
| | | | |
/s/ HILTON H. SCHLOSBERG | | Hilton H. Schlosberg | | Date: March 1, 2021 |
| | Vice Chairman of the Board of | | |
| | Directors and Co-Chief | | |
| | Executive Officer | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature | Title | Date | ||
| | | | |
/s/ RODNEY C. SACKS | | Chairman of the Board of | | March 1, |
Rodney C. Sacks | | Directors and | | |
| | Officer (principal executive officer) | | |
| | | | |
/s/ HILTON H. SCHLOSBERG | | Vice Chairman of the Board of Directors | | March 1, |
Hilton H. Schlosberg | |
| | |
| | executive officer) | | |
| |
| |
|
| | Chief Financial Officer (principal financial | | March 1, 2021 |
Thomas J. Kelly | | officer, principal accounting officer) | | |
| | | | |
/s/ JAMES L. DINKINS | | Director | | March 1, 2021 |
James L. Dinkins | | | | |
| | | | |
/s/ GARY P. FAYARD | | Director | | March 1, 2021 |
Gary P. Fayard | | | | |
| | | | |
/s/ MARK J. HALL | | Director | | March 1, |
Mark J. Hall | | | | |
| | | | |
/s/ | | Director | | March 1, |
| | | | |
| | | | |
/s/ STEVEN G. PIZULA | | Director | | March 1, 2021 |
Steven G. Pizula | | | | |
| | | | |
/s/ BENJAMIN M. POLK | | Director | | March 1, |
Benjamin M. Polk | | | | |
| | | | |
/s/ SYDNEY SELATI | | Director | | March 1, |
Sydney Selati | | | | |
| | | | |
|
|
| ||
| ||||
/s/ MARK S. VIDERGAUZ | | Director | | March 1, |
Mark S. Vidergauz | | | | |
|
|
| ||
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78
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
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| Page |
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES | |
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| |
Consolidated Balance Sheets as of December 31, |
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Consolidated Statements of Income for the years ended December 31, |
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79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Monster Beverage Corporation
Corona, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Monster Beverage Corporation and subsidiaries (the “Company”) as of December 31, 20172020 and 2016, and2019, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows, for each of the three years in the period ended December 31, 2017,2020, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB)(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control—Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2018,2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit Committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
80
Accrued Promotional Allowances — Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company’s promotional and other allowances are calculated based on various programs with its bottlers/distributors and retail customers, and accruals are established during the year for its anticipated liabilities. These accruals are based on agreed-upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels. Promotional and other allowances primarily include consideration given to bottlers/distributors or retail customers, including, but not limited to, the following: (i) discounts granted off list prices to support price promotions to end consumers by retailers; (ii) reimbursements given to bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances, and other fees for both new and existing products; (iii) agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing, and promotional activities; (iv) agreed share of slotting, shelf space allowances, and other fees given directly to retailers, club stores and/or wholesalers; (v) incentives given to bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; (vi) discounted or free products; (vii) contractual fees given to bottlers/distributors related to sales made by the Company directly to certain customers that fall within the bottlers’/distributors’ sales territories; and (viii) certain commissions paid based on sales to bottlers/distributors. The length of promotional programs can vary from as little as one day, for one-time events, to as long as one year based on the agreed-upon terms. The nature of such programs is determined on a per retail customer basis, and in certain instances, the same program is set for multiple retail customers. The promotional expenditures are recorded as a reduction to net sales in the period the underlying sale occurs. Total promotional expenditures included as a reduction to net sales were $772.2 million for the year ended December 31, 2020, and accrued promotional allowances were $186.7 million as of December 31, 2020.
We identified accrued promotional allowances as a critical audit matter because of the extent and subjective nature of management judgment required with respect to estimating consumer participation and/or distributor and retail customer performance levels and future promotional claims.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures over accrued promotional allowances, with respect to management’s judgment regarding levels of consumer participation and/or distributor and retail customer performance levels and future promotional claims, included the following, among others:
| ● | We tested the effectiveness of controls over accrued promotional allowances, including those controls pertaining to management’s estimation of future promotional claims. |
| ● | We selected a sample of accrued promotional allowances recorded for specific distributors and retail customers and sent confirmation requests of the accrual recorded and key terms of the agreement directly to the distributor or retail customer. We compared the confirmation response to the accrued amount recorded by the Company. In instances of nonreplies to our confirmation request from the distributor or retail customer, we performed alternative procedures as follows: (1) developing an expectation of the accrual using current-year claim and payment data, and/or (2) vouching known claim submissions, unpaid as of period-end, to underlying supporting documentation. |
| ● | We tested the promotional expenditure amount recorded as a reduction to net sales and assessed the reasonableness of management’s estimate by developing an expectation of the amount, based on historical promotional expenditure amounts recorded as a percentage of sales, and compared our expectation to the recorded promotional expenditure amount. |
| ● | We performed inquiries with the Company’s sales and marketing personnel to corroborate our understanding of new and existing promotional programs that may alter the relationship between gross billings and promotional allowances, as such programs are considered by management when estimating future promotional claims. |
| ● | We evaluated management’s ability to estimate promotional allowances by comparing the actual promotional allowances subsequently paid to the original estimates of management. |
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 1, 2018
2021
We have served as the Company’s auditor since 1991.
82
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
AS OF DECEMBER 31, 20172020 AND 20162019 (In Thousands, Except Par Value)
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2020 |
| 2019 | ||
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 1,180,413 | | $ | 797,957 |
Short-term investments | |
| 881,354 |
|
| 533,063 |
Accounts receivable, net | |
| 666,012 |
|
| 540,330 |
Inventories | |
| 333,085 |
|
| 360,731 |
Prepaid expenses and other current assets | |
| 55,358 |
|
| 54,868 |
Prepaid income taxes | |
| 24,733 |
|
| 29,360 |
Total current assets | |
| 3,140,955 |
|
| 2,316,309 |
| | | | | | |
INVESTMENTS | |
| 44,291 |
|
| 12,905 |
PROPERTY AND EQUIPMENT, net | |
| 314,656 |
|
| 298,640 |
DEFERRED INCOME TAXES | |
| 241,650 |
|
| 84,777 |
GOODWILL | |
| 1,331,643 |
|
| 1,331,643 |
OTHER INTANGIBLE ASSETS, net | |
| 1,059,046 |
|
| 1,052,105 |
OTHER ASSETS | |
| 70,475 |
|
| 53,973 |
Total Assets | | $ | 6,202,716 |
| $ | 5,150,352 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES: | | | | | | |
Accounts payable | | $ | 296,800 |
| $ | 274,045 |
Accrued liabilities | |
| 142,653 |
|
| 114,075 |
Accrued promotional allowances | |
| 186,658 |
|
| 166,761 |
Deferred revenue | |
| 45,429 |
|
| 44,237 |
Accrued compensation | |
| 55,015 |
|
| 47,262 |
Income taxes payable | |
| 23,433 |
|
| 14,717 |
Total current liabilities | |
| 749,988 |
|
| 661,097 |
| | | | | | |
DEFERRED REVENUE | |
| 264,436 |
|
| 287,469 |
| | | | | | |
OTHER LIABILITIES | | | 27,432 | | | 30,505 |
| | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 12) | | | | | | |
| | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | |
Common stock - $0.005 par value; 1,250,000 shares authorized; 638,662 shares issued and 528,097 shares outstanding as of December 31, 2020; 636,460 shares issued and 536,698 shares outstanding as of December 31, 2019 | | | 3,193 | | | 3,182 |
Additional paid-in capital | |
| 4,537,982 |
|
| 4,397,511 |
Retained earnings | |
| 6,432,074 |
|
| 5,022,480 |
Accumulated other comprehensive income (loss) | |
| 3,034 |
|
| (32,387) |
Common stock in treasury, at cost; 110,565 and 99,762 shares as of December 31, 2020 and December 31, 2019, respectively | |
| (5,815,423) |
|
| (5,219,505) |
Total stockholders’ equity | |
| 5,160,860 |
|
| 4,171,281 |
Total Liabilities and Stockholders’ Equity | | $ | 6,202,716 |
| $ | 5,150,352 |
|
| 2017 |
| 2016 |
| ||
ASSETS |
|
|
|
|
| ||
CURRENT ASSETS: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 528,622 |
| $ | 377,582 |
|
Short-term investments |
| 672,933 |
| 220,554 |
| ||
Accounts receivable, net |
| 449,476 |
| 448,051 |
| ||
TCCC Transaction receivable |
| – |
| 125,000 |
| ||
Inventories |
| 255,745 |
| 161,971 |
| ||
Prepaid expenses and other current assets |
| 40,877 |
| 32,562 |
| ||
Prepaid income taxes |
| 138,724 |
| 66,550 |
| ||
Total current assets |
| 2,086,377 |
| 1,432,270 |
| ||
|
|
|
|
|
| ||
INVESTMENTS |
| 2,366 |
| 2,394 |
| ||
PROPERTY AND EQUIPMENT, net |
| 230,276 |
| 173,343 |
| ||
DEFERRED INCOME TAXES |
| 92,333 |
| 159,556 |
| ||
GOODWILL |
| 1,331,643 |
| 1,331,643 |
| ||
OTHER INTANGIBLE ASSETS, net |
| 1,034,085 |
| 1,032,635 |
| ||
OTHER ASSETS |
| 13,932 |
| 21,630 |
| ||
Total Assets |
| $ | 4,791,012 |
| $ | 4,153,471 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
CURRENT LIABILITIES: |
|
|
|
|
| ||
Accounts payable |
| $ | 245,910 |
| $ | 193,270 |
|
Accrued liabilities |
| 87,475 |
| 79,526 |
| ||
Accrued promotional allowances |
| 137,998 |
| 110,237 |
| ||
Accrued distributor terminations |
| 91 |
| 8,184 |
| ||
Deferred revenue |
| 43,236 |
| 41,672 |
| ||
Accrued compensation |
| 34,996 |
| 30,043 |
| ||
Income taxes payable |
| 10,645 |
| 7,657 |
| ||
Total current liabilities |
| 560,351 |
| 470,589 |
| ||
|
|
|
|
|
| ||
DEFERRED REVENUE |
| 334,354 |
| 353,173 |
| ||
|
|
|
|
|
| ||
OTHER LIABILITIES |
| 1,095 |
| – |
| ||
|
|
|
|
|
| ||
COMMITMENTS AND CONTINGENCIES (Note 11) |
|
|
|
|
| ||
|
|
|
|
|
| ||
STOCKHOLDERS’ EQUITY: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Common stock - $0.005 par value; 1,250,000 shares authorized; 629,255 shares issued and 566,298 shares outstanding as of December 31, 2017; 623,201 shares issued and 566,566 shares outstanding as of December 31, 2016 |
| 3,146 |
| 3,116 |
| ||
Additional paid-in capital |
| 4,150,628 |
| 4,051,245 |
| ||
Retained earnings |
| 2,928,226 |
| 2,107,548 |
| ||
Accumulated other comprehensive loss |
| (16,659) |
| (23,249) |
| ||
Common stock in treasury, at cost; 62,957 shares and 56,635 shares as of December 31, 2017 and 2016, respectively |
| (3,170,129) |
| (2,808,951) |
| ||
Total stockholders’ equity |
| 3,895,212 |
| 3,329,709 |
| ||
Total Liabilities and Stockholders’ Equity |
| $ | 4,791,012 |
| $ | 4,153,471 |
|
See accompanying notes to consolidated financial statements.
83
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017, 20162020, 2019 AND 20152018
(In Thousands, Except Per Share Amounts)
| | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | |||
| | | | | | | | | |
NET SALES | | $ | 4,598,638 | | $ | 4,200,819 | | $ | 3,807,183 |
| | | | | | | | | |
COST OF SALES | |
| 1,874,758 | |
| 1,682,234 | |
| 1,511,808 |
| | | | | | | | | |
GROSS PROFIT | |
| 2,723,880 | |
| 2,518,585 | |
| 2,295,375 |
| | | | | | | | | |
OPERATING EXPENSES | |
| 1,090,727 | |
| 1,115,646 | |
| 1,011,756 |
| | | | | | | | | |
OPERATING INCOME | |
| 1,633,153 | |
| 1,402,939 | |
| 1,283,619 |
| | | | | | | | | |
OTHER (EXPENSE) INCOME, NET | |
| (6,996) | |
| 13,023 | |
| 9,653 |
| | | | | | | | | |
INCOME BEFORE PROVISION FOR INCOME TAXES | |
| 1,626,157 | |
| 1,415,962 | |
| 1,293,272 |
| | | | | | | | | |
PROVISION FOR INCOME TAXES | |
| 216,563 | |
| 308,127 | |
| 300,268 |
| | | | | | | | | |
NET INCOME | | $ | 1,409,594 | | $ | 1,107,835 | | $ | 993,004 |
| | | | | | | | | |
NET INCOME PER COMMON SHARE: | | | | | | | | | |
Basic | | $ | 2.66 | | $ | 2.04 | | $ | 1.78 |
Diluted | | $ | 2.64 | | $ | 2.03 | | $ | 1.76 |
| | | | | | | | | |
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: | | | | | | | | | |
Basic | |
| 529,639 | |
| 542,191 | |
| 557,166 |
Diluted | |
| 534,807 | |
| 546,608 | |
| 564,254 |
|
| 2017 |
| 2016 |
| 2015 | ||||
|
|
|
|
|
|
| ||||
NET SALES |
| $ | 3,369,045 |
| $ | 3,049,393 |
| $ | 2,722,564 | |
|
|
|
|
|
|
| ||||
COST OF SALES |
| 1,231,355 |
| 1,107,393 |
| 1,090,263 | ||||
|
|
|
|
|
|
| ||||
GROSS PROFIT |
| 2,137,690 |
| 1,942,000 |
| 1,632,301 | ||||
|
|
|
|
|
|
| ||||
OPERATING EXPENSES |
| 938,903 |
| 856,662 |
| 900,118 | ||||
|
|
|
|
|
|
| ||||
GAIN ON SALE OF MONSTER NON-ENERGY (NOTE 2) |
| – |
| – |
| 161,470 | ||||
|
|
|
|
|
|
| ||||
OPERATING INCOME |
| 1,198,787 |
| 1,085,338 |
| 893,653 | ||||
|
|
|
|
|
|
| ||||
OTHER INCOME (EXPENSE), NET |
| 2,836 |
| (5,653) |
| (2,105) | ||||
|
|
|
|
|
|
| ||||
INCOME BEFORE PROVISION FOR INCOME TAXES |
| 1,201,623 |
| 1,079,685 |
| 891,548 | ||||
|
|
|
|
|
|
| ||||
PROVISION FOR INCOME TAXES |
| 380,945 |
| 367,000 |
| 344,815 | ||||
|
|
|
|
|
|
| ||||
NET INCOME |
| $ | 820,678 |
| $ | 712,685 |
| $ | 546,733 | |
|
|
|
|
|
|
| ||||
NET INCOME PER COMMON SHARE: |
|
|
|
|
|
| ||||
Basic |
| $ | 1.45 |
| $ | 1.21 |
| $ | 0.97 | |
Diluted |
| $ | 1.42 |
| $ | 1.19 |
| $ | 0.95 | |
|
|
|
|
|
|
| ||||
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: |
|
|
|
|
|
| ||||
Basic |
| 566,782 |
| 587,874 |
| 566,448 | ||||
Diluted |
| 577,141 |
| 599,819 |
| 577,758 | ||||
See accompanying notes to consolidated financial statements.
84
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017, 20162020, 2019 AND 20152018 (In Thousands)
| | | | | | | | | |
| | 2020 |
| 2019 |
| 2018 | |||
| | | | | | | | | |
Net income, as reported | | $ | 1,409,594 | | $ | 1,107,835 | | $ | 993,004 |
Other comprehensive income (loss): | | | | | | | | | |
Change in foreign currency translation adjustment, net of tax | |
| 35,531 | |
| 194 | |
| (16,957) |
Available-for-sale investments: | | | | | | | | | |
Change in net unrealized gains (losses) | |
| (110) | |
| 283 | |
| 752 |
Reclassification adjustment for net gains included in net income | |
| — | |
| — | |
| — |
Net change in available-for-sale investments | |
| (110) | |
| 283 | |
| 752 |
Other comprehensive income (loss) | |
| 35,421 | |
| 477 | |
| (16,205) |
Comprehensive income | | $ | 1,445,015 | | $ | 1,108,312 | | $ | 976,799 |
|
| 2017 |
| 2016 |
| 2015 |
| |||
Net income, as reported |
| $ | 820,678 |
| $ | 712,685 |
| $ | 546,733 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
| |||
Change in foreign currency translation adjustment, net of tax |
| 7,238 |
| (1,178) |
| (10,425) |
| |||
Available-for-sale investments: |
|
|
|
|
|
|
| |||
Change in net unrealized losses |
| (648) |
| (193) |
| - |
| |||
Reclassification adjustment for net gains included in net income |
| - |
| - |
| - |
| |||
Net change in available-for-sale investments |
| (648) |
| (193) |
| - |
| |||
Other comprehensive (loss) income |
| 6,590 |
| (1,371) |
| (10,425) |
| |||
Comprehensive income |
| $ | 827,268 |
| $ | 711,314 |
| $ | 536,308 |
|
See accompanying notes to consolidated financial statements.
85
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 20162020, 2019 AND 20152018 (In Thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | | | | | | | | | | | Other | | | | | | | Total | ||
| | Common stock | | Additional | | Retained | | Comprehensive | | Treasury stock | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| Earnings |
| Loss |
| Shares |
| Amount |
| Equity | ||||||
Balance, January 1, 2018 |
| 629,255 |
| $ | 3,146 |
| $ | 4,150,628 |
| $ | 2,928,226 |
| $ | (16,659) |
| (62,957) |
| $ | (3,170,129) |
| $ | 3,895,212 |
Stock-based compensation |
| — | | | — | | | 57,111 | | | — | | | — | | — | | | — | | | 57,111 |
Exercise of stock options |
| 1,715 | | | 9 | | | 27,843 | | | — | | | — | | — | | | — | | | 27,852 |
Unrealized gain on available-for-sale securities |
| — | |
| — | |
| — | |
| — | |
| 752 |
| — | |
| — | |
| 752 |
Adjustment to excess tax benefits from prior periods | | — | | | — | | | 2,588 | | | — | | | — | | — | | | — | | | 2,588 |
ASU No. 2016-16 adoption |
| — | | | — | | | — | | | (6,585) | | | — | | — | | | — | | | (6,585) |
Repurchase of common stock |
| — | | | — | | | — | | | — | | | — | | (24,337) | | | (1,342,076) | | | (1,342,076) |
Foreign currency translation |
| — | | | — | | | — | | | — | | | (16,957) | | — | | | — | | | (16,957) |
Net income |
| — | | | — | | | — | | | 993,004 | | | — | | — | | | — | | | 993,004 |
Balance, December 31, 2018 |
| 630,970 |
| $ | 3,155 |
| $ | 4,238,170 |
| $ | 3,914,645 |
| $ | (32,864) | | (87,294) |
| $ | (4,512,205) |
| $ | 3,610,901 |
Stock-based compensation |
| — | | | — | | | 63,356 | | | — | | | — | | — | | | — | | | 63,356 |
Exercise of stock options |
| 5,490 | | | 27 | | | 92,336 | | | — | | | — | | — | | | — | | | 92,363 |
Unrealized gain on available-for-sale securities |
| — | |
| — | |
| — | |
| — | |
| 283 |
| — | |
| — | |
| 283 |
Adjustment to excess tax benefits from prior periods | | — | | | — | | | 3,649 | | | — | | | — | | — | | | — | | | 3,649 |
Repurchase of common stock |
| — | | | — | | | — | | | — | | | — | | (12,468) | | | (707,300) | | | (707,300) |
Foreign currency translation |
| — | | | — | | | — | | | — | | | 194 | | — | | | — | | | 194 |
Net income |
| — | | | — | | | — | | | 1,107,835 | | | — | | — | | | — | | | 1,107,835 |
Balance, December 31, 2019 |
| 636,460 |
| $ | 3,182 |
| $ | 4,397,511 |
| $ | 5,022,480 |
| $ | (32,387) | | (99,762) |
| $ | (5,219,505) |
| $ | 4,171,281 |
Stock-based compensation |
| — | | | — | | | 67,546 | | | — | | | — | | — | | | — | | | 67,546 |
Exercise of stock options |
| 2,202 | | | 11 | | | 72,925 | | | — | | | — | | — | | | — | | | 72,936 |
Unrealized loss on available-for-sale securities |
| — | |
| — | |
| — | |
| — | |
| (110) |
| — | |
| — | |
| (110) |
Repurchase of common stock |
| — | | | — | | | — | | | — | | | — | | (10,803) | | | (595,918) | | | (595,918) |
Foreign currency translation |
| — | | | — | | | — | | | — | | | 35,531 | | — | | | — | | | 35,531 |
Net income |
| — | | | — | | | — | | | 1,409,594 | | | — | | — | | | — | | | 1,409,594 |
Balance, December 31, 2020 |
| 638,662 | | $ | 3,193 | | $ | 4,537,982 | | $ | 6,432,074 | | $ | 3,034 | | (110,565) | | $ | (5,815,423) | | $ | 5,160,860 |
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| Total |
| ||||||
|
| Common stock |
| Additional |
| Retained |
| Comprehensive |
| Treasury stock |
| Stockholders’ |
| ||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| Earnings |
| Loss |
| Shares |
| Amount |
| Equity |
| ||||||
Balance, January 1, 2015 |
| 621,012 |
| $ | 3,105 |
| $ | 424,075 |
| $ | 2,330,510 |
| $ | (11,453) |
| (117,846) |
| $ | (1,231,087) |
| $ | 1,515,150 |
|
Stock-based compensation |
| - |
| - |
| 32,719 |
| - |
| - |
| - |
| - |
| 32,719 |
| ||||||
Exercise of stock options |
| 22,275 |
| 111 |
| 49,217 |
| - |
| - |
| - |
| - |
| 49,328 |
| ||||||
Issuance of common stock |
| 102,123 |
| 511 |
| 3,168,624 |
| - |
| - |
| - |
| - |
| 3,169,135 |
| ||||||
Excess tax benefits from share based payment arrangements |
| - |
| - |
| 314,737 |
| - |
| - |
| - |
| - |
| 314,737 |
| ||||||
Repurchase of common stock |
| - |
| - |
| - |
| - |
| - |
| (18,864) |
| (807,967) |
| (807,967) |
| ||||||
Cancellation of treasury stock |
| (124,353) |
| (622) |
| 415 |
| (1,482,380) |
| - |
| 124,353 |
| 1,482,587 |
| - |
| ||||||
Foreign currency translation |
| - |
| - |
| - |
| - |
| (10,425) |
| - |
| - |
| (10,425) |
| ||||||
Net income |
| - |
| - |
| - |
| 546,733 |
| - |
| - |
| - |
| 546,733 |
| ||||||
Balance, December 31, 2015 |
| 621,057 |
| $ | 3,105 |
| $ | 3,989,787 |
| $ | 1,394,863 |
| $ | (21,878) |
| (12,357) |
| $ | (556,467) |
| $ | 4,809,410 |
|
Stock-based compensation |
| - |
| - |
| 45,848 |
| - |
| - |
| - |
| - |
| 45,848 |
| ||||||
Exercise of stock options |
| 2,144 |
| 11 |
| 16,441 |
| - |
| - |
| - |
| - |
| 16,452 |
| ||||||
Unrealized loss on available-for- sale securities |
| - |
| - |
| - |
| - |
| (193) |
| - |
| - |
| (193) |
| ||||||
Excess tax benefits from share based payment arrangements |
| - |
| - |
| (831) |
| - |
| - |
| - |
| - |
| (831) |
| ||||||
Repurchase of common stock |
| - |
| - |
| - |
| - |
| - |
| (44,278) |
| (2,252,484) |
| (2,252,484) |
| ||||||
Foreign currency translation |
| - |
| - |
| - |
| - |
| (1,178) |
| - |
| - |
| (1,178) |
| ||||||
Net income |
| - |
| - |
| - |
| 712,685 |
| - |
| - |
| - |
| 712,685 |
| ||||||
Balance, December 31, 2016 |
| 623,201 |
| $ | 3,116 |
| $ | 4,051,245 |
| $ | 2,107,548 |
| $ | (23,249) |
| (56,635) |
| $ | (2,808,951) |
| $ | 3,329,709 |
|
Stock-based compensation |
| - |
| - |
| 52,282 |
| - |
| - |
| - |
| - |
| 52,282 |
| ||||||
Exercise of stock options |
| 6,054 |
| 30 |
| 52,596 |
| - |
| - |
| - |
| - |
| 52,626 |
| ||||||
Unrealized loss on available-for- sale securities |
| - |
| - |
| - |
| - |
| (648) |
| - |
| - |
| (648) |
| ||||||
Reversal of excess tax benefits from share based payment arrangements |
| - |
| - |
| (5,495) |
| - |
| - |
| - |
| - |
| (5,495) |
| ||||||
Repurchase of common stock |
| - |
| - |
| - |
| - |
| - |
| (6,322) |
| (361,178) |
| (361,178) |
| ||||||
Foreign currency translation |
| - |
| - |
| - |
| - |
| 7,238 |
| - |
| - |
| 7,238 |
| ||||||
Net income |
| - |
| - |
| - |
| 820,678 |
| - |
| - |
| - |
| 820,678 |
| ||||||
Balance, December 31, 2017 |
| 629,255 |
| $ | 3,146 |
| $ | 4,150,628 |
| $ | 2,928,226 |
| $ | (16,659) |
| (62,957) |
| $ | (3,170,129) |
| $ | 3,895,212 |
|
See accompanying notes to consolidated financial statements.
86
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 20162020, 2019 AND 20152018 (In Thousands)
|
| 2017 |
| 2016 |
| 2015 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| |||
Net income |
| $ | 820,678 |
| $ | 712,685 |
| $ | 546,733 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| |||
Depreciation and amortization |
| 48,887 |
| 40,845 |
| 30,860 | |||
(Gain) loss on disposal of property and equipment |
| (1,161) |
| (204) |
| 193 | |||
Gain on sale of Monster Non-Energy |
| – |
| – |
| (161,470) | |||
Stock-based compensation |
| 52,282 |
| 45,848 |
| 32,719 | |||
Loss on put option |
| – |
| – |
| 250 | |||
Gain on investments, net |
| – |
| – |
| (250) | |||
Deferred income taxes |
| 67,935 |
| (19,092) |
| (181,582) | |||
Effect on cash of changes in operating assets and liabilities, net of acquisitions and divestitures: |
|
|
|
|
|
| |||
Accounts receivable |
| 11,822 |
| (86,382) |
| (77,331) | |||
TCCC Transaction receivable |
| 125,000 |
| – |
| – | |||
Distributor receivables |
| 4,716 |
| (19,981) |
| 600 | |||
Inventories |
| (88,867) |
| 20,875 |
| (7,068) | |||
Prepaid expenses and other current assets |
| (2,396) |
| (6,682) |
| (9,713) | |||
Prepaid income taxes |
| (71,332) |
| (48,023) |
| (11,009) | |||
Accounts payable |
| 29,579 |
| 45,340 |
| 20,864 | |||
Accrued liabilities |
| (4,499) |
| (2,852) |
| 43,312 | |||
Accrued promotional allowances |
| 21,135 |
| (3,939) |
| 7,009 | |||
Accrued distributor terminations |
| (8,172) |
| (3,328) |
| 11,196 | |||
Accrued compensation |
| 4,491 |
| 8,051 |
| 4,507 | |||
Income taxes payable |
| (3,590) |
| 4,375 |
| 311,534 | |||
Other liabilities |
| 1,095 |
| – |
| – | |||
Deferred revenue |
| (19,872) |
| 13,819 |
| (38,631) | |||
Net cash provided by operating activities |
| 987,731 |
| 701,355 |
| 522,723 | |||
|
|
|
|
|
|
| |||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
| |||
Maturities of held-to-maturity investments |
| – |
| 868,304 |
| 2,089,788 | |||
Sales of available-for-sale investments |
| 533,183 |
| 120,987 |
| 4,001 | |||
Sales of trading investments |
| – |
| – |
| 4,160 | |||
Proceeds from the transfer of distribution rights to TCCC |
| – |
| – |
| 179,658 | |||
Proceeds from the sale of Monster Non-Energy |
| – |
| – |
| 198,008 | |||
Purchase of AFF assets, net |
| – |
| (688,485) |
| – | |||
Proceeds from sale of property and equipment |
| 1,416 |
| 807 |
| 926 | |||
Purchases of held-to-maturity investments |
| – |
| (152,050) |
| (2,033,584) | |||
Purchases of available-for-sale investments |
| (971,813) |
| (300,426) |
| – | |||
Purchases of property and equipment |
| (83,435) |
| (99,819) |
| (35,605) | |||
Additions to intangibles |
| (9,693) |
| (5,518) |
| (6,888) | |||
(Increase) decrease in other assets |
| (1,199) |
| 7 |
| (398) | |||
Net cash (used in) provided by investing activities |
| (531,541) |
| (256,193) |
| 400,066 | |||
|
|
|
|
|
|
| |||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
| |||
Principal payments on debt |
| (2,583) |
| (2,359) |
| (1,083) | |||
Issuance of common stock |
| 52,626 |
| 16,405 |
| 1,696,661 | |||
Purchases of common stock held in treasury |
| (361,178) |
| (2,252,437) |
| (807,967) | |||
Net cash (used in) provided by financing activities |
| (311,135) |
| (2,238,391) |
| 887,611 | |||
|
|
|
|
|
|
| |||
Effect of exchange rate changes on cash and cash equivalents |
| 5,985 |
| (4,606) |
| (5,306) | |||
|
|
|
|
|
|
| |||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 151,040 |
| (1,797,835) |
| 1,805,094 | |||
CASH AND CASH EQUIVALENTS, beginning of year |
| 377,582 |
| 2,175,417 |
| 370,323 | |||
CASH AND CASH EQUIVALENTS, end of year |
| $ | 528,622 |
| $ | 377,582 |
| $ | 2,175,417 |
|
|
|
|
|
|
| |||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
| |||
Cash paid during the year for: |
|
|
|
|
|
| |||
Interest |
| $ | 75 |
| $ | 68 |
| $ | 29 |
Income taxes |
| $ | 389,490 |
| $ | 431,273 |
| $ | 224,928 |
See accompanying notes to consolidated financial statements.
| | | | | | | | | |
| | 2020 | | 2019 | | 2018 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net income | | $ | 1,409,594 | | $ | 1,107,835 | | $ | 993,004 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
Depreciation and amortization | |
| 60,973 | |
| 64,814 | |
| 56,979 |
Gain on disposal of property and equipment | |
| (350) | |
| (252) | |
| (783) |
Loss on impairment of intangibles | | | 8,700 | | | | | | |
Stock-based compensation | |
| 70,289 | |
| 63,356 | |
| 57,111 |
Deferred income taxes | |
| (156,873) | |
| 1,263 | |
| (510) |
Effect on cash of changes in operating assets and liabilities: | | | | | | | | | |
Accounts receivable | |
| (120,058) | |
| (66,411) | |
| (48,370) |
Distributor receivables | |
| 386 | |
| 6,470 | |
| 9,958 |
Inventories | |
| 30,304 | |
| (85,222) | |
| (26,146) |
Prepaid expenses and other assets | |
| 1,024 | |
| (13,774) | |
| (6,682) |
Prepaid income taxes | |
| 5,516 | |
| 9,481 | |
| 98,716 |
Accounts payable | |
| 18,696 | |
| 28,832 | |
| 9,852 |
Accrued liabilities | |
| 26,392 | |
| (14,297) | |
| 18,145 |
Accrued promotional allowances | |
| 13,762 | |
| 21,943 | |
| 11,719 |
Accrued distributor terminations | |
| (279) | |
| 279 | |
| (91) |
Accrued compensation | |
| 7,501 | |
| 7,228 | |
| 5,477 |
Income taxes payable | |
| 10,422 | |
| 8,105 | |
| 1,943 |
Other liabilities | | | (356) | | | (1,030) | | | 1,526 |
Deferred revenue | |
| (21,480) | |
| (24,858) | |
| (19,967) |
Net cash provided by operating activities | |
| 1,364,163 | |
| 1,113,762 | |
| 1,161,881 |
| | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | |
Sales of available-for-sale investments | |
| 920,196 | |
| 851,436 | |
| 1,181,484 |
Proceeds from sale of property and equipment | |
| 993 | |
| 1,239 | |
| 4,295 |
Purchases of available-for-sale investments | |
| (1,299,981) | |
| (1,067,736) | |
| (826,084) |
Purchases of property and equipment | |
| (48,722) | |
| (101,661) | |
| (61,941) |
Additions to intangibles | |
| (18,550) | |
| (8,737) | |
| (12,984) |
Increase in other assets | |
| (26,423) | |
| (1,265) | |
| (11,814) |
Net cash (used in) provided by investing activities | |
| (472,487) | |
| (326,724) | |
| 272,956 |
| | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | |
Principal payments on debt | |
| (3,086) | |
| (13,569) | |
| (1,886) |
Issuance of common stock | |
| 72,936 | |
| 92,363 | |
| 27,851 |
Purchases of common stock held in treasury | |
| (595,918) | |
| (707,300) | |
| (1,342,076) |
Net cash used in financing activities | |
| (526,068) | |
| (628,506) | |
| (1,316,111) |
| | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| 16,848 | |
| 1,912 | |
| (9,835) |
| | | | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | |
| 382,456 | |
| 160,444 | |
| 108,891 |
CASH AND CASH EQUIVALENTS, beginning of year | |
| 797,957 | |
| 637,513 | |
| 528,622 |
CASH AND CASH EQUIVALENTS, end of year | | $ | 1,180,413 | | $ | 797,957 | | $ | 637,513 |
| | | | | | | | | |
SUPPLEMENTAL INFORMATION: | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | |
Interest | | $ | 44 | | $ | 320 | | $ | 60 |
Income taxes | | $ | 355,509 | | $ | 293,810 | | $ | 200,767 |
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS:
During the years ended December 31, 2017, 2016 and 2015, the Company entered into capital leases of $2.7 million, $2.6 million and $1.5 million, respectively, for the acquisition of promotional vehicles.
Accounts payable included equipment purchases of $2.3 million, $0.1 million and $0.6 million as of December 31, 2017, 2016 and 2015, respectively.
Accrued liabilities included equipment purchases of $3.8 million, $4.6 million and $0.1 million as of December 31, 2017, 2016 and 2015, respectively.
Accrued liabilities included additions to intangibles of $3.7 million, $3.8 million and $2.2 million as of December 31, 2017, 2016 and 2015, respectively.
During the year ended December 31, 2015, the Company issued 35.4 million shares of the Company’s common stock in exchange for KO Energy.
During the year ended December 31, 2015, in connection with the TCCC Transaction (as defined in Note 2), $125.0 million relating to the transfer of certain distribution rights was deposited into escrow pending certain transition milestones.
During the year ended December 31, 2015, the Company cancelled 124.5 million shares of treasury stock. Amounts previously recorded as treasury stock were netted against common stock and retained earnings.
See accompanying notes to consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS:
Accrued liabilities included additions to intangibles of $9.8 million, $12.8 million and $10.8 million as of December 31, 2020, 2019 and 2018, respectively.
Accounts payable included purchases of available-for-sale short-term investments of $8.7 million as of December 31, 2019. NaN amounts were included as of December 31, 2020 and December 31, 2018.
See accompanying notes to consolidated financial statements.
88
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Organization – Monster Beverage Corporation (the “Company”) was incorporated in the state of Delaware. The Company is a holding company and has no operating business except through its consolidated subsidiaries.
Nature of Operations – The Company develops, markets, sells and distributes energy drink beverages sodas and/orand concentrates for energy drink beverages, primarily under the following brand names: Monster Energy®, Monster Energy Ultra®, Monster Rehab®, Monster Energy Extra Strength Nitrous Technology®MAXX®, Java Monster®, Muscle Monster®, Espresso Monster®, Punch Monster®, Juice Monster®, Übermonster®, BU®, Mutant® Super Soda, Monster Hydro®, Espresso MonsterTM HydroSport Super Fuel®, Caffé MonsterTM Super Fuel®, Nalu®Predator®, Fury®, Reign Total Body Fuel®, Reign Inferno® Thermogenic Fuel, Monster Dragon Tea®, NOS®, Full Throttle®, Burn®, Mother®, Nalu®, Ultra Energy®, Play® and Power Play(stylized)®Play® (stylized), Relentless®, BPM®, BU®, Gladiator®, Samurai® and BPM®Live+®. Through June 12, 2015, the Company also developed, marketed, sold and distributed “alternative” beverage category beverages under the following brand names: Peace Tea®, Hansen’s®, Hansen’s Natural Cane Soda®, Junior Juice®, Blue Sky® and Hubert’s®. These brands were transferred to The Coca-Cola Company (“TCCC”) as part of the TCCC Transaction (as defined and described in Note 2 below).
Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries.
Principles of Consolidation – The Company consolidates all entities that it controls by ownership of a majority voting interest. All intercompany balances and transactions have been eliminated in consolidation.
Business Combinations– Business acquisitions are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. FASB ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Adjustments to fair value assessments are recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.
Cash and Cash Equivalents – The Company considers all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. Throughout the year, the Company has had amounts on deposit at financial institutions that exceed the federally insured limits. The Company has not experienced any loss as a result of these deposits and does not expect to incur any losses in the future.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Investments – The Company’s investments in debt securities are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320. Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that the Company intends to sell in the near term. All other securities not included in the held-to-maturity or trading category are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost which approximates fair market value. Trading securities are carried at fair value with unrealized gains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive lossincome (loss) as a separate component of stockholders’ equity. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available (see Note 4).available. Under FASB ASC 320-10-35,326-30-35, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference being defined as the “Credit Loss”) or if the fair value of the security is less than its amortized
89
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
cost basis. Where the security’sdecline in fair value below the amortized cost basis andhas resulted from a credit loss, the investor intends, orCompany will be required,record an impairment relating to sellcredit losses through an allowance for credit losses. The allowance is limited by the security before recovery ofamount that the security’sfair value is less than the amortized cost basis. IfImpairment that has not been recorded through an other-than-temporary impairment exists, the charge to earningsallowance for credit losses is limited to the amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized inrecorded through other comprehensive loss,income (loss), net of applicable taxes. The Company evaluates whether the decline in fair value of its investments is other-than-temporaryhas resulted from credit loss or other factors at each quarter-end. This evaluation consists of a review by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer’s financial condition and, if applicable, information on the guarantors’ financial condition. Factors considered in determining whether aan impairment has resulted from credit loss is temporaryor other factors include the length of time and extent to which the investment’s fair value has been less than its cost basis, the financial condition and near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and the Company’sour intent and ability to retain the investment for a reasonable period of time sufficient to allow for any anticipated recovery of fair value.
Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. In accordance with FASB ASC 210-20-45, in its consolidated balance sheets, the Company has presented accounts receivable, net of promotional allowances, only for those customers that it allows net settlement. All other accounts receivable and related promotional allowances are shown on a gross basis.
Inventories – Inventories are valued at the lower of first-in, first-out, cost or market value (net realizable value).
Property and Equipment – Property and equipment are stated at cost. Depreciation of furniture and fixtures, office and computer equipment, computer software, equipment, and vehicles is based on their estimated useful lives (three(three to ten years) and is calculated using the straight-line method. Amortization of leasehold improvements is based on the lesser of their estimated useful lives or the terms of the related leases and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Goodwill – The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects. Goodwill is not amortized; instead goodwill is tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company reasonably determines that it is more-likely-than-not that the fair value is less than the carrying value, the Company will use a two-step process to determine the amount ofperforms its annual, or interim, goodwill impairment. The first step requiresimpairment test by comparing the fair value of thea reporting unit towith its net book value, including goodwill. A potentialcarrying amount. The Company will recognize an impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process, performed only if a potential impairment exists, involves determining the difference between the fair value of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit. An impairment charge is recognized for the excess ofamount by which the carrying value of goodwill over its impliedamount exceeds a reporting unit’s fair value. For the fiscal years ended December 31, 2017, 20162020, 2019 and 20152018 there were no impairments recorded.
recorded and there are 0 accumulated impairment balances.
Other Intangibles – Other Intangibles are comprised primarily of trademarks that represent the Company’s exclusive ownership of the Monster Energy®,
®, Monster Energy Ultra®, Monster Rehab®, Mutant®, Java Monster®Dragon Tea®, Unleash the Beast!®,
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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Monster Hydro®Rehab®, Monster Energy Extra Strength Nitrous Technology®MAXX®, Java Monster®, Muscle Monster®, Espresso Monster®, Punch Monster®, Juice Monster®, Espresso MonsterTM Hydro®, Caffé MonsterTM HydroSport Super Fuel®, M3(stylized)®Monster Super Fuel®, Übermonster®Reign Total Body Fuel®, BU®Reign Inferno®, Nalu®Predator®, Fury®, NOS®, Full Throttle®, Burn®, Mother®, Nalu®, Ultra Energy®, Play® and Power Play(stylized)®Play® (stylized), Relentless®, BPM®, BU®, Gladiator®, Relentless® and Samurai® and BPM® trademarks, all used in connection with the manufacture, sale and distribution of beverages. The Company also owns a number of other trademarks, flavors and formulas in the United States, as well as in a number of countries around the world. In accordance with FASB ASC 350, intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists. The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. The Company amortizes its trademarks with finite useful lives over their respective useful lives. For the fiscalyear ended December 31, 2020, an impairment charge of $8.7 million was recorded to intangibles. For the years ended December 31, 2017, 20162019 and 2015 there2018 0 impairments were no impairments recorded.
Leases – See Note 3.
Long-Lived Assets – Management regularly reviews property and equipment and other long-lived assets, including certain definite-lived intangible assets, for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks. Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. For the fiscal years ended December 31, 2017, 20162020, 2019 and 2015,2018, there were no impairment indicators identified. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Foreign Currency Translation and Transactions – The accounts of the Company’s foreign subsidiaries are translated in accordance with FASB ASC 830. Foreign currency transaction gains and losses are recognized in other expense, net, at the time they occur. Net foreign currency exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries whose functional currency is not the U.S. dollar are recorded as a part of accumulated other comprehensive lossincome (loss) in stockholders’ equity. Unrealized foreign currency exchange gains and losses on certain intercompany transactions that are of a long-term investment nature (i.e., settlement is not planned or anticipated in the foreseeable future) are also recorded in accumulated other comprehensive lossincome (loss) in stockholders’ equity. During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the Company entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries non-functional currency denominated assets and liabilities. All foreign currency exchange contracts outstanding as of December 31, 20172020 have terms of one monththree months or less. We doThe Company does not enter into forward currency exchange contracts for speculation or trading purposes.
The Company has not designated its foreign currency exchange contracts as hedge transactions under FASB ASC 815. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in other expense,income, net, in the consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, aggregate foreign currency transaction losses, including the gains or losses on forward currency exchange contracts, amounted to $3.3$11.2 million, $9.7$4.1 million and $5.5
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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
$4.0 million, respectively, and have been recorded in other income, (expense), net, in the accompanying consolidated statements of income.
Revenue Recognition – The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured.
Generally, ownership of and title to the Company’s finished products passes to customers upon delivery of the products to customers. Certain of the Company’s distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, ownership of and title to the Company’s products that are co-packed on the Company’s behalf by those co-packers who are also distributors, passes to such distributors when the Company is notified by them that they have taken transfer or possession of the relevant portion of the Company’s finished goods.
Revenue for the Strategic Brands segment is generally recognized when title to the concentrate is transferred to the customer. In particular, title to the concentrate usually passes upon shipment to the customers’ locations, as determined by the specific sales terms of the transactions.
Net sales have been determined after deduction of promotional and other allowances in accordance with FASB ASC 605-50. The Company’s promotional and other allowances are calculated based on various programs with its distributors and retail customers, and accruals are established during the year for the anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels. Differences between such estimated expense and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined. Amounts received pursuant to new and/or amended distribution agreements entered into with certain distributors, relating to the costs associated with terminating the Company’s prior distributors, are accounted for as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years.
The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing our trademarks including, but not limited to, clothing hats, t-shirts, jackets, helmets and automotive wheels.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
See Note 2.
Cost of Sales – Cost of sales consists of the costs of flavors, concentrates, supplement ingredients and/or beverage bases, the costs of raw materials utilized in the manufacture of products,beverages, co-packing fees, repacking fees, in-bound freight charges, as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products and certain quality control costs. In addition, the Company includes in costs of sales certain costs such as depreciation, amortization and payroll costs that relate to the direct manufacture by the Company of certain flavors and concentrates. Raw materials account for the largest portion of the cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.
Operating Expenses – Operating expenses include selling expenses such as distribution expenses to transport products to customers and warehousing expenses after manufacture, as well as expenses for advertising, sampling and in-store demonstration costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees including legal fees, termination payments made to certain of the Company’s prior distributors, depreciation and other general and administrative costs.
Freight-Out Costs – For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, freight-out costs amounted to $91.9$134.1 million, $83.6$122.5 million and $87.0$128.5 million, respectively, and have been recorded in operating expenses in the accompanying consolidated statements of income.
Advertising and Promotional Expenses – The Company accounts for advertising production costs by expensing such production costs the first time the related advertising takes place. A significant amount of the Company’s promotional expenses result from payments under endorsement and sponsorship contracts. Accounting for endorsement and sponsorship payments is based upon specific contract provisions. Generally, endorsement and sponsorship payments are expensed on a straight-line basis over the term of the contract after giving recognition to the periodic performance compliance provisions of the contracts. Advertising and promotional expenses, including, but not limited to, production costs amounted to $324.0$345.7 million, $270.6$391.6 million and $209.7$353.9 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Advertising and promotional expenses are included in operating expenses in the accompanying consolidated statements of income.
Income Taxes – The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC 740. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies. If in the future the Company determines that it would not be able to realize its recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the Company’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full
92
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Stock-Based Compensation – The Company accounts for stock-based compensation under the provisions of FASB ASC 718. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula. The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula. Stock-based compensation cost for restricted stock awardsunits and restricted stockperformance share units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit or performance share unit in cash, the award is classified as a liability and revalued at each balance sheet date. (SeeSee Note 14).
15.
Net Income Per Common Share – In accordance with FASB ASC 260, net income per common share, on a basic and diluted basis, is presented for all periods. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding. The calculation of common equivalent shares assumes the exercise of dilutive stock options, net of assumed treasury share repurchases at average market prices, as applicable.
Concentration of Risk – Certain of the Company’s products utilize components (raw materials and/or co-packing services) from a limited number of sources. A disruption in the supply of such components could significantly affect the Company’s revenues from those products, as alternative sources of such components may not be available at commercially reasonable rates or within a reasonably short time period. The Company continues to endeavor to secure the availability of alternative sources for such components and minimize the risk of any disruption in production.
TCCC,The Coca-Cola Company (“TCCC”), through certain wholly-owned subsidiaries (the “TCCC Subsidiaries”), accounted for approximately 18%2%, 41%2% and 43%3% of the Company’s net sales for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company’s percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the year ended December 31, 2017. CCBCC Operations, LLC
Coca-Cola Consolidated, Inc. accounted for approximately 13%12%, 9%13% and 6%13% of the Company’s net sales for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Reyes Coca-Cola Bottling, LLC accounted for approximately 11%, 11% and 12% of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018, respectively.
Coca-Cola European Partners accounted for approximately 10%of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018.
Credit Risk – The Company sells its products nationally and internationally, primarily to bottlers and full service beverage distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and food service customers.the military. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for estimated credit losses, and historically, such losses have been within management’s expectations.
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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Fair Value of Financial Instruments – The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the relatively short maturity of the respective instruments.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements –
In May 2017,December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes”, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting,” clarifying when a change2019-12 removes certain exceptions related to the terms or conditionsapproach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of a share-based payment award must be accounteddeferred tax liabilities for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classificationoutside basis differences. ASU No. 2019-12 also amends other aspects of the award is not the same immediately beforeguidance to help simplify and after a change to the terms and conditionspromote consistent application of the award.GAAP. The new guidance iswas effective for the Company on a prospective basisinterim and annual periods beginning on January 1, 2018,after December 15, 2020, with early adoption permitted. The adoption of ASU No. 2017-09 will2019-12 did not have a material impact on the Company’s financial position, results of operations and liquidity.
In January 2017,August 2018, the FASB issued ASU No. 2017-01, “Business Combinations2018-15, “Intangibles–Goodwill and Other–Internal–Use Software (Topic 805)350): ClarifyingCustomer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” ASU No. 2018-15 aligns the Definition ofrequirements for capitalizing implementation costs incurred in a Business”, which clarifies the definition ofhosting arrangement that is a businessservice contract, with the objective of adding guidancerequirements for capitalizing implementation costs incurred to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assetsdevelop or businesses. This amendment isobtain internal-use software. ASU No. 2018-15 was effective for fiscal yearsthe Company on a prospective or retrospective basis beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. on January 1, 2020. The adoption of ASU No. 2017-01 will2018-15 did not have a material impact on the Company’s financial position, results of operations and liquidity.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation–Retirement Benefits–Defined Benefit Plans–General (Topic 715): Disclosure Framework–Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU No. 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and requires certain additional disclosures. ASU No. 2018-14 was effective for the Company on a retrospective basis beginning in the year ending December 31, 2020. The adoption of ASU No. 2018-14 did not have a material impact on the Company’s disclosures, financial position, results of operations and liquidity.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU No. 2018-13 removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. ASU No. 2018-13 disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 was effective for the Company beginning on January 1, 2020. The adoption of ASU No. 2018-13 did not have a material impact on the Company’s disclosures, financial position, results of operations and liquidity.
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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment iswas effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. EarlyThe adoption is permitted. The Company is currently evaluating the impact of ASU No. 2017-04 did not have a material impact on itsthe Company’s financial position, results of operations and liquidity.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, in an effort to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. FASB ASU No. 2016-16 establishes the requirement that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of ASU No. 2016-16 on its financial position, results of operations and liquidity.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of ASU No. 2016-15 on its financial position, results of operations and liquidity.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.Instruments.” The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-13 iswas effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. EarlyThe adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of ASU No. 2016-13 did not have a material impact on itsthe Company’s disclosures, financial position, results of operations and liquidity.
2. REVENUE RECOGNITION
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effectiveRevenues are accounted for annual and interim reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2016-02 on its financial position, results of operations and liquidity.
In May 2014, the FASB issued ASU No. 2014-09,in accordance with ASC 606 “Revenue from Contracts with Customers (Topic 606)”Consumers”. The Company has 3 operating and reportable segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which supersedes previous revenue recognition guidance. ASU No. 2014-09 requires that a company recognize revenue at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. In applying the new guidance, a company will (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the contract’s performance obligations; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. This guidance was to be effective for reporting periods beginning after December 15, 2016. However, on July 9, 2015, the FASB voted to approve a one-year deferralis primarily comprised of the effective date. This new guidanceCompany’s Monster Energy® drinks and Reign Total Body Fuel® high performance energy drinks, (ii) Strategic Brands segment (“Strategic Brands”), which is effective forprimarily comprised of the various energy drink brands acquired from TCCC in 2015 as well as the Company’s affordable energy brands, and (iii) Other segment (“Other”), which is comprised of certain products sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary of the Company, beginning January 1, 2018to independent third-party customers (the “AFF Third-Party Products”).
The Company’s Monster Energy® Drinks segment generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and can be adopted using eitherfull service beverage bottlers/distributors (“bottlers/distributors”). In some cases, the Company sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military.
The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers/distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military. To a full retrospective or modified approach. lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers/distributors.
The majority of the Company’s revenue arrangements generally consist ofis recognized when it satisfies a single performance obligation by transferring control of its products to transfer promised goods. Baseda customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s evaluation process and review of its contracts with customers, the timing and amount of revenue recognized based on ASU No. 2014-09 is consistent with the Company’s revenue recognition policy under previous guidance. The Company adopted the new standard effective January 1, 2018, using the modified retrospective approach, and will expand its consolidated financial statement disclosures in order to comply with ASU No. 2014-09. The Company has completed its evaluation and determined the adoption of ASU No. 2014-09 will not have a material impact on its financial position, results of operations and liquidity.
2.ACQUISITIONS AND DIVESTITURES
American Fruits & Flavors
On April 1, 2016, the Company completed its acquisition of flavor supplier and long-time business partner American Fruits & Flavors (“AFF”), in an asset acquisition that brought the Company’s primary flavor supplier in-house, secured the intellectual propertybehalf. In such cases, control of the Company’s most important flavors in perpetuity and further enhanced its flavor development and global flavor footprint capabilities (the “AFF Transaction”). Pursuantproducts passes to such bottlers/distributors when they notify the termsCompany that they have taken possession or transferred the relevant portion of the AFF Transaction, the Company purchased AFF for $688.5 millionCompany’s finished goods. The Company’s general payment terms are short-term in cash after adjustments.duration. The Company accounted for the AFF Transaction in accordance with FASB ASC No. 805 “Business Combinations”.
In accordance with Regulation S-X, pro forma unaudited financial information for the AFF Transaction hasdoes not been providedhave significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as the impact of the transaction on the Company’s financial position, results of operationsDecember 31, 2020 and liquidity was not material.December 31, 2019.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.
Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.
Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s bottlers/distributors or retail customers including, but not limited to the following:
| ● | discounts granted off list prices to support price promotions to end-consumers by retailers; |
| ● | reimbursements given to the Company’s bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; |
| ● | the Company’s agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; |
| ● | the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers; |
| ● | incentives given to the Company’s bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; |
| ● | discounted or free products; |
| ● | contractual fees given to the Company’s bottlers/distributors related to sales made directly by the Company to certain customers that fall within the bottlers’/distributors’ sales territories; and |
| ● | commissions to TCCC based on the Company’s sales to certain wholly-owned subsidiaries of TCCC (the “TCCC Subsidiaries”) and/or to certain companies accounted for under the equity method by TCCC (the “TCCC Related Parties”). |
The Coca-Cola CompanyCompany’s promotional allowance programs with its bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, typically ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with bottlers/distributors and retail customers, and accruals are established at the time of initial product sale for the Company’s anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or bottler/distributor and retail customer performance levels. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.
On June 12, 2015, the Company completed the transactions contemplated by the definitiveAmounts received pursuant to new and/or amended distribution agreements entered into with The Coca-Cola Company (“TCCC”) on August 14, 2014 (the “TCCC Transaction”), which provided for a long-term strategic relationship in the global energy drink category.
In consequence of the TCCC Transaction, (1) the Company issued to TCCC 102,121,602 newly issued Company common shares representing approximately 16.7% of the total number of outstanding Company common shares (after giving effect to such issuance) at such time and TCCC appointed two individuals to the Company’s Board of Directors, (2) TCCC transferred all of its rights in and to TCCC’s worldwide energy drink business (“KO Energy”) to the Company, (3) the Company transferred all of its rights in and to its non-energy drink business (“Monster Non-Energy”) to TCCC, (4) the Company and TCCC amended the distribution coordination agreements previously existing between them to govern the transition of third parties’ rights to distribute the Company’s energy products in most territories in the U.S. to members of TCCC’s distribution network, which consists of owned or controlledcertain bottlers/distributors and independent bottling/distribution partners, and (5) TCCC and one of its subsidiaries made an aggregate net cash payment to the Company of $2.15 billion, $125.0 million of which was held in escrow, as described below, pursuant to an escrow agreement (the “Escrow Agreement”) through June 17, 2016, subject to release upon the achievement of certain milestones relating to the transition of distribution rights to TCCC’s distribution network.
Undercosts associated with terminating the termsCompany’s prior distributors, are accounted for as revenue ratably over the anticipated life of the Escrow Agreementrespective distribution agreements, generally over 20 years.
The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing the Company’s trademarks including, but not limited to, clothing, hats, t-shirts, jackets, helmets and the transition payment agreement entered into in connection therewith, if the distribution rights in the U.S. transitioned to TCCC’s distribution network represented case sales in excess of the following percentages of a target case sale amount agreed to by the parties, amounts in the escrow fund in excess of the applicable amounts below would be released to the Company:automotive wheels.
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| |
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| |
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| |
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| |
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| |
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| |
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|
As of December 31, 2016, distribution rights in the U.S. representing approximately 89% of the target case sales hadManagement believes that adequate provision has been transitioned to TCCC’s distribution network. As a result,made for cash discounts, returns and spoilage based on the one-year anniversary of the closing of the TCCC Transaction, the then-remaining escrow amount of $125 million was released to TCCC. During the year ended December 31, 2017, target case sales in excess of 95% were transitioned to TCCC’s distribution network, resulting in the receipt of the remaining amounts due from TCCC related to the TCCC Transaction.Company’s historical experience.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Disaggregation of Revenue
The following unaudited pro forma combined financial information is presentedtable disaggregates the Company’s revenue by geographical markets and reportable segments:
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 | |||||||||||||
| | | | | | | | | | | Latin | | | | |
| | | | | | | | | | | America | | | | |
| | U.S. and | | | | | | | | and | | | | ||
Net Sales |
| Canada |
| EMEA2 |
| Asia Pacific |
| Caribbean |
| Total | |||||
Monster Energy® Drinks | | $ | 3,020,667 | | $ | 675,045 | | $ | 400,317 | | $ | 209,217 | | $ | 4,305,246 |
Strategic Brands | |
| 166,861 | |
| 70,782 | |
| 23,475 | |
| 5,236 | |
| 266,354 |
Other | |
| 27,038 | |
| — | |
| — | |
| — | |
| 27,038 |
Total Net Sales | | $ | 3,214,566 | | $ | 745,827 | | $ | 423,792 | | $ | 214,453 | | $ | 4,598,638 |
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | |||||||||||||
| | | | | | | | | | | Latin | | | | |
| | | | | | | | | | | America | | | | |
| | U.S. and | | | | | | | | and | | | | ||
Net Sales |
| Canada |
| EMEA2 |
| Asia Pacific |
| Caribbean |
| Total | |||||
Monster Energy® Drinks | | $ | 2,799,701 | | $ | 599,706 | | $ | 326,684 | | $ | 177,938 | | $ | 3,904,029 |
Strategic Brands | |
| 173,968 | |
| 74,803 | |
| 25,060 | |
| 1,094 | |
| 274,925 |
Other | |
| 21,865 | |
| — | |
| — | |
| — | |
| 21,865 |
Total Net Sales | | $ | 2,995,534 | | $ | 674,509 | | $ | 351,744 | | $ | 179,032 | | $ | 4,200,819 |
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 | |||||||||||||
|
| | |
| | |
| | |
| Latin |
| | | |
| | | | | | | | | | | America | |
| | |
| | U.S. and | | | | | | | | and | |
| | ||
Net Sales | | Canada | | EMEA2 | | Asia Pacific | | Caribbean | | Total | |||||
Monster Energy® Drinks | | $ | 2,627,000 | | $ | 500,826 | | $ | 225,172 | | $ | 145,429 | | $ | 3,498,427 |
Strategic Brands | | | 179,677 | | | 77,841 | | | 26,254 | | | 2,064 | | | 285,836 |
Other | | | 22,920 | | | — | | | — | | | — | | | 22,920 |
Total Net Sales | | $ | 2,829,597 | | $ | 578,667 | | $ | 251,426 | | $ | 147,493 | | $ | 3,807,183 |
2Europe, Middle East and Africa (“EMEA”)
Contract Liabilities
Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as ifdeferred revenue. As of December 31, 2020 and 2019, the TCCC TransactionCompany had closed on January 1, 2015:
|
| Year Ended December 31, 2015 |
| ||||||||
|
|
|
|
|
| Pro Forma Adjustments |
|
|
| ||
|
| Monster |
| KO Energy² |
| Disposal of |
| Other |
| Pro Forma |
|
Net sales |
| $ 2,722,564 |
| $ 138,127 |
| $ (60,778) |
| $ 8,887 |
| $ 2,808,800 |
|
Net income |
| 546,733 |
| 100,575 | 4 | (101,618) |
| (30,390) |
| 515,300 |
|
¹Includes net sales of $143.3$309.9 million and net income of $55.2 million (tax affected) related to the acquired KO Energy assets since the date of acquisition, June 12, 2015.
²Includes results through June 12, 2015, the date the TCCC Transaction was finalized. Net income for KO Energy includes only net revenues and direct operating expenses, rather than full “carve-out” financial statements, because such financial information would not be meaningful given that it is not possible to provide a meaningful allocation of business unit and corporate costs, interest or tax in respect of KO Energy.
³Includes results through June 12, 2015. Net income includes gain recognized on the sale of Monster Non-Energy of $161.5 million.
4The $100.6$331.7 million of net income for KO Energy fordeferred revenue, respectively, which is included in current and long-term deferred revenue in the yearCompany’s consolidated balance sheet. During the years ended December 31, 2015 is presented before tax. The associated estimated provision for income taxes is included in the “Other” category.
Pro-Forma Adjustments – Other include the following:
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¹Includes amortization2020, 2019 and 2018, $42.1 million, $46.3 million and $44.3 million, respectively, of deferred revenue, sales commissions and amortizationwas recognized in net sales. See Note 10.
97
Table of intangibles through June 12, 2015, the date the TCCC Transaction was consummated.Contents
For purposes of the unaudited pro forma financial information, a combined U.S. Federal and state statutory tax rate of 38.5% was used. This rate does not reflect the Company’s expected effective tax rate, which includes other tax charges and benefits, and does not take into account any historical or possible future tax events that may impact the combined company.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
3. LEASES
The unaudited pro forma financial informationCompany leases identified assets comprising real estate and equipment. Real estate leases consist primarily of office and warehouse space and equipment leases consist of vehicles and warehouse equipment. At the inception of a contract, the Company assesses whether the contract is, presented for information purposes only andor contains, a lease. The Company’s assessment is not intendedbased on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to represent or be indicativesubstantially all the economic benefit from the use of the combined resultsasset throughout the term, and (3) whether the Company has the right to direct the use of operationsthe asset. At inception of a lease, the Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.
Leases are classified as either finance leases or operating leases based on criteria in ASC 842, “Leases”. The Company’s operating leases are comprised of real estate and warehouse equipment, and the Company’s finance leases are comprised of vehicles.
Right-of-use (“ROU”) assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases generally do not provide an implicit rate, the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. ROU assets also include any lease payments made and exclude lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company would have reported had the TCCC Transaction been completed as of the date and for the periods presented, and should not be taken as representativewill exercise that option.
Certain of the Company’s real estate leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at the lease commencement date. Additional payments based on the change in an index or rate, or payments based on a change in the Company’s portion of real estate taxes and insurance, are recorded as a period expense when incurred.
Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term and is included in operating expenses in the consolidated resultsstatement of operations following the completionincome. Lease expense for finance leases consists of the TCCC Transaction. In addition, the unaudited pro forma financial information is not intended to project the future financial results of operationsamortization of the combined company. ROU asset on a straight-line basis over the asset’s estimated useful life and is included in operating expenses in the consolidated statement of income. Interest expense on finance leases is calculated using the amortized cost basis and is included in other (expense) income, net in the consolidated statement of income.
The unaudited pro forma combined financialCompany’s leases have remaining lease terms of less than one year to 13 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of 12 months or less.
98
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The components of lease cost for the years ended December 31, 2020 and 2019 were as follows:
| | | | | | |
| | 2020 | | 2019 | ||
Operating lease cost |
| $ | 4,637 |
| $ | 4,899 |
| | | | | | |
Short-term lease cost | |
| 3,408 | |
| 3,406 |
| | | | | | |
Variable lease cost | |
| 719 | |
| 640 |
| | | | | | |
Finance leases: | |
|
| |
|
|
Amortization of ROU assets | |
| 626 | |
| 436 |
Interest on lease liabilities | |
| 39 | |
| 56 |
Finance lease cost | |
| 665 | |
| 492 |
| | | | | | |
Total lease cost | | $ | 9,429 | | $ | 9,437 |
Rent expense under operating lease agreements was $6.1 million for the year ended December 31, 2018.
Supplemental cash flow information does not reflect any cost savings, operational synergies or revenue enhancements thatfor leases for the combined company may achieveyears ended December 31, 2020 and 2019 were as a resultfollows:
| | | | | | |
| | 2020 | | 2019 | ||
Cash paid for amounts included in the measurement of lease liabilities: |
| |
| | |
|
Operating cash flows from operating leases | | $ | 3,982 | | $ | 4,077 |
Operating cash flows from finance leases | |
| 39 | |
| 56 |
Financing cash flows from finance leases | |
| 3,086 | |
| 2,223 |
| | | | | | |
ROU assets obtained in exchange for lease obligations: | |
|
| |
|
|
Finance leases | |
| 2,417 | |
| 2,866 |
Operating leases | |
| 3,003 | |
| 34,931 |
ROU assets for operating and finance leases recognized in the consolidated balance sheets were comprised of the TCCC Transaction,following at:
| | | | | | | | | | | |
| | December 31, 2020 | |||||||||
|
| Real Estate |
| Equipment |
| Total |
| Balance Sheet Location | |||
Operating leases |
| $ | 22,565 |
| $ | 189 |
| $ | 22,754 |
| Other Assets |
Finance leases | |
| — | |
| 2,120 | |
| 2,120 |
| Property and Equipment, net |
| | | | | | | | | | | | |
| | | December 31, 2019 | |||||||||
| | | Real Estate |
| Equipment |
| Total |
| Balance Sheet Location | |||
Operating leases | | | $ | 30,926 | | $ | 416 | | $ | 31,342 |
| Other Assets |
Finance leases | | |
| — | |
| 2,632 | |
| 2,632 |
| Property and Equipment, net |
99
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Operating and finance lease liabilities recognized in the consolidated balance sheets were as follows at:
| | | | | | |
| | December 31, 2020 | ||||
| | Operating Leases |
| Finance Leases | ||
Accrued liabilities |
| $ | 3,171 | | $ | 799 |
Other liabilities | |
| 17,342 | |
| 24 |
Total | | $ | 20,513 | | $ | 823 |
| | | | | | |
| | December 31, 2019 | ||||
|
| Operating Leases |
| Finance Leases | ||
Accrued liabilities |
| $ | 2,812 |
| $ | 1,485 |
Other liabilities | |
| 25,651 | |
| — |
Total | | $ | 28,463 | | $ | 1,485 |
The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as follows at:
| | | | | |
| | December 31, 2020 | | ||
|
| Operating Leases |
| Finance Leases |
|
Weighted-average remaining lease term (years) |
| 9.4 |
| 0.6 | |
Weighted-average discount rate |
| 3.6 | % | 1.9 | % |
| | | | | |
| | December 31, 2019 | | ||
|
| Operating Leases |
| Finance Leases | |
Weighted-average remaining lease term (years) |
| 10.1 | | 0.6 | |
Weighted-average discount rate |
| 3.1 | % | 2.9 | % |
The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance leases recorded in the consolidated balance sheet at December 31, 2020:
| | | | | | |
|
| Undiscounted Future Lease Payments | ||||
| | Operating Leases |
| Finance Leases | ||
2021 | | $ | 3,785 | | $ | 803 |
2022 | |
| 3,131 | |
| 11 |
2023 | |
| 2,387 | |
| 11 |
2024 | |
| 1,899 | |
| 3 |
2025 | | | 1,603 | | | — |
2026 and thereafter | |
| 11,588 | |
| — |
Total lease payments | |
| 24,393 | |
| 828 |
Less imputed interest | |
| (3,880) | |
| (5) |
Total | | $ | 20,513 | | $ | 823 |
| | | | | | |
As of December 31, 2020, the Company did not have any significant additional operating or the costs to combine the operations or costs necessary to achieve cost savings, operating synergies and revenue enhancements.finance leases that had not yet commenced.
100
3.MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
4. INVESTMENTS
The following table summarizes the Company’s investments at:
December 31, 2017 |
| Amortized |
| Gross |
| Gross |
| Fair |
| Continuous |
| Continuous |
| ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | Continuous | | Continuous | |||||||||||||||||||||
| | | | | Gross | | Gross | | | | | Unrealized | | Unrealized | |||||||||||||||||||||||
| | | | | Unrealized | | Unrealized | | | | | Loss Position | | Loss Position | |||||||||||||||||||||||
| | Amortized | | Holding | | Holding | | Fair | | less than 12 | | greater than 12 | |||||||||||||||||||||||||
December 31, 2020 |
| Cost |
| Gains |
| Losses |
| Value |
| Months |
| Months | |||||||||||||||||||||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | ||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | ||||||
Commercial paper |
| $ | 81,026 |
| $ | - |
| $ | - |
| $ | 81,026 |
| $ | - |
| $ | - |
| | $ | 119,886 | | $ | — | | $ | — | | $ | 119,886 | | $ | — | | $ | — |
Certificates of deposit |
| 11,869 |
| - |
| - |
| 11,869 |
| - |
| - |
| | | 20,387 | | | — | | | — | | | 20,387 | | | — | | | — | ||||||
Municipal securities |
| 469,604 |
| 1 |
| 740 |
| 468,865 |
| 740 |
| - |
| |
| 9,083 | |
| — | |
| — | |
| 9,083 | |
| — | |
| — | ||||||
U.S. government agency securities |
| 61,307 |
| - |
| 88 |
| 61,219 |
| 88 |
| - |
| |
| 81,521 | |
| 13 | |
| 3 | |
| 81,531 | |
| 3 | |
| — | ||||||
Variable rate demand notes |
| 49,954 |
| - |
| - |
| 49,954 |
| - |
| - |
| ||||||||||||||||||||||||
U.S. treasuries | | | 650,386 | | | 150 | | | 69 | | | 650,467 | | | 69 | | | — | |||||||||||||||||||
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | ||||||
U.S. government agency securities |
| 2,369 |
| - |
| 3 |
| 2,366 |
| 3 |
| - |
| | | 10,350 | | | 1 | | | — | | | 10,351 | | | — | | | — | ||||||
U.S. treasuries | | | 33,946 | | | 1 | | | 7 | | | 33,940 | | | 7 | | | — | |||||||||||||||||||
Total |
| $ | 676,129 |
| $ | 1 |
| $ | 831 |
| $ | 675,299 |
| $ | 831 |
| $ | - |
| | $ | 925,559 | | $ | 165 | | $ | 79 | | $ | 925,645 | | $ | 79 | | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
December 31, 2016 |
| Amortized |
| Gross |
| Gross |
| Fair |
| Continuous |
| Continuous |
| ||||||||||||||||||||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Commercial paper |
| $ | 40,382 |
| $ | - |
| $ | - |
| $ | 40,382 |
| $ | - |
| $ | - |
| ||||||||||||||||||
Municipal securities |
| 140,379 |
| - |
| 181 |
| 140,198 |
| 181 |
| - |
| ||||||||||||||||||||||||
U.S. government agency securities |
| 26,057 |
| - |
| 6 |
| 26,051 |
| 6 |
| - |
| ||||||||||||||||||||||||
Variable rate demand notes |
| 13,923 |
| - |
| - |
| 13,923 |
| - |
| - |
| ||||||||||||||||||||||||
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Municipal securities |
| 2,403 |
| - |
| 9 |
| 2,394 |
| 9 |
| - |
| ||||||||||||||||||||||||
Total |
| $ | 223,144 |
| $ | - |
| $ | 196 |
| $ | 222,948 |
| $ | 196 |
| $ | - |
| ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Continuous | | Continuous | ||
| | | | | Gross | | Gross | | | | | Unrealized | | Unrealized | ||||
| | | | | Unrealized | | Unrealized | | | | | Loss Position | | Loss Position | ||||
| | Amortized | | Holding | | Holding | | Fair | | less than 12 | | greater than 12 | ||||||
December 31, 2019 |
| Cost |
| Gains |
| Losses |
| Value |
| Months |
| Months | ||||||
Available-for-sale | | | | | | | | | | | | | | | | | | |
Short-term: | | | | | | | | | | | | | | | | | | |
Commercial paper | | $ | 83,478 | | $ | — | | $ | — | | $ | 83,478 | | $ | — | | $ | — |
Certificates of deposit | | | 28,049 | | | — | | | — | | | 28,049 | | | — | | | — |
Municipal securities | |
| 147,983 | |
| 145 | |
| 20 | |
| 148,108 | |
| 20 | |
| — |
U.S. government agency securities | |
| 40,620 | |
| 5 | |
| 35 | |
| 40,590 | |
| 35 | |
| — |
U.S. treasuries | | | 211,055 | | | 134 | | | 31 | | | 211,158 | | | 31 | | | — |
Variable rate demand notes | |
| 21,680 | |
| — | |
| — | |
| 21,680 | |
| — | |
| — |
Long-term: | | | | | | | | | | | | | | | | | | |
Municipal securities | | | 1,562 | | | — | | | 1 | | | 1,561 | | | 1 | | | — |
U.S. government agency securities | | | 5,267 | | | — | | | 1 | | | 5,266 | | | 1 | | | — |
U.S. treasuries | | | 6,077 | | | 1 | | | — | | | 6,078 | | | — | | | — |
Total | | $ | 545,771 | | $ | 285 | | $ | 88 | | $ | 545,968 | | $ | 88 | | $ | — |
During the years ended December 31, 20172020, 2019 and 2016,2018, realized gains or losses recognized on the sale of investments were not significant.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The Company’s investments at December 31, 20172020 and 2016 in commercial paper, certificates of deposit, municipal securities, U.S. government agency securities and/or variable2019 carried investment grade credit ratings. Variable rate demand notes (“VRDNs”) carried investment grade credit ratings. VRDNs are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. While they are classified as marketable investment securities, the put option allows the VRDNs to be liquidated at par on a same day, or more generally, on a seven-day settlement basis.
101
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The following table summarizes the underlying contractual maturities of the Company’s investments at:
|
| December 31, 2017 |
| December 31, 2016 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value |
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | December 31, 2020 | | December 31, 2019 | |||||||||||||||||||||
|
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | |||||||||||||||||
Less than 1 year: |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||
Commercial paper |
| $ | 81,026 |
| $ | 81,026 |
| $ | 40,382 |
| $ | 40,382 |
| | $ | 119,886 | | $ | 119,886 |
| $ | 83,478 | | $ | 83,478 |
Municipal securities |
| 469,604 |
| 468,865 |
| 140,379 |
| 140,198 |
| |
| 9,083 | |
| 9,083 |
|
| 147,983 | |
| 148,108 | ||||
U.S. government agency securities |
| 61,307 |
| 61,219 |
| 26,057 |
| 26,051 |
| |
| 81,521 | |
| 81,531 |
|
| 40,620 | |
| 40,590 | ||||
Certificates of deposit |
| 11,869 |
| 11,869 |
| - |
| - |
| |
| 20,387 | |
| 20,387 |
|
| 28,049 | |
| 28,049 | ||||
U.S. treasuries | | | 650,386 | | | 650,467 | | | 211,055 | | | 211,158 | |||||||||||||
Due 1 -10 years: |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||
Municipal securities |
| - |
| - |
| 2,403 |
| 2,394 |
| |
| — | |
| — |
|
| 1,562 | |
| 1,561 | ||||
U.S. treasuries | | | 33,946 | | | 33,940 | | | 6,077 | | | 6,078 | |||||||||||||
U.S. government agency securities |
| 2,369 |
| 2,366 |
| - |
| - |
| |
| 10,350 | |
| 10,351 |
|
| 5,267 | |
| 5,266 | ||||
Variable rate demand notes |
| 6,366 |
| 6,366 |
| 3,917 |
| 3,917 |
| | | — | | | — | | | 3,905 | | | 3,905 | ||||
Due 11 - 20 years: |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||
Variable rate demand notes |
| 28,377 |
| 28,377 |
| 6,003 |
| 6,003 |
| |
| — | |
| — |
|
| 8,886 | |
| 8,886 | ||||
Due 21 - 30 years: |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||
Variable rate demand notes |
| 15,211 |
| 15,211 |
| 4,003 |
| 4,003 |
| |
| — | |
| — |
|
| 6,885 | |
| 6,885 | ||||
Due 31 - 40 years: | | | | | | | | | | | | | |||||||||||||
Variable rate demand notes | | | — | | | — | | | 2,004 | | | 2,004 | |||||||||||||
Total |
| $ | 676,129 |
| $ | 675,299 |
| $ | 223,144 |
| $ | 222,948 |
| | $ | 925,559 | | $ | 925,645 |
| $ | 545,771 | | $ | 545,968 |
The Company recognized a net gain through earnings on its trading securities as follows for the years ended:
|
| 2017 |
| 2016 |
| 2015 |
| |||
Gain (loss) on transfer from available-for-sale to trading |
| $ | - |
| $ | - |
| $ | - |
|
Gain on trading securities sold |
| - |
| - |
| 250 |
| |||
(Loss) gain on trading securities held |
| - |
| - |
| - |
| |||
Gain on trading securites |
| $ | - |
| $ | - |
| $ | 250 |
|
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
4.5. FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES
FASB ASC 820 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three levels of inputs required by the standard that the Company uses to measure fair value are summarized below.
| ● | Level 1: Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. |
·Level 1: Quoted prices in active markets for identical assets or liabilities.
| ● | Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
·Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
·Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
FASB ASC 820 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.
102
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The following tables present the Company’sfair value of Company's financial assets and liabilities that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:
December 31, 2017 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
December 31, 2020 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||||||||||||||
Cash |
| $ | 310,885 |
| $ | - |
| $ | - |
| $ | 310,885 |
| | $ | 796,421 | | $ | — | | $ | — | | $ | 796,421 |
Money market funds |
| 112,848 |
| - |
| - |
| 112,848 |
| |
| 352,730 | |
| — | |
| — | |
| 352,730 | ||||
Certificates of deposit |
| - |
| 15,720 |
| - |
| 15,720 |
| | | — | | | 23,137 | | | — | | | 23,137 | ||||
Commercial paper |
| - |
| 99,903 |
| - |
| 99,903 |
| |
| — | |
| 130,883 | |
| — | |
| 130,883 | ||||
Variable rate demand notes |
| - |
| 49,954 |
| - |
| 49,954 |
| ||||||||||||||||
Municipal securities |
| - |
| 529,984 |
| - |
| 529,984 |
| |
| — | |
| 9,083 | |
| — | |
| 9,083 | ||||
U.S. government agency securities |
| - |
| 81,230 |
| - |
| 81,230 |
| |
| — | |
| 91,882 | |
| — | |
| 91,882 | ||||
U.S. Treasuries |
| - |
| 3,397 |
| - |
| 3,397 |
| ||||||||||||||||
U.S. treasuries | | | — | | | 701,922 | | | — | | | 701,922 | |||||||||||||
Foreign currency derivatives |
| - |
| (1,484 | ) | - |
| (1,484 | ) | |
| — | |
| (2,578) | |
| — | |
| (2,578) | ||||
Total |
| $ | 423,733 |
| $ | 778,704 |
| $ | - |
| $ | 1,202,437 |
| | $ | 1,149,151 | | $ | 954,329 | | $ | — | | $ | 2,103,480 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
Amounts included in: |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||
Cash and cash equivalents |
| $ | 423,733 |
| $ | 104,889 |
| $ | - |
| $ | 528,622 |
| | $ | 1,149,151 | | $ | 31,262 | | $ | — | | $ | 1,180,413 |
Short-term investments |
| - |
| 672,933 |
| - |
| 672,933 |
| |
| — | |
| 881,354 | |
| — | |
| 881,354 | ||||
Accounts receivable, net |
| - |
| 95 |
| - |
| 95 |
| |
| — | |
| 69 | |
| — | |
| 69 | ||||
Investments |
| - |
| 2,366 |
| - |
| 2,366 |
| |
| — | |
| 44,291 | |
| — | |
| 44,291 | ||||
Accrued liabilities |
| - |
| (1,579 | ) | - |
| (1,579 | ) | |
| — | |
| (2,647) | |
| — | |
| (2,647) | ||||
Total |
| $ | 423,733 |
| $ | 778,704 |
| $ | - |
| $ | 1,202,437 |
| | $ | 1,149,151 | | $ | 954,329 | | $ | — | | $ | 2,103,480 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
December 31, 2016 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||||||||||||||
Cash |
| $ | 278,972 |
| $ | - |
| $ | - |
| $ | 278,972 |
| ||||||||||||
Money market funds |
| 76,112 |
| - |
| - |
| 76,112 |
| ||||||||||||||||
Commercial paper |
| - |
| 47,855 |
| - |
| 47,855 |
| ||||||||||||||||
Variable rate demand notes |
| - |
| 13,923 |
| - |
| 13,923 |
| ||||||||||||||||
Municipal securities |
| - |
| 157,617 |
| - |
| 157,617 |
| ||||||||||||||||
U.S. government agency securities |
| - |
| 26,051 |
| - |
| 26,051 |
| ||||||||||||||||
Foreign currency derivatives |
| - |
| (528 | ) | - |
| (528 | ) | ||||||||||||||||
Total |
| $ | 355,084 |
| $ | 244,918 |
| $ | - |
| $ | 600,002 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Amounts included in: |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and cash equivalents |
| $ | 355,084 |
| $ | 22,498 |
| $ | - |
| $ | 377,582 |
| ||||||||||||
Short-term investments |
| - |
| 220,554 |
| - |
| 220,554 |
| ||||||||||||||||
Accounts receivable, net |
| - |
| 236 |
| - |
| 236 |
| ||||||||||||||||
Investments |
| - |
| 2,394 |
| - |
| 2,394 |
| ||||||||||||||||
Accrued liabilities |
| - |
| (764 | ) | - |
| (764 | ) | ||||||||||||||||
Total |
| $ | 355,084 |
| $ | 244,918 |
| $ | - |
| $ | 600,002 |
| ||||||||||||
| | | | | | | | | | | | |
December 31, 2019 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Cash | | $ | 518,178 | | $ | — | | $ | — | | $ | 518,178 |
Money market funds | |
| 191,131 | |
| — | |
| — | |
| 191,131 |
Certificates of deposit | | | — | | | 28,049 | | | — | | | 28,049 |
Commercial paper | |
| — | |
| 96,867 | |
| — | |
| 96,867 |
Variable rate demand notes | | | — | | | 21,680 | | | — | | | 21,680 |
Municipal securities | |
| — | |
| 167,224 | |
| — | |
| 167,224 |
U.S. government agency securities | |
| — | |
| 73,634 | |
| — | |
| 73,634 |
U.S. treasuries | | | — | | | 247,162 | | | — | | | 247,162 |
Foreign currency derivatives | |
| — | |
| (687) | |
| — | |
| (687) |
Total | | $ | 709,309 | | $ | 633,929 | | $ | — | | $ | 1,343,238 |
| | | | | | | | | | | | |
Amounts included in: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 709,309 | | $ | 88,648 | | $ | — | | $ | 797,957 |
Short-term investments | |
| — | |
| 533,063 | |
| — | |
| 533,063 |
Accounts receivable, net | |
| — | |
| 329 | |
| — | |
| 329 |
Investments | |
| — | |
| 12,905 | |
| — | |
| 12,905 |
Accrued liabilities | |
| — | |
| (1,016) | |
| — | |
| (1,016) |
Total | | $ | 709,309 | | $ | 633,929 | | $ | — | | $ | 1,343,238 |
103
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
All of the Company’s short-term and long-term investments are classified within Level 1 or Level 2 within the fair value hierarchy. The Company’s valuation of its Level 1 investments, which include money market funds, is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments, which include municipal securities, commercial paper, U.S. Treasuries,treasuries, certificates of deposit, VRDNs and U.S. government agency securities, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical tools and other relevant information for the same or similar securities. The Company’s valuation of its Level 2 foreign currency exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk. There were no0 transfers between Level 1 and Level 2 measurements during the years ended December 31, 20172020 and 2016,2019, and there were no changes in the Company’s valuation techniques.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
5.6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to foreign currency exchange rate risks related primarily to its foreign business operations. During the years ended December 31, 2017, 20162020, 2019 and 2015, respectively,2018, the Company entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries’ non-functional currency denominated assets and liabilities. All foreign currency exchange contracts entered into by the Company that were outstanding as of December 31, 20172020 have terms of one monththree months or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.
The Company has not designated its foreign currency exchange contracts as hedge transactions under FASB ASC 815. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in other expense,income, net, in the consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item.
104
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The notional amount and fair value of all outstanding foreign currency derivative instruments in the consolidated balance sheets consist of the following at:
December 31, 2017 | ||||||||||||||||
Derivatives not designated as
hedging instruments under
FASB ASC 815-20 |
| Notional
Amount |
| Fair
Value |
| Balance Sheet Location | ||||||||||
| | | | | | | | | ||||||||
December 31, 2020 | December 31, 2020 | |||||||||||||||
Derivatives not designated as | | | | | | | | | ||||||||
hedging instruments under | | Notional | | Fair | | | ||||||||||
FASB ASC 815-20 |
| Amount |
| Value |
| Balance Sheet Location | ||||||||||
Assets: |
|
|
|
|
|
| | | | | | | | | ||
Foreign currency exchange contracts: |
|
|
|
|
|
| | | | | | | | | ||
Receive CAD/pay USD |
| $ | 4,892 |
| $ | 61 |
| Accounts receivable, net | ||||||||
Receive SGD/pay USD |
| 223 |
| 2 |
| Accounts receivable, net | | $ | 18,713 | | $ | 41 | | Accounts receivable, net | ||
Receive NOK/pay USD |
| 1,534 |
| 18 |
| Accounts receivable, net | ||||||||||
Receive USD/pay BRL |
| 1,806 |
| 1 |
| Accounts receivable, net | ||||||||||
Receive USD/pay COP |
| 2,803 |
| 13 |
| Accounts receivable, net | ||||||||||
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
Receive RSD/pay USD | | | 10,127 | | | 28 | | Accounts receivable, net | ||||||||
| | | | | | | | | ||||||||
Liabilities: |
|
|
|
|
|
| | | | | | | | | ||
Foreign currency exchange contracts: |
|
|
|
|
|
| | | | | | | | | ||
Receive EUR/pay USD | | $ | 1,298,899 | | $ | (1,768) | | Accrued liabilities | ||||||||
Receive USD/pay GBP |
| $ | 31,342 |
| $ | (334) |
| Accrued liabilities | | | 35,256 | | | (416) |
| Accrued liabilities |
Receive USD/pay EUR |
| 65,131 |
| (642) |
| Accrued liabilities | ||||||||||
Receive USD/pay AUD |
| 17,238 |
| (177) |
| Accrued liabilities | | | 8,508 | | | (130) | | Accrued liabilities | ||
Receive USD/pay ZAR |
| 21,311 |
| (222) |
| Accrued liabilities | |
| 2,403 | |
| (106) |
| Accrued liabilities | ||
Receive USD/pay MXN |
| 7,720 |
| (126) |
| Accrued liabilities | ||||||||||
Receive USD/pay COP | |
| 5,436 | |
| (93) | | Accrued liabilities | ||||||||
Receive USD/pay CNY | | | 12,344 | | | (50) | | Accrued liabilities | ||||||||
Receive USD/pay RUB | | | 7,780 | | | (40) | | Accrued liabilities | ||||||||
Receive NOK/pay USD | |
| 4,411 | |
| (18) |
| Accrued liabilities | ||||||||
Receive USD/pay NZD |
| 1,826 |
| (18) |
| Accrued liabilities | |
| 2,290 | |
| (13) |
| Accrued liabilities | ||
Receive USD/pay TRY |
| 5,483 |
| (52) |
| Accrued liabilities | ||||||||||
Receive USD/pay CLP |
| 1,112 |
| (8) |
| Accrued liabilities | ||||||||||
Receive SEK/pay USD | |
| 2,275 | |
| (10) |
| Accrued liabilities | ||||||||
Receive USD/pay DKK | |
| 3,151 | |
| (3) |
| Accrued liabilities | ||||||||
| | | | | | | | |
December 31, 2019 | ||||||||
Derivatives not designated as | | | | | | | | |
hedging instruments under | | Notional | | Fair | | | ||
FASB ASC 815-20 |
| Amount |
| Value |
| Balance Sheet Location | ||
Assets: | | | | | | | | |
Foreign currency exchange contracts: | | | | | | | | |
Receive EUR/pay USD | | $ | 26,731 | | $ | 246 |
| Accounts receivable, net |
Receive RSD/pay USD | |
| 9,018 | |
| 59 |
| Accounts receivable, net |
Receive NOK/pay USD | | | 2,122 | | | 17 |
| Accounts receivable, net |
Receive USD/pay SGD | | | 1,555 | | | 7 |
| Accounts receivable, net |
| | | | | | | | |
Liabilities: | | | | | | | | |
Foreign currency exchange contracts: | | | | | | | | |
Receive USD/pay GBP | | $ | 38,406 | | $ | (695) |
| Accrued liabilities |
Receive USD/pay AUD | |
| 12,819 | |
| (172) |
| Accrued liabilities |
Receive USD/pay RUB | | | 12,777 | | | (55) | | Accrued liabilities |
Receive USD/pay NZD | | | 3,071 | | | (33) | | Accrued liabilities |
Receive USD/pay ZAR | |
| 3,349 | |
| (32) |
| Accrued liabilities |
Receive USD/pay COP | |
| 3,793 | |
| (18) |
| Accrued liabilities |
Receive USD/pay DKK | |
| 1,283 | |
| (11) |
| Accrued liabilities |
105
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
December 31, 2016 | ||||||||
Derivatives not designated as
hedging instruments under
FASB ASC 815-20 |
| Notional
Amount |
| Fair
Value |
| Balance Sheet Location | ||
Assets: |
|
|
|
|
|
| ||
Foreign currency exchange contracts: |
|
|
|
|
|
| ||
Receive CAD/pay USD |
| $ | 22,314 |
| $ | 173 |
| Accounts receivable, net |
Receive SGD/pay USD |
| 7,915 |
| 24 |
| Accounts receivable, net | ||
Receive NOK/pay USD |
| 2,138 |
| 28 |
| Accounts receivable, net | ||
Receive USD/pay CLP |
| 4,094 |
| 9 |
| Accounts receivable, net | ||
Receive USD/pay COP |
| 2,330 |
| 2 |
| Accounts receivable, net | ||
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
| ||
Foreign currency exchange contracts: |
|
|
|
|
|
| ||
Receive USD/pay GBP |
| $ | 7,718 |
| $ | (57) |
| Accrued liabilities |
Receive USD/pay EUR |
| 29,621 |
| (325) |
| Accrued liabilities | ||
Receive USD/pay AUD |
| 15,135 |
| (74) |
| Accrued liabilities | ||
Receive USD/pay ZAR |
| 20,405 |
| (296) |
| Accrued liabilities | ||
Receive USD/pay MXN |
| 25,864 |
| (4) |
| Accrued liabilities | ||
Receive USD/pay BRL |
| 3,138 |
| (3) |
| Accrued liabilities | ||
Receive USD/pay NZD |
| 2,076 |
| (5) |
| Accrued liabilities | ||
The net gain (loss) on derivative instruments in the consolidated statements of income werewas as follows:
|
|
|
| Amount of gain (loss)
recognized in income on
derivatives |
| ||||||||||||||||||
|
|
|
| Year ended |
| ||||||||||||||||||
Derivatives not designated as
hedging instruments under
FASB ASC 815-20 |
| Location of gain (loss)
recognized in income on
derivatives |
| December 31,
2017 |
| December 31,
2016 |
| December 31,
2015 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| | | | | | | | | | | | ||||||||||||
| | | | Amount of gain (loss) | |||||||||||||||||||
| | | | recognized in income on | |||||||||||||||||||
| | | | derivatives | |||||||||||||||||||
Derivatives not designated as | | Location of gain (loss) | | Year ended | |||||||||||||||||||
hedging instruments under | | recognized in income on | | December 31, | | December 31, | | December 31, | |||||||||||||||
FASB ASC 815-20 |
| derivatives |
| 2020 | | 2019 |
| 2018 | |||||||||||||||
Foreign currency exchange contracts |
| Other income (expense), net |
| $ | (13,733) |
| $ | 1,819 |
| $ | 2,503 |
|
| Other (expense) income, net |
| $ | (3,317) |
| $ | (2,555) |
| $ | 9,737 |
6.INVENTORIES
7. INVENTORIES
Inventories consist of the following at December 31:
|
| 2017 |
| 2016 |
| ||||||||
| | | | | | | |||||||
|
| 2020 |
| 2019 | |||||||||
Raw materials |
| $ | 78,834 |
| $ | 58,658 |
| | $ | 155,166 | | $ | 134,885 |
Finished goods |
| 176,911 |
| 103,313 |
| |
| 177,919 | |
| 225,846 | ||
|
| $ | 255,745 |
| $ | 161,971 |
| ||||||
| | $ | 333,085 | | $ | 360,731 | |||||||
95
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
7.8. PROPERTY AND EQUIPMENT, Net
Property and equipment consist of the following at December 31:
|
| 2017 |
|
| 2016 |
| ||||||||
| | | | | | | ||||||||
| | 2020 |
| 2019 | ||||||||||
Land |
| $ | 47,373 |
|
| $ | 46,596 |
| | $ | 85,876 | | $ | 78,275 |
Leasehold improvements |
| 3,109 |
|
| 2,687 |
| |
| 11,524 | |
| 10,417 | ||
Furniture and fixtures |
| 6,461 |
|
| 3,635 |
| |
| 8,271 | |
| 8,426 | ||
Office and computer equipment |
| 14,506 |
|
| 11,701 |
| |
| 21,657 | |
| 22,766 | ||
Computer software |
| 3,650 |
|
| 3,274 |
| |
| 6,945 | |
| 4,450 | ||
Equipment |
| 148,434 |
|
| 114,230 |
| |
| 185,348 | |
| 214,293 | ||
Building |
| 107,374 |
|
| 69,547 |
| ||||||||
Buildings | |
| 156,616 | |
| 126,338 | ||||||||
Vehicles |
| 38,179 |
|
| 31,582 |
| |
| 43,173 | |
| 41,109 | ||
|
| 369,086 |
|
| 283,252 |
| ||||||||
| |
| 519,410 | |
| 506,074 | ||||||||
Less: accumulated depreciation and amortization |
| (138,810 | ) |
| (109,909 | ) | |
| (204,754) | |
| (207,434) | ||
|
| $ | 230,276 |
|
| $ | 173,343 |
| ||||||
| | $ | 314,656 | | $ | 298,640 | ||||||||
Total depreciation and amortization expense recorded was $37.0$49.3 million, $30.2$49.1 million and $27.0$45.0 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
106
8.MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
9. GOODWILL AND OTHER INTANGIBLE ASSETS
The following is a roll-forward of goodwill for the years ended December 31, 20172020 and 20162019 by reportable segment:
|
| Monster |
| Strategic |
| Other |
| Total |
| ||||
Balance at December 31, 2016 |
| $ | 693,644 |
| $ | 637,999 |
| $ | - |
| $ | 1,331,643 |
|
Acquisitions |
| - |
| - |
| - |
| - |
| ||||
Balance at December 31, 2017 |
| $ | 693,644 |
| $ | 637,999 |
| $ | - |
| $ | 1,331,643 |
|
| | | | | | | | | | | | |
| | Monster | | | | | | | | | | |
| | Energy® | | Strategic | | | | | | | ||
|
| Drinks |
| Brands |
| Other |
| Total | ||||
Balance at December 31, 2019 | | $ | 693,644 | | $ | 637,999 | | $ | — | | $ | 1,331,643 |
Acquisitions | |
| — | |
| — | |
| — | |
| — |
Balance at December 31, 2020 | | $ | 693,644 | | $ | 637,999 | | $ | — | | $ | 1,331,643 |
|
| Monster |
| Strategic |
| Other |
| Total |
| ||||
Balance at December 31, 2015 |
| $ | 641,716 |
| $ | 637,999 |
| $ | - |
| $ | 1,279,715 |
|
Acquisitions |
| 51,928 |
| - |
| - |
| 51,928 |
| ||||
Balance at December 31, 2016 |
| $ | 693,644 |
| $ | 637,999 |
| $ | - |
| $ | 1,331,643 |
|
| | | | | | | | | | | | |
| | Monster | | | | | | | | | | |
| | Energy® | | Strategic | | | | | | | ||
|
| Drinks |
| Brands |
| Other |
| Total | ||||
Balance at December 31, 2018 | | $ | 693,644 | | $ | 637,999 | | $ | — | | $ | 1,331,643 |
Acquisitions | |
| — | |
| — | |
| — | |
| — |
Balance at December 31, 2019 | | $ | 693,644 | | $ | 637,999 | | $ | — | | $ | 1,331,643 |
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Intangible assets consist of the following at:
|
| December 31, |
|
| December 31, |
| ||||||||
| | | | | | | ||||||||
|
| December 31, |
| December 31, | ||||||||||
| | 2020 | | 2019 | ||||||||||
Amortizing intangibles |
| $ | 71,400 |
|
| $ | 71,290 |
| | $ | 66,875 | | $ | 66,949 |
Accumulated amortization |
| (26,383 | ) |
| (14,535 | ) | |
| (56,801) | |
| (49,128) | ||
|
| 45,017 |
|
| 56,755 |
| ||||||||
| |
| 10,074 | |
| 17,821 | ||||||||
Non-amortizing intangibles |
| 989,068 |
|
| 975,880 |
| |
| 1,048,972 | |
| 1,034,284 | ||
|
| $ | 1,034,085 |
|
| $ | 1,032,635 |
| ||||||
| | $ | 1,059,046 | | $ | 1,052,105 | ||||||||
Amortizing intangibles primarily consist of customer relationships. All amortizing intangibles have been assigned an estimated finite useful life and such intangibles are amortized on a straight-line basis over the number of years that approximate their respective useful lives, generally five to seven years. Total amortization expense recorded was $11.9$7.7 million, $10.6$11.6 million and $3.9$11.9 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Total impairment recorded was $8.7 million for the year ended December 31, 2020. NaN impairment was recorded for the years ended December 31, 2019 and 2018.
107
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The following is the future estimated amortization expense related to amortizing intangibles as of December 31, 2017:2020:
Year Ending December 31: |
|
|
| |
|
|
|
| |
2018 |
| $ | 11,847 |
|
2019 |
| 11,847 |
| |
2020 |
| 7,964 |
| |
2021 |
| 4,722 |
| |
2022 |
| 4,697 |
| |
2023 and thereafter |
| 3,940 |
| |
|
| $ | 45,017 |
|
| | | |
Year Ending December 31: |
| | |
| | | |
2021 | | $ | 4,426 |
2022 | | | 4,405 |
2023 | | | 1,111 |
2024 | | | 13 |
2025 | | | 13 |
2026 and thereafter | | | 106 |
| | $ | 10,074 |
At December 31, 2017,2020, non-amortizing intangibles primarily consist of indefinite-lived tradenames.tradenames, flavors and formulas.
9.10. DISTRIBUTION AGREEMENTS
In accordance with FASB ASC No. 420 “Exit or Disposal Cost Obligations”, the Company expenses distributor termination costs in the period in which the written notification of termination occurs. As a result, the Company incurred termination costs of $35.4$0.2 million, $79.8$11.3 million and $224.0$26.6 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Such termination costs have been expensed in full and are included in operating expenses for the years ended December 31, 2017, 20162020, 2019 and 2015, respectively.
2018.
In the normal course of business, amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years. Revenue recognized was $22.3$21.4 million, $26.1$25.0 million and $50.5$21.9 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Included in the $22.3 million of revenue recognized for the year ended December 31, 2017 was $0.6 million related to the accelerated amortization of the deferred revenue balances associated with certain of the Company’s prior distributors who were sent
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
notices of termination during the year ended December 31, 2017. Included in the $26.1 million of revenue recognized for the year ended December 31, 2016 was $5.7 million related to the accelerated amortization of the deferred revenue balances associated with certain of the Company’s prior distributors who were sent notices of termination during the year ended December 31, 2016. Included in the $50.5 million of revenue recognized for the year ended December 31, 2015 was $39.8 million related to the accelerated amortization of the deferred revenue balances associated with certain of the Company’s prior distributors who were sent notices of termination during the year ended December 31, 2015.
10.11. DEBT
The Company entered into a credit facility with Comerica Bank (“Comerica”) consisting of a revolving line of credit, which was amended in June 2017,April 2020, under which the Company may borrow up to $10.0 million of non-collateralized debt. The revolving line of credit is effective through June 1, 2020.2025. Interest on borrowings under the line of credit is based on Comerica’s base (prime) rate minus 1%1.00% to 1.5%1.50%, or London Interbank Offered Rates plus an additional percentage of 1.25% to 1.75%, depending upon certain financial ratios maintained by the Company. The Company had no0 outstanding borrowings on this line of credit at December 31, 2017.2020. Under this revolving line of credit, the Company may also issue standby Letters of Credit with an aggregate amount of up to $4.0 million. The fee on the standby Letters of Credit ranges from 1.00% to 1.50% depending upon certain financial ratios maintained by the Company. The Company had no0 outstanding standby Letters of Credit at December 31, 2017.
2020.
In December 2016, the Company entered into a credit facility with HSBC Bank (China) Company Limited, Shanghai Branch consisting of a non-collateralized working capital line of credit under which the Company may borrow up to $4.0 million of non-collateralized debt.credit. In February 2017,2018, the working capital line limit was increased from $4.0 million to $9.0$15.0 million. InterestAt December 31, 2020, the interest rate on borrowings under the line of credit is based on the People’s Bank of China benchmark lending rates multiplied by 1.10.was 5.5%. As of December 31, 2017,2020, the Company had $6.0 millionno amounts outstanding on this line of credit, including interest, which is includedcredit.
108
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in accounts payable in the condensed consolidated balance sheet.Thousands, Except Per Share Amounts)
The Company’s debt of $1.3 million and $1.1 million at December 31, 2017 and 2016, respectively, consisted of capital leases, collateralized by vehicles, payable over 12 months in monthly installments at various effective interest rates, with final payments ending on or before December 31, 2018.
At December 31, 2017 and 2016, the assets acquired under capital leases had a net book value of $5.3 million and $4.5 million, net of accumulated depreciation of $4.2 million and $4.5 million, respectively.
Interest expense for capital lease obligations amounted to $0.08 million, $0.07 million and $0.03 million for the years ended December 31, 2017, 2016 and 2015, respectively.
11.12. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various non-cancellable lease agreements providing for office space, warehouse space, vehicles and automobileswarehouse equipment that expire at various dates through the year 2031.
Rent expense under operating leases was $10.7 million, $9.9 million and $10.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Future minimum rental payments at December 31, 2017 under the operating leases referred to above are as follows:
Year Ending December 31: |
|
|
| |
|
|
|
| |
2018 |
| $ | 2,588 |
|
2019 |
| 1,802 |
| |
2020 |
| 1,764 |
| |
2021 |
| 1,745 |
| |
2022 |
| 1,469 |
| |
2023 and thereafter |
| 7,347 |
| |
|
| $ | 16,715 |
|
2033. See Note 3.
Contractual obligationsObligations – The Company hashad the following contractual obligations related primarily to sponsorships and other commitments as of December 31, 2017:2020:
Year Ending December 31: |
|
|
| |
|
|
|
| |
2018 |
| $ | 96,774 |
|
2019 |
| 29,427 |
| |
2020 |
| 23,996 |
| |
2021 |
| 5,666 |
| |
2022 |
| 8 |
| |
2023 and thereafter |
| - |
| |
|
| $ | 155,871 |
|
| | | |
Year Ending December 31: |
| |
|
| | | |
2021 |
| $ | 97,979 |
2022 | | | 25,409 |
2023 | | | 5,814 |
2024 | | | 41 |
2025 | | | 12 |
2026 and thereafter | | | — |
|
| $ | 129,255 |
Purchase Commitments – The Company hashad purchase commitments aggregating approximately $37.8$101.8 million at December 31, 2017,2020, which represent commitments made by the Company and its subsidiaries to various suppliers of raw materials for the production of its products. These obligations vary in terms, but are generally satisfied within one year.
The Company purchases various raw material items, including, but not limited to, flavors, ingredients, dietarysupplement ingredients, containers, milk, glucose, sucralose, cream and protein, from a limited number of suppliers. An interruption in supply from any of such resources could result in the Company’s inability to produce certain products for limited or possibly extended periods of time. The aggregate value of purchases from suppliers of such limited resources described above for the years ended December 31, 2017, 20162020, 2019 and 20152018 was $273.6$401.8 million, $205.9$335.3 million and $332.0$289.6 million, respectively.
In September 2016, the Company completed its acquisition of approximately 49 acres of land, located in Rialto, CA, for a purchase price of approximately $39.1 million. In the fourth quarter of 2017, the Company completed the construction of an approximately 1,000,000 square-foot building (the “Rialto Warehouse”) on this land, which it anticipates will be LEED certified, to replace its leased warehouse and distribution facilities located in Corona, CA. The Company entered into an approximately $38.1 million guaranteed maximum price construction contract for the construction of the building, of which $4.6 million remained outstanding as of December 31, 2017. During the three-months ended December 31, 2017, the Company transitioned its Southern California warehouse and distribution operations to the Rialto Warehouse, which was fully operational by December 31, 2017.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Guarantees – The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) certain agreements with the Company’s officers, directors and employees under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship, (ii) certain distribution or purchase agreements under which the Company may have to indemnify the Company’s customers from any claim, liability or loss arising out of any actual or alleged injury or damages suffered in connection with the consumption or purchase of the Company’s products or the use of Company trademarks, and (iii) certain real estate leases, under which the Company may be required to indemnify property owners for liabilities and other claims arising from the Company’s use of the applicable premises. The terms of such obligations vary and typically, a maximum obligation is not explicitly stated. Generally, the Company believes that its insurance coverage is adequate to cover any resulting liabilities or claims.
Litigation – The Company is currently a defendant in a number of personal injury lawsuits, claiming that the death or other serious injury of the plaintiffs was caused by consumption of Monster Energy® brand energy drinks. The plaintiffs in these lawsuits allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The Company believes that each complaint is without merit and plans a vigorous defense. The Company also believes that any damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.
State Attorney General Inquiry – In July 2012, the Company received a subpoena from the Attorney General for the State of New York in connection with its investigation concerning the Company’s advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand energy drinks. Production of documents pursuant to that subpoena was completed in approximately May 2014.
On August 6, 2014, the Attorney General for the State of New York issued a second subpoena seeking additional documents and the deposition of a Company employee. On September 8, 2014, the Company moved to quash the second subpoena in the Supreme Court, New York County. The motion was fully briefed and was argued on March 17, 2015. On January 13, 2017, the Court issued an opinion in which it agreed with certain Company arguments regarding the scope of the subpoena and the Attorney General’s investigation, but denied the motion to quash and granted the Attorney General’s cross-motion to compel compliance. The Company has complied with the second subpoena. It is unknown what, if any, action the state Attorney General may take against the Company, the relief which may be sought in the event of any such proceeding or whether such proceeding could have a material adverse effect on the Company’s business, financial condition or results of operations.
Furthermore, fromFrom time to time in the normal course of business, the Company is named in other litigation, including labor and employment matters, personal injury matters, consumer class actions, intellectual property litigationmatters and claims from prior distributors. Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to the Company, management believes that such litigation in the aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.
109
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
On September 18, 2020, a derivative complaint was filed on purported behalf of the Company in the United States District Court for the Central District of California. The action is styled Falat v. Sacks, et al., 8:20-cv-01782, and asserts claims against certain officers, current and former directors, and employees of the Company, including Rodney C. Sacks, Hilton H. Schlosberg, Guy P. Carling, Thomas J. Kelly, Emelie C. Tirre, Mark J. Hall, Kathleen E. Ciaramello, Gary P. Fayard, Jeanne P. Jackson, Steven G. Pizula, Benjamin M. Polk, Sydney Selati and Mark S. Vidergauz (collectively, the “Individual Defendants”). The Company is named as a nominal defendant.
The derivative complaint alleges, among other things, that the Individual Defendants breached their fiduciary duties to the Company by allowing others to cause, or themselves causing, the Company to hide discrimination and failing to ensure sufficient diversity, including by permitting conduct to occur that was inconsistent with statements made in the Company’s policies and disclosures, and failing to ensure the Company’s compliance with laws regarding diversity and anti-discrimination. The complaint also asserts claims for abuse of control, unjust enrichment and violation of Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The complaint seeks from the Individual Defendants an unspecified amount of damages, restitution, punitive damages and costs to be paid to the Company, and seeks to require the Company to adopt corporate governance reforms, and other equitable relief.
On January 15, 2021, the Company filed a motion to dismiss the action because the plaintiff failed to make a demand on the Company as required by Federal Rule of Civil Procedure 23.1 or to show that demand would have been futile. The Individual Defendants also filed a motion to dismiss the complaint for failure to state a claim against the Individual Defendants, among other reasons. Those motions are scheduled for hearing in the 2021 second quarter. While the Company continues to evaluate these claims, management believes that such litigation will likely not have a material adverse effect on the Company’s financial position or results of operations.
The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, or in the amount ofand any related insurance reimbursements recorded.reimbursements. As of December 31, 2017,2020, the Company’s condensed consolidated balance sheet includesincluded accrued loss contingencies of approximately $1.9$18.4 million.
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
100The components of accumulated other comprehensive income (loss) are as follows at December 31:
| | | | | | |
|
| 2020 |
| 2019 | ||
Accumulated net unrealized (gain) loss on available-for-sale securities |
| $ | 84 |
| $ | 194 |
Foreign currency translation adjustments, net of tax | | | 2,950 | | | (32,581) |
Total accumulated other comprehensive income (loss) |
| $ | 3,034 |
| $ | (32,387) |
14. TREASURY STOCK PURCHASE
On February 26, 2019, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “February 2019 Repurchase Plan”). During the year ended December 31, 2020, the Company purchased 0.6 million shares of common stock at an average purchase price of $58.16 per share, for a total amount of $36.6 million (excluding broker commissions), which exhausted the availability under the February 2019 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020.
110
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
12.ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss are as follows at December 31:
|
| 2017 |
| 2016 |
| ||
Accumulated net unrealized loss on available-for-sale securities |
| $ | 841 |
| $ | 193 |
|
Foreign currency translation adjustments, net of tax |
| 15,818 |
| 23,056 |
| ||
Total accumulated other comprehensive loss |
| $ | 16,659 |
| $ | 23,249 |
|
13.TREASURY STOCK PURCHASE
On February 28, 2017,November 6, 2019, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “February 2017“November 2019 Repurchase Plan”). During the year ended December 31, 2017,2020, the Company purchased 4.69.1 million shares of common stock at an average purchase price of $54.91$54.86 per share, for a total amount of $249.9$499.9 million (excluding broker commissions), which exhausted the availability under the November 2019 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020.
On March 13, 2020, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “March 2020 Repurchase Plan”). During the year ended December 31, 2020, the Company purchased 1.0 million shares of common stock at an average purchase price of $55.85 per share, for a total amount of $58.5 million (excluding broker commissions), under the February 2017March 2020 Repurchase Plan.
Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020. As of March 1, 2021, $441.5 million remained available for repurchase under the March 2020 Repurchase Plan.
During the year ended December 31, 2017, 1.82020, 0.02 million shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $111.2$1.0 million. While such purchases are considered common stock repurchases, they are not counted as purchases against the Company’s authorized share repurchase programs. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2017.2020.
14.15. STOCK-BASED COMPENSATION
The Company has two2 stock-based compensation plans under which shares were available for grant at December 31, 2017:2020: (i) the Monster Beverage Corporation 2020 Omnibus Incentive Plan (the “2020 Omnibus Incentive Plan”), which includes the Monster Beverage Corporation Deferred Compensation Plan as a sub plan thereunder, and (ii) the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors, which includes the Monster Beverage Corporation Deferred Compensation Plan for Non-Employee Directors as a sub plan thereunder. The 2020 Omnibus Incentive Plan was approved by the Board of Directors on April 14, 2020 and approved by the stockholders of the Company at the annual meeting of the Company’s stockholders held on June 3, 2020 (the “Effective Date”). The 2020 Omnibus Incentive Plan replaced the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”), including the Monster Beverage Deferred Compensation Plan (the “Deferred Compensation Plan”) as a sub plan thereunder, and the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (the “2017 Directors Plan”), including the Monster Beverage Deferred Compensation Plan for Non-Employee Directors (the “Non-Employee Director Deferral Plan”) as a sub plan thereunder.
.
The 20112020 Omnibus Incentive Plan permitsprovides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other stock-basedshare-based awards up to an aggregate of 43,500,00046,169,367 shares of the Company’s common stock, comprised of 32,000,000 new shares of common stock reserved under the Company to employees or consultants2020 Omnibus Incentive Plan and 14,169,367 shares of the Company and its subsidiaries. Shares authorizedcommon stock that were available for grant under the 2011 Omnibus Incentive Plan as of December 31, 2019 and prior to the Effective Date. Shares authorized under the 2020 Omnibus Incentive Plan are reduced by 2.161 (1) share for options or stock appreciation rights granted under the 2020 Omnibus Incentive Plan and for any grants after December 31, 2019 under the 2011 Omnibus Incentive Plan, and by 2.6 shares for each share granted or issued with respect to a Full Value Award.Award under either the 2020 Omnibus Incentive Plan or for any shares granted after December 31, 2019 under the 2011 Omnibus Incentive Plan. A Full“Full Value AwardAward” is an award other than an incentive stock option, a non-qualified stock option, or a stock appreciation right, which is settled by the issuance of shares. Options granted under the 20112020 Omnibus Incentive Plan may be incentive stock options under Section 422 of the Internal Revenue Code, as amended (the “Code”), or non-qualified stock options.
111
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Shares previously granted under the 2011 Omnibus Incentive Plan after December 31, 2019 and prior to the Effective Date of the 2020 Omnibus Incentive Plan reduced the number of shares available for grant under the 2020 Omnibus Incentive Plan. As of December 31, 2020, 1,431,030 shares of the Company’s common stock have been granted, net of cancellations, and 44,201,385 shares (as adjusted for Full Value Awards) of the Company’s common stock remain available for grant under the 2020 Omnibus Incentive Plan.
The Compensation Committee of the Board of Directors (the “Compensation Committee”) has sole and exclusive authority to grant stock awards to all employees who are not new hires and to all new hires who are subject to Section 16 of the Exchange Act. TheEach of the Compensation Committee and the Executive Committee of the Board of Directors (the “Executive Committee”) each independently has the authority to grant stock awards to new hires and employees receiving a promotion who are not Section 16 employees. Awards granted by the
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Executive Committee are not subject to approval or ratification by the Board of Directors or the Compensation Committee. Options granted under the 20112020 Omnibus Incentive Plan generally vest over athree- to five-year period from the grant date and are generally exercisable up to 10 years after the grant date. As of December 31, 2017, 19,978,932 shares of the Company’s commonRestricted stock have beenunits granted net of cancellations, and 19,651,474 shares (as adjusted for Full Value Awards) of the Company’s common stock remain available for grant under the 20112020 Omnibus Incentive Plan.
Plan generally vest over a three- or five-year period from the grant date. Performance share units will generally vest based on the achievement of performance goals specified for the applicable award.
In 2016, the Company adopted the Deferred Compensation Plan (as a sub plan to the 2011 Omnibus Incentive Plan), pursuant to which eligible employees may elect to defer cash and/or equity based compensation and to receive the deferred amounts, together with an investment return (positive or negative), either at a pre-determined time in the future or upon termination of their employment with the Company or its subsidiaries or affiliates that are participating employers under the Deferred Compensation Plan, as provided under the Deferred Compensation Plan and in relevant deferral elections. Deferrals under the Deferred Compensation Plan are unfunded and unsecured. As of December 31, 2017,2020 deferrals under the Deferred Compensation Plan are solely comprised of cash compensation and equity compensation coming due after December 31, 2018 and are not material in the aggregate.
In 2017, the Company adopted the 2017 Directors Plan, a successor plan to the 2009 Monster Beverage Corporation Stock Incentive Plan for Non-Employee Directors (the “2009 Directors Plan”).Directors. The 2017 Directors Plan permits the granting of stock options, stock appreciation rights, restricted shares or restricted stock units, deferred awards, dividend equivalents, and other share based-awards up to an aggregate of 1,250,000 shares of common stock of the Company to non-employee directors of the Company.
Each calendar year, a non-employee director will receive an annual retainer and annual equity award, as provided for in the 2017 Directors Plan, which may be modified from time to time. Currently, with respect to equity awards, each non-employee director receives an award of restricted stock units at each annual meeting of the Company’s stockholders or promptly thereafter. A non-employee director’s annual award of restricted stock units will generally vest on the earliest to occur of: (a) the last business day immediately preceding the annual meeting of the Company’s stockholders in the calendar year following the calendar year in which the grant date occurs, (b) a Change of Control (as defined in the 2017 Directors Plan), (c) the non-employee director’s death, or (d) the date of the non-employee director’s separation from service due to disability, so long as the non-employee director remains a non-employee director through such date. The Board of Directors may in its discretion award non-employee directors stock options, stock appreciation rights, restricted stock and other share-based awards in lieu of or in addition to restricted stock units. The Board of Directors may amend or terminate the 2017 Directors Plan at any time, subject to certain limitations set forth in the 2017 Directors Plan. As of December 31, 2017, 23,5662020, 85,699 shares of the Company’s common stock had been granted under the 2017 Directors Plan, and 1,226,4341,164,301 shares of the Company’s common stock remain available for grant.
112
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
In 2017, the Company adopted the Deferred Compensation Plan for Non-Employee Directors (as a sub plan to the 2017 Directors Plan), pursuant to which the Board of Directors may permit non-employee directors to elect, (a “Deferral Election”), at such times and in accordance with rules and procedures (or sub-plan) adopted by the Board of Directors (which are intended to comply with Code Section 409A of the Code, as applicable), to receive all or any portion of such non-employee director’s compensation, whether payable in cash or in equity, on a deferred basis. Deferrals under the Deferred Compensation Plan for Non-Employee Directors are unfunded and unsecured. As of December 31, 2020, deferrals under the Deferred Compensation Plan for Non-Employee Directors are solely comprised of cash compensation and equity compensation and are not material in the aggregate. The 2017 Directors Plan was adopted to effectuate any such deferrals. The 2017 Directors Plan is administered by the Board of Directors. Each award granted under the 2017 Directors Plan will be evidenced by a written agreement and will contain the terms and conditions that the Board of Directors deems appropriate.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Under the 2017 Directors Plan, the Board of Directors requires each non-employee director to satisfy the share ownership guidelines set forth below, as may be amended by the Board of Directors from time to time. The current share ownership guidelines provide that non-employee directors of the Company must:
·Hold at least 9,000 shares of Company common stock. For this purpose, shares will be deemed held if deferred shares or deferred restricted stock units, to the extent vested.
·The minimum stock ownership level must be achieved by each non-employee director by the third (3rd) anniversary of such non-employee director’s initial appointment to the Board of Directors.
·Once achieved, ownership of the guideline amount should be maintained for so long as the non-employee director retains his or her seat on the Board of Directors.
·There may be rare instances where these guidelines would place a hardship on a non-employee director. In these cases or in similar circumstances, the Board of Directors will make the final decision as to developing an alternative stock ownership guideline for a non-employee director that reflects the intention of these guidelines and his or her personal circumstances.
| ● | Hold at least 9,000 shares of Company common stock. For this purpose, deferred shares or deferred restricted stock units will be deemed held, to the extent vested. |
| ● | The minimum stock ownership level must be achieved by each non-employee director by the third anniversary of such non-employee director’s initial appointment to the Board of Directors. |
| ● | Once achieved, ownership of the guideline amount should be maintained for so long as the non-employee director retains his or her seat on the Board of Directors. |
| ● | There may be rare instances where these guidelines would place a hardship on a non-employee director. In these cases or in similar circumstances, the Board of Directors will make the final decision as to developing an alternative stock ownership guideline for a non-employee director that reflects the intention of these guidelines and his or her personal circumstances. |
The Company recorded $52.3$70.3 million, $45.8$63.4 million and $32.7$57.1 million of compensation expense relating to stockoutstanding options, restricted stock awards, SARsunits, performance share units and restricted stock unitsother share-based awards during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units and restricted stock awardsperformance share units for the years ended December 31, 2017, 20162020, 2019 and 20152018 was $96.7$10.5 million, $20.8$25.9 million and $314.7$8.5 million, respectively. As a result of the Company’s early adoption of ASU No. 2016-09 effective January 1, 2016, the Company recorded excess tax benefits of $96.7 million and $20.8 million in net income for the years ended December 31, 2017 and 2016, respectively. The excess tax benefits for the year ended December 31, 2015 of $314.7 million were recorded in additional paid-in-capital.
Stock Options
Under the Company’s stock-based compensation plans, all stock options granted as ofthrough December 31, 20172020 were granted at prices based on the fair value of the Company’s common stock on the date of grant. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The following weighted-average assumptions were used to estimate the fair value of options granted during:
|
| 2017 |
| 2016 |
| 2015 | ||||||||
| | | | | | | | | ||||||
| |
| 2020 |
| 2019 |
| 2018 |
| ||||||
Dividend yield |
| 0.0 % |
| 0.0 % |
| 0.0 % | | | 0.0 | % | 0.0 | % | 0.0 | % |
Expected volatility |
| 36.5 % |
| 36.2 % |
| 37.1 % | | | 30.4 | % | 30.2 | % | 34.7 | % |
Risk-free interest rate |
| 2.11 % |
| 1.57 % |
| 1.57 % | | | 0.70 | % | 2.37 | % | 2.81 | % |
Expected term |
| 6.1 Years |
| 6.3 Years |
| 5.8 Years | | | 5.8 Years | | 6.0 Years | | 6.0 Years | |
Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.
Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasurytreasury zero coupon yield curve in effect at the time of grant for the expected term of the option.
Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.
The following table summarizes the Company’s activities with respect to its stock option plans as follows:
Options |
| Number of |
| Weighted- |
| Weighted- |
| Aggregate |
| ||
Outstanding at January 1, 2017 |
| 22,643 |
| $ | 23.55 |
| 5.8 |
| $ | 474,739 |
|
Granted 01/01/17 - 03/31/17 |
| 1,319 |
| $ | 45.94 |
|
|
|
|
| |
Granted 04/01/17 - 06/30/17 |
| 26 |
| $ | 49.71 |
|
|
|
|
| |
Granted 07/01/17 - 09/30/17 |
| 12 |
| $ | 56.08 |
|
|
|
|
| |
Granted 10/01/17 - 12/31/17 |
| 77 |
| $ | 61.71 |
|
|
|
|
| |
Exercised |
| (5,754) |
| $ | 9.15 |
|
|
|
|
| |
Cancelled or forfeited |
| (504) |
| $ | 40.09 |
|
|
|
|
| |
Outstanding at December 31, 2017 |
| 17,819 |
| $ | 29.62 |
| 6.1 |
| $ | 600,032 |
|
Vested and expected to vest in the |
|
|
|
|
|
|
|
|
| ||
future at December 31, 2017 |
| 16,863 |
| $ | 28.81 |
| 6.0 |
| $ | 581,425 |
|
Exercisable at December 31, 2017 |
| 9,282 |
| $ | 18.68 |
| 4.4 |
| $ | 414,052 |
|
| | | | | | | | | | |
| | | | | | | Weighted- | | | |
| | | | Weighted- | | Average | | | | |
| | | | Average | | Remaining | | | | |
| | Number of | | Exercise | | Contractual | | Aggregate | ||
| | Shares (in | | Price Per | | Term (In | | Intrinsic | ||
Options |
| thousands) |
| Share |
| years) |
| Value | ||
Outstanding at January 1, 2020 |
| 14,941 | | $ | 42.88 |
| 6.3 | | $ | 308,884 |
Granted 01/01/20 - 03/31/20 |
| 1,027 | | $ | 62.45 | | | | | |
Granted 04/01/20 - 06/30/20 |
| — | | $ | — | | | | | |
Granted 07/01/20 - 09/30/20 |
| — | | $ | — | | | | | |
Granted 10/01/20 - 12/31/20 |
| 12 | | $ | 77.92 | | | | | |
Exercised |
| (1,916) | | $ | 38.06 | | | | | |
Cancelled or forfeited |
| (91) | | $ | 54.41 | | | | | |
Outstanding at December 31, 2020 |
| 13,973 | | $ | 44.93 |
| 5.7 | | $ | 664,432 |
Vested and expected to vest in the future at December 31, 2020 |
| 13,463 | | $ | 44.43 |
| 5.7 | | $ | 646,907 |
Exercisable at December 31, 2020 |
| 8,323 | | $ | 37.36 |
| 4.5 | | $ | 458,734 |
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The following table summarizes information about stock options outstanding and exercisable at December 31, 2017:2020:
|
|
|
| Options Outstanding |
| Options Exercisable |
| ||||||||
Range of Exercise |
| Number |
| Weighted |
| Weighted |
| Number |
| Weighted |
| ||||
$4.51 | - | $5.61 |
| 204 |
| 0.7 |
| $ | 5.25 |
| 204 |
| $ | 5.25 |
|
$5.94 | - | $5.94 |
| 3,159 |
| 1.9 |
| $ | 5.94 |
| 3,159 |
| $ | 5.94 |
|
$6.02 | - | $17.99 |
| 2,776 |
| 4.8 |
| $ | 15.27 |
| 2,289 |
| $ | 15.14 |
|
$18.64 | - | $23.35 |
| 2,441 |
| 6.0 |
| $ | 22.67 |
| 1,889 |
| $ | 22.63 |
|
$23.68 | - | $23.68 |
| 12 |
| 6.3 |
| $ | 23.68 |
| - |
| $ | - |
|
$36.05 | - | $43.64 |
| 2,219 |
| 8.2 |
| $ | 41.59 |
| 397 |
| $ | 39.85 |
|
$43.99 | - | $43.99 |
| 2,567 |
| 8.2 |
| $ | 43.99 |
| 418 |
| $ | 43.99 |
|
$44.73 | - | $45.01 |
| 634 |
| 8.1 |
| $ | 44.94 |
| 110 |
| $ | 44.94 |
|
$45.16 | - | $45.16 |
| 2,158 |
| 7.2 |
| $ | 45.16 |
| 779 |
| $ | 45.16 |
|
$45.55 | - | $62.92 |
| 1,649 |
| 8.7 |
| $ | 47.74 |
| 37 |
| $ | 48.99 |
|
|
|
|
| 17,819 |
| 6.1 |
| $ | 29.62 |
| 9,282 |
| $ | 18.68 |
|
| | | | | | | | | | | | | | | | |
| | | | | | Options Outstanding | | Options Exercisable | ||||||||
| | | | | | | | Weighted | | | | | | | |
|
| | | | | | | | Average | | Weighted | | Number | | Weighted | ||
| | | | | | Number | | Remaining | | Average | | Exercisable | | Average | ||
Range of Exercise | | Outstanding (In | | Contractual | | Exercise | | (In | | Exercise | ||||||
Prices ($) |
| Thousands) |
| Term (Years) |
| Price ($) |
| Thousands) |
| Price ($) | ||||||
$ | 11.35 | - | $ | 17.99 |
| 1,483 |
| 2.3 |
| $ | 17.58 |
| 1,483 |
| $ | 17.58 |
$ | 18.64 | - | $ | 23.35 |
| 1,613 |
| 3.1 |
| $ | 23.05 |
| 1,613 |
| $ | 23.05 |
$ | 36.05 | - | $ | 36.05 |
| 9 |
| 4.0 |
| $ | 36.05 |
| 9 |
| $ | 36.05 |
$ | 37.10 | - | $ | 43.64 |
| 1,033 |
| 5.6 |
| $ | 42.75 |
| 681 |
| $ | 42.33 |
$ | 43.99 | - | $ | 43.99 |
| 1,641 |
| 5.2 |
| $ | 43.99 |
| 1,185 |
| $ | 43.99 |
$ | 44.73 | - | $ | 45.16 |
| 1,581 |
| 4.5 |
| $ | 45.10 |
| 1,494 |
| $ | 45.11 |
$ | 45.55 | - | $ | 51.50 |
| 1,478 |
| 6.4 |
| $ | 47.61 |
| 826 |
| $ | 46.46 |
$ | 53.24 | - | $ | 57.95 |
| 335 |
| 7.7 |
| $ | 55.79 |
| 65 |
| $ | 54.82 |
$ | 58.73 | - | $ | 58.73 |
| 2,230 |
| 7.2 |
| $ | 58.73 |
| 680 |
| $ | 58.73 |
$ | 58.77 | - | $ | 77.92 |
| 2,570 |
| 8.6 |
| $ | 60.93 |
| 287 |
| $ | 59.86 |
| | | | |
| 13,973 |
| 5.7 |
| $ | 44.93 |
| 8,323 |
| $ | 37.36 |
The weighted-average grant-date fair value of options granted during the years ended December 31, 2017, 20162020, 2019 and 20152018 was $18.29$18.82 per share, $16.90$20.17 per share and $16.73$22.37 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2017, 20162020, 2019 and 20152018 was $285.8$68.8 million, $70.6$220.2 million and $870.1$56.8 million, respectively.
Cash received from option exercises under all plans for the years ended December 31, 2017, 20162020, 2019 and 20152018 was approximately $52.6$72.9 million, $16.4$92.4 million and $49.2$25.9 million, respectively.
At December 31, 2017,2020, there was $83.4$59.2 million of total unrecognized compensation expense related to non-vested options granted to employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 2.62.1 years.
Restricted Stock Awards and Restricted Stock Unitsand Performance Share Units
Stock-basedThe cost of stock-based compensation cost for restricted stock awardsunits and restricted stockperformance share units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit or performance share unit in cash, the award is classified as a liability and revalued at each balance sheet date. Total cash paid to settle restricted stock unit liabilities and the increase in the liabilities for future cash settlements during the years ended December 31, 2017 and 2016 were not material.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The following table summarizes the Company’s activities with respect to non-vested restricted stock units and performance share units as follows:
|
| Number of |
| Weighted |
| |
Non-vested at January 1, 2017 |
| 556 |
| $ | 39.95 |
|
Granted 01/01/17- 03/31/17 |
| 252 |
| $ | 46.27 |
|
Granted 04/01/17- 06/30/17 |
| 23 |
| $ | 50.86 |
|
Granted 07/01/17- 09/30/17 |
| - |
|
| - |
|
Granted 10/01/17- 12/31/17 |
| 2 |
| $ | 59.43 |
|
Vested |
| (300) |
| $ | 37.26 |
|
Forfeited/cancelled |
| (3) |
| $ | 27.02 |
|
Non-vested at December 31, 2017 |
| 530 |
| $ | 45.09 |
|
| | | | | |
| | | | Weighted | |
| | Number of | | Average | |
| | Shares (in | | Grant-Date | |
|
| thousands) |
| Fair Value | |
Non-vested at January 1, 2020 | | 825 | | $ | 57.62 |
Granted 01/01/20 - 03/31/201 | | 392 | | $ | 62.39 |
Granted 04/01/20 - 06/30/20 | | 17 | | $ | 71.72 |
Granted 07/01/20 - 09/30/20 | | 1 | | $ | 71.76 |
Granted 10/01/20 - 12/31/20 | | 5 | | $ | 78.04 |
Vested | | (287) | | $ | 55.65 |
Forfeited/cancelled | | (6) | | $ | 64.72 |
Non-vested at December 31, 2020 | | 947 | | $ | 60.52 |
1The grant activity for performance share units is recorded based on the target performance level earning 100% of target performance share units. The actual number of performance share units earned could range from 0% to 200% of target dependent on the pre-established performance goals.
The weighted-average grant-date fair value of restricted stock units and restricted stock awardsand/or performance share units granted during the years ended December 31, 2017, 20162020, 2019 and 20152018 was $46.74, $44.71$62.97, $59.79 and $45.50$57.59 per share, respectively. As of December 31, 2017, 0.52020, 0.8 million of restricted stock units and performance share units are expected to vest.
At December 31, 2017,2020, total unrecognized compensation expense relating to non-vested restricted stock awardsunits and non-vested restricted stockperformance share units was $14.2$32.1 million, which is expected to be recognized over a weighted-average period of 1.52.3 years.
Other Share-Based Awards
The Company has granted other share-based awards to certain employees that are payable in cash. These awards are classified as liabilities and are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement with compensation expense being recognized in proportion to the completed requisite service period up until date of settlement. At December 31, 2020, other share-based awards outstanding included grants that vest over three years payable in the first quarters of 2022 and 2023.
At December 31, 2020, there was $2.3 million of total unrecognized compensation expense related to nonvested other share-based awards granted to employees under the Company’s stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of 1.6 years.
116
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Employee and Non-Employee Share-Based Compensation Expense
The table below shows the amounts recognized in the consolidated financial statements for the years ended December 31, 2017, 20162020, 2019 and 20152018 for share-based compensation related to employees and non-employees. Employee and non-employee share-based compensation expense of $52.3$70.3 million for the year ended December 31, 20172020 is comprised of $8.7$9.4 million that relatesrelating to incentive stock options, $2.7 million relating to other share-based awards and $43.6$58.2 million that relatesrelating to non-qualified stock options, and restricted units and awards.performance units. Employee and non-employee share-based compensation expense of $45.8$63.4 million for the year ended December 31, 20162019 is comprised of $8.0$10.0 million that relatesrelating to incentive stock options and $37.8$53.4 million that relatesrelating to non-qualified stock options and restricted units and awards.units. Employee and non-employee share-based compensation expense of $32.7$57.1 million for the year ended December 31, 20152018 is comprised of $6.2$10.0 million that relatesrelating to incentive stock options and $26.5$47.1 million that relatesrelating to non-qualified stock options and restricted units and awards.units.
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
| | | | | | | | | | ||||||||||
|
| 2020 |
| 2019 |
| 2018 | |||||||||||||
Operating expenses |
| $ | 52,282 |
| $ | 45,848 |
| $ | 32,719 |
|
| $ | 70,289 |
| $ | 63,356 |
| $ | 57,111 |
Total employee and non-employee share-based compensation expense included in income, before income tax |
| 52,282 |
| 45,848 |
| 32,719 |
| | | 70,289 | | | 63,356 | | | 57,111 | |||
Less: Amount of income tax benefit recognized in earnings |
| (100,635) |
| (34,909) |
| (9,058) |
| | | (15,499) | | | (36,326) | | | (14,892) | |||
Amount charged against net income |
| $ | (48,353) |
| $ | 10,939 |
| $ | 23,661 |
|
| $ | 54,790 |
| $ | 27,030 |
| $ | 42,219 |
106
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
15.16. INCOME TAXES
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Reform Act”). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. A company may select between one of three scenarios to determine a reasonable estimate arising from the Tax Reform Act. Those scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable estimate leaving the measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. The Company was able to provide a reasonable estimate for the revaluation of deferred taxes and the effects of the toll charge on undistributed foreign subsidiary earnings and profits (“E&P”). As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its net deferred tax assets at December 31, 2017, resulting in a provisional $39.8 million charge included in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided for a one-time deemed mandatory repatriation of Post-1986 E&P through the year ended December 31, 2017. As a result, the Company recognized a provisional $2.1 million charge in the provision for income taxes for the year ended December 31, 2017 related to the deemed mandatory repatriation. The Company continues to evaluateevaluated the various provisions of the Tax Reform Act, including, the global intangible low-taxed income (“GILTI”) and the foreign derived intangible income (“FDII”) provisions. The ultimate impactCompany will treat any U.S. tax on foreign earnings under GILTI as a current period expense when incurred.
The Company currently considers the earnings of its foreign entities (excluding Japan) to be permanently reinvested outside the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. Accordingly, deferred income taxes have not been recorded for the undistributed earnings of the Tax Reform Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptionsCompany’s foreign subsidiaries excluding Japan. Deferred income taxes have not been recorded for Japan, as any federal, state, or foreign withholding taxes associated with the Company has made, additional regulatory guidance that mayrepatriation of those earnings would be issued, and any related actions the Company may take. The measurement period begins in the reporting period that includes the enactment date and ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740.
immaterial.
The domestic and foreign components of the Company’s income before provision for income taxes are as follows:
|
| Year Ended December 31, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
| | | | | | | | | | ||||||||||
| | Year Ended December 31, | |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | |||||||||||||
Domestic* |
| $ | 1,062,713 |
| $ | 1,029,763 |
| $ | 859,039 |
|
| $ | 1,374,402 |
| $ | 1,196,883 |
| $ | 1,100,487 |
Foreign* |
| 138,910 |
| 49,922 |
| 32,509 |
| | | 251,755 | | | 219,079 | | | 192,785 | |||
Income before provision for income taxes |
| $ | 1,201,623 |
| $ | 1,079,685 |
| $ | 891,548 |
|
| $ | 1,626,157 |
| $ | 1,415,962 |
| $ | 1,293,272 |
*After intercompany royalties, management fees and interest charges from the Company’s domestic to foreign entities of $42.5$54.2 million, $25.6$51.2 million and $29.4$40.5 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Components of the provision for income taxes are as follows:
|
| Year Ended December 31, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
| | | | | | | | | | ||||||||||
| | Year Ended December 31, | |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | |||||||||||||
Current: |
|
|
|
|
|
|
| | | | | | | | | | |||
Federal |
| $ | 243,127 |
| $ | 212,283 |
| $ | 548,018 |
|
| $ | 259,073 |
| $ | 212,068 |
| $ | 209,147 |
State |
| 43,252 |
| 35,756 |
| 88,671 |
| | | 43,704 | | | 39,982 | | | 41,934 | |||
Foreign |
| 27,522 |
| 17,171 |
| 10,634 |
| | | 70,658 | | | 55,167 | | | 42,541 | |||
|
| 313,901 |
| 265,210 |
| 647,323 |
| ||||||||||||
|
|
|
|
|
|
|
| ||||||||||||
| | | 373,435 | | | 307,217 | | | 293,622 | ||||||||||
| | | | | | | | | | ||||||||||
Deferred: |
|
|
|
|
|
|
| | | | | | | | | | |||
Federal |
| 61,797 |
| 87,360 |
| (255,422) |
| | | 11,401 | | | 8,320 | | | 9,804 | |||
State |
| 3,062 |
| 15,254 |
| (40,446) |
| | | 4,709 | | | (6,878) | | | 1,644 | |||
Foreign |
| (4,579) |
| (9,709) |
| (5,420) |
| | | (167,595) | | | (4,219) | | | (8,778) | |||
|
| 60,280 |
| 92,905 |
| (301,288) |
| ||||||||||||
|
|
|
|
|
|
|
| ||||||||||||
| | | (151,485) | | | (2,777) | | | 2,670 | ||||||||||
| | | | | | | | | | ||||||||||
Valuation allowance |
| 6,764 |
| 8,885 |
| (1,220) |
| | | (5,387) | | | 3,687 | | | 3,976 | |||
|
| $ | 380,945 |
| $ | 367,000 |
| $ | 344,815 |
| |||||||||
|
| $ | 216,563 |
| $ | 308,127 |
| $ | 300,268 | ||||||||||
The differences inA reconciliation of the total provision for income taxes that would result fromafter applying the 35%U.S. federal statutory rate of 21% to income before provision for income taxes andto the reported provision for income taxes are as follows:follows for the years ended:
|
| Year Ended December 31, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
| | | | | | | | | | ||||||||||
| | Year Ended December 31, | |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | |||||||||||||
U.S. Federal tax expense at statutory rates |
| $ | 420,568 |
| $ | 377,599 |
| $ | 312,042 |
|
| $ | 341,493 |
| $ | 297,352 |
| $ | 271,587 |
State income taxes, net of federal tax benefit |
| 27,569 |
| 33,148 |
| 31,046 |
| | | 37,478 | | | 30,098 | | | 36,312 | |||
Permanent differences |
| 10,356 |
| 954 |
| 5,285 |
| | | (1,064) | | | (2,128) | | | 3,606 | |||
Stock based compensation |
| (79,687) |
| (13,654) |
| 3,203 |
| | | 1,097 | | | (13,473) | | | (370) | |||
Domestic production deduction |
| (22,229) |
| (21,447) |
| - |
| ||||||||||||
Deferred tax asset reduction (Tax Reform Act) |
| 39,763 |
| - |
| - |
| ||||||||||||
Intra-company transfer benefit | | | (165,075) | | | — | | | — | ||||||||||
Other |
| 3,736 |
| (8,765) |
| (127) |
| | | (7,388) | | | (12,423) | | | (8,438) | |||
Foreign rate differential |
| (25,895) |
| (9,720) |
| (5,414) |
| | | 15,409 | | | 5,014 | | | (6,405) | |||
Valuation allowance |
| 6,764 |
| 8,885 |
| (1,220) |
| | | (5,387) | | | 3,687 | | | 3,976 | |||
|
| $ | 380,945 |
| $ | 367,000 |
| $ | 344,815 |
| |||||||||
|
| $ | 216,563 |
| $ | 308,127 |
| $ | 300,268 | ||||||||||
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Major components of the Company’s deferred tax assets (liabilities) at December 31, 20172020 and 20162019 are as follows:
|
| 2017 |
| 2016 |
| ||||||||
| | | | | | | |||||||
|
| 2020 |
| 2019 | |||||||||
Deferred Tax Assets: |
|
|
|
|
| | | | | | | ||
Reserve for sales returns |
| $ | 159 |
| $ | 149 |
|
| $ | 275 |
| $ | 140 |
Reserve for inventory obsolescence |
| 522 |
| 524 |
| | | 2,366 | | | 2,066 | ||
Reserve for marketing development fund |
| 6,360 |
| 8,065 |
| | | 9,629 | | | 8,469 | ||
Capitalization of inventory costs |
| 1,598 |
| 2,714 |
| | | 3,365 | | | 2,310 | ||
State franchise tax - current |
| 2,050 |
| 18,016 |
| | | 4,229 | | | 2,346 | ||
Accrued compensation |
| 1,473 |
| 1,212 |
| | | 1,284 | | | 1,944 | ||
Accrued other liabilities |
| 3,917 |
| 1,817 |
| | | 7,464 | | | 5,674 | ||
Deferred revenue |
| 93,321 |
| 145,319 |
| | | 75,592 | | | 81,903 | ||
Stock-based compensation |
| 21,119 |
| 31,873 |
| | | 23,370 | | | 22,665 | ||
Foreign net operating loss carryforward |
| 28,965 |
| 29,894 |
| | | 21,626 | | | 30,187 | ||
Prepaid supplies |
| 7,273 |
| 8,022 |
| | | 5,551 | | | 5,799 | ||
Termination payments |
| 70,637 |
| 98,244 |
| | | 63,009 | | | 69,467 | ||
Elimination Company Profit |
| - |
| 2,843 |
| ||||||||
Gain on intercompany transfer |
| 6,793 |
| 7,274 |
| ||||||||
Operating lease liabilities | | | 4,434 | | | 6,155 | |||||||
Intangibles | | | 87,687 | | | — | |||||||
Impairment-trademarks and others | | | 2,055 | | | — | |||||||
Other deferred tax assets |
| 3,449 |
| 376 |
| | | 27,164 | | | 17,615 | ||
Total gross deferred tax assets |
| $ | 247,636 |
| $ | 356,342 |
|
| $ | 339,100 |
| $ | 256,740 |
|
|
|
|
|
| ||||||||
| | | | | | | |||||||
Deferred Tax Liabilities: |
|
|
|
|
| | | | | | | ||
Amortization of trademarks |
| $ | (21,657) |
| $ | (18,663) |
|
| $ | (42,161) |
| $ | (35,227) |
Intangibles |
| (84,867) |
| (131,264) |
| | | — | | | (76,047) | ||
State franchise tax - deferred |
| (7,617) |
| (12,946) |
| | | (6,318) | | | (7,173) | ||
Operating lease ROU assets | | | (4,434) | | | (6,155) | |||||||
Other deferred tax liabilities |
| (62) |
| (1,101) |
| | | (58) | | | (93) | ||
Depreciation |
| (8,260) |
| (6,736) |
| | | (9,363) | | | (6,765) | ||
Total gross deferred tax liabilities |
| (122,463) |
| (170,710) |
| | | (62,334) | | | (131,460) | ||
|
|
|
|
|
| ||||||||
| | | | | | | |||||||
Valuation Allowance |
| (32,840) |
| (26,076) |
| | | (35,116) | | | (40,503) | ||
|
|
|
|
|
| ||||||||
| | | | | | | |||||||
Net deferred tax assets |
| $ | 92,333 |
| $ | 159,556 |
|
| $ | 241,650 |
| $ | 84,777 |
During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the Company established full valuation allowances against certain deferred tax assets, resulting from cumulative net operating losses incurred by certain foreign subsidiaries of the Company. The effect of the valuation allowances and the subsequent related impact on the Company’s overall tax rate was to increase (decrease)decrease the Company’s provision for income taxes by $6.8$5.4 million $8.9for the year ended December 31, 2020, and increase $3.7 million and ($0.5)$4.0 million for the years ended December 31, 2017, 20162019 and 2015,2018, respectively. At December 31, 2017,2020, the Company had net operating loss carryforwards of approximately $105.2$84.5 million. Of this amount, $76.6$52.4 million may be carried forward indefinitely. The remaining $28.6$32.1 million of net operating loss carryforwards will begin to expire in 2018.2021.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
In October 2020, the Company completed an intra-entity transfer of intangible assets between certain of the Company’s foreign subsidiaries to better align its international structure with its expanding operations. The transfer resulted in a step-up of the tax-deductible basis in the transferred assets in a foreign jurisdiction, and created a temporary difference between the tax basis and book basis for such intangible assets. The Company recognized deferred tax assets of approximately $165.1 million, with a corresponding reduction to the provision for income taxes during the fourth quarter of 2020 in its consolidated financial statements. The tax deductions for the amortization of the deferred tax assets will be recognized in the future and any amortization not deducted for tax purposes will be carried forward indefinitely. The tax impact on the foreign subsidiary transferor was not material.
The following is a roll-forward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31, 2017, 20162020, 2019 and 2015:2018:
| ||||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
|
| ||
| | | |
|
| Gross Unrecognized Tax | |
| | Benefits | |
Balance at January 1, 2018 | | $ | 6,540 |
Additions for tax positions related to the current year | |
| — |
Additions for tax positions related to the prior year | |
| 1,159 |
Decreases for tax positions related to prior years | |
| (2,664) |
Balance at December 31, 2018 | | $ | 5,035 |
Additions for tax positions related to the current year | | | — |
Additions for tax positions related to the prior year | | | 1,833 |
Decreases for tax positions related to prior years | | | (3,875) |
Balance at December 31, 2019 | | $ | 2,993 |
Additions for tax positions related to the current year | | | — |
Additions for tax positions related to the prior year | | | — |
Decreases for tax positions related to prior years | | | (2,251) |
Balance at December 31, 2020 | | $ | 742 |
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s consolidated financial statements. As of December 31, 2017,2020, the Company had accrued approximately $1.3$0.1 million in interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions it would not have a significant impact on the Company’s effective tax rate.
It is expected that any change in the amount of unrecognized tax benefit change within the next 12 months will not be significant.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.
On August 7, 2015, the Internal Revenue Service (the “IRS”) began its examination of the Company’s U.S. federal income tax returns for the years ended December 31, 2012 and 2013. On October 18, 2016, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2014. On March 27, 2017, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2015.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The Company is in various stages of examination with certain states and certain foreign jurisdictions.jurisdictions, including the United Kingdom and Ireland. The Company’s 20122017 through 20162019 U.S. federal income tax returns are subject to examination by the IRS. The Company’s state income tax returns are subject to examination for the 20122016 through 20162019 tax years.
120
16.MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
17. EARNINGS PER SHARE
A reconciliation of the weighted average shares used in the basic and diluted earnings per common share computations for the years ended December 31, 2017, 20162020, 2019 and 20152018 is presented below (in thousands):
|
| 2017 |
| 2016 |
| 2015 |
| |||||||
| | | | | | | | |||||||
| |
| 2020 |
| 2019 |
| 2018 | |||||||
Weighted-average shares outstanding: |
|
|
|
|
|
|
| | | | | | | |
Basic |
| 566,782 |
| 587,874 |
| 566,448 |
| | | 529,639 | | 542,191 | | 557,166 |
Dilutive securities |
| 10,359 |
| 11,945 |
| 11,310 |
| | | 5,168 | | 4,417 | | 7,088 |
Diluted |
| 577,141 |
| 599,819 |
| 577,758 |
| | | 534,807 | | 546,608 | | 564,254 |
For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, options and awards outstanding totaling 7.91.8 million shares, 5.74.4 million shares and 3.03.2 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive.
17.18. EMPLOYEE BENEFIT PLAN
Employees of the Company may participate in the Monster Beverage Corporation 401(k) Plan, a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 15% of theirinto a traditional plan with pretax salary or into a Roth plan with after tax salary up to statutory limits. The Company contributes 50% of the employee contribution, up to 6%8% of each employee’s earnings, which vest 25% each year forover four years after the first anniversary date.(2 years of service = 50%, 3 years of service = 75%, 4 years of service = 100%). Matching contributions were $2.5$4.7 million, $2.0$3.4 million and $0.7$2.9 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
18.19. SEGMENT INFORMATION
The Company has three3 operating and reportable segments, segments: (i) Monster Energy® Drinks segment, (“Monster Energy® Drinks”), which is primarily comprised of ourthe Company’s Monster Energy® drinks Monster Hydro®and Reign Total Body Fuel® high performance energy drinks and Mutant® Super Soda drinks, (ii) Strategic Brands segment, (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”)TCCC in 2015 as well as the Company’s affordable energy brands, and (iii) Other segment, (“Other”), the principal products of which include the non-energy brands disposed of as a resultis comprised of the TCCC Transaction (effectively from January 1, 2015 to June 12, 2015), as well as certain products sold by AFF to independent third-party customers (the “AFF Third-Party Products”) (effectively from April 1, 2016).
Products.
The Company’s Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged drinks primarily to bottlers and full service beverage bottlers/distributors. In some cases, the Company sells directly to retail grocery and specialty chains, wholesalers, club stores, drug stores, mass merchandisers, convenience chains, food servicedrug stores, foodservice customers, value stores, e-commerce retailers and the military.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers, full service bottlers/distributors or retailers, including,and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food servicefoodservice customers, drug stores, value stores, e-commerce retailers and the military. To a lesser extent, the Company’s Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage bottlers/distributors.
121
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Generally, the Monster Energy® Drinks segment generates higher per case net operating revenues, but lower per case gross profit marginsmargin percentages than the Strategic Brands segment.
Corporate and unallocated amounts that do not relate to a reportable segment have been allocated to “Corporate & Unallocated.” No asset information, other than goodwill and other intangible assets, has been provided for in the Company’s reportable segments, as management does not measure or allocate such assets on a segment basis.
The net revenues derived from the Company’s reportable segments and other financial information related thereto for the years ended December 31, 2017, 20162020, 2019 and 20152018 are as follows:
|
|
|
|
|
|
|
| ||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
| | | | | | | | | | ||||||||||
|
| 2020 |
| 2019 |
| 2018 | |||||||||||||
Net sales: |
|
|
|
|
|
|
| | | | | | | | | | |||
Monster Energy® Drinks(1) |
| $ | 3,047,596 |
| $ | 2,759,862 |
| $ | 2,518,505 |
| |||||||||
Monster Energy® Drinks⁽¹⁾ | | $ | 4,305,246 | | $ | 3,904,029 | | $ | 3,498,427 | ||||||||||
Strategic Brands |
| 299,844 |
| 272,520 |
| 143,282 |
| |
| 266,354 | |
| 274,925 | |
| 285,836 | |||
Other |
| 21,605 |
| 17,011 |
| 60,777 |
| |
| 27,038 | |
| 21,865 | |
| 22,920 | |||
Corporate and unallocated |
| - |
| - |
| - |
| |
| — | |
| — | |
| — | |||
|
| $ | 3,369,045 |
| $ | 3,049,393 |
| $ | 2,722,564 |
| |||||||||
|
|
|
|
|
|
|
| ||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
Operating Income: |
|
|
|
|
|
|
| ||||||||||||
Monster Energy® Drinks(1) (2) |
| $ | 1,264,579 |
| $ | 1,148,427 |
| $ | 836,053 |
| |||||||||
Strategic Brands |
| 174,458 |
| 163,121 |
| 89,841 |
| ||||||||||||
Other(3) |
| 5,583 |
| 2,295 |
| 165,233 |
| ||||||||||||
Corporate and unallocated |
| (245,833) |
| (228,505) |
| (197,474) |
| ||||||||||||
|
| $ | 1,198,787 |
| $ | 1,085,338 |
| $ | 893,653 |
| |||||||||
|
|
|
|
|
|
|
| ||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
Income before tax: |
|
|
|
|
|
|
| ||||||||||||
Monster Energy® Drinks(1) (2) |
| $ | 1,264,555 |
| $ | 1,148,640 |
| $ | 836,429 |
| |||||||||
Strategic Brands |
| 174,442 |
| 163,084 |
| 89,825 |
| ||||||||||||
Other(3) |
| 5,583 |
| 2,295 |
| 165,233 |
| ||||||||||||
Corporate and unallocated |
| (242,957) |
| (234,334) |
| (199,939) |
| ||||||||||||
|
| $ | 1,201,623 |
| $ | 1,079,685 |
| $ | 891,548 |
| |||||||||
| | $ | 4,598,638 | | $ | 4,200,819 | | $ | 3,807,183 | ||||||||||
| | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | |||
Operating Income: | | | | | | | | | |
Monster Energy® Drinks⁽¹⁾ ⁽²⁾ | | $ | 1,820,346 | | $ | 1,565,977 | | $ | 1,371,062 |
Strategic Brands | |
| 155,047 | |
| 164,053 | |
| 176,520 |
Other | |
| 5,930 | |
| 3,650 | |
| 5,362 |
Corporate and unallocated | |
| (348,170) | |
| (330,741) | |
| (269,325) |
| | $ | 1,633,153 | | $ | 1,402,939 | | $ | 1,283,619 |
(1)Includes $43.4 million, $40.3 million and $62.8 million for the years ended December 31, 2017, 2016 and 2015, respectively, related to the recognition of deferred revenue.
| | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | |||
Income before tax: | | | | | | | | | |
Monster Energy® Drinks⁽¹⁾ ⁽²⁾ | | $ | 1,820,625 | | $ | 1,567,022 | | $ | 1,372,001 |
Strategic Brands | |
| 155,047 | |
| 164,049 | |
| 176,540 |
Other | |
| 5,933 | |
| 3,655 | |
| 5,362 |
Corporate and unallocated | |
| (355,448) | |
| (318,764) | |
| (260,631) |
| | $ | 1,626,157 | | $ | 1,415,962 | | $ | 1,293,272 |
| (1) | Includes $42.1 million, $46.3 million and $44.3 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to the recognition of deferred revenue. |
(2)Includes $35.4 million, $79.8 million and $224.0 million for the years ended December 31, 2017, 2016 and 2015, respectively, related to distributor termination costs.
| (2) | Includes $0.2 million, $11.3 million and $26.6 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to distributor termination costs. |
| | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | |||
Depreciation and amortization: | | | | | | | | | |
Monster Energy® Drinks | | $ | 38,277 | | $ | 39,397 | | $ | 36,387 |
Strategic Brands | |
| 4,178 | |
| 7,935 | |
| 7,774 |
Other | |
| 4,631 | |
| 4,637 | |
| 4,657 |
Corporate and unallocated | |
| 9,944 | |
| 8,758 | |
| 8,161 |
| | $ | 57,030 | | $ | 60,727 | | $ | 56,979 |
(3)Includes $161.5 million gain on the sale of Monster Non-Energy for the year ended December 31, 2015.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
| |||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Depreciation and amortization: |
|
|
|
|
|
|
| |||
Monster Energy® Drinks |
| $ | 29,591 |
| $ | 24,048 |
| $ | 21,464 |
|
Stategic Brands |
| 7,443 |
| 7,113 |
| 3,868 |
| |||
Other |
| 4,608 |
| 3,457 |
| 231 |
| |||
Corporate and unallocated |
| 7,245 |
| 6,227 |
| 5,297 |
| |||
|
| $ | 48,887 |
| $ | 40,845 |
| $ | 30,860 |
|
Corporate and unallocated expenses were $245.8$348.2 million for the year ended December 31, 20172020 and included $156.3$234.1 million of payroll costs, of which $52.3$69.9 million was attributable to stock-based compensation expense (see(See Note 14,15, “Stock-Based Compensation”), $51.8$67.6 million of professional service expenses, including accounting and legal costs, $7.5 million of insurance costs and $39.0 million of other operating expenses.
Corporate and unallocated expenses were $330.7 million for the year ended December 31, 2019 and included $203.3 million of payroll costs, of which $63.4 million was attributable to stock-based compensation expense (See Note 15, “Stock-Based Compensation”), $78.5 million of professional service expenses, including accounting and legal costs, $6.1 million of insurance costs and $42.8 million of other operating expenses.
Corporate and unallocated expenses were $269.3 million for the year ended December 31, 2018 and included $174.9 million of payroll costs, of which $57.1 million was attributable to stock-based compensation expense (See Note 15, “Stock-Based Compensation”), $53.6 million of professional service expenses, including accounting and legal costs, $6.0 million of insurance costs and $31.7 million of other operating expenses. Corporate and unallocated expenses were $228.5 million for the year ended December 31, 2016 and included $128.0 million of payroll costs, of which $45.8 million was attributable to stock-based compensation expense (see Note 14, “Stock-Based Compensation”), $66.3 million of professional service expenses, including accounting and legal costs, $6.0 million of insurance costs and $28.2 million of other operating expenses. Corporate and unallocated expenses were $197.5 million for the year ended December 31, 2015 and included $109.8 million of payroll costs, of which $32.7 million was attributable to stock-based compensation expense (see Note 14, “Stock-Based Compensation”), $60.8 million of professional service expenses, including accounting and legal costs, $7.0 million of insurance costs and $19.9$34.8 million of other operating expenses.
TCCC, through the TCCC Subsidiaries,Coca-Cola Consolidated, Inc. accounted for approximately 18%12%, 41%13% and 43%13% of the Company's net sales for the years ended December 31, 2020, 2019 and 2018, respectively.
Reyes Coca-Cola Bottling, LLC accounted for approximately 11%, 11% and 12% of the Company’s net sales for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company’s percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the year ended December 31, 2017. CCBCC Operations, LLC
Coca-Cola European Partners accounted for approximately 13%, 9% and 6%10% of the Company’s net sales for the years ended December 31, 2017, 20162020, 2019 and 2015, respectively.
2018.
Net sales to customers outside the United States amounted to $909.3 million, $733.7 million$1.51 billion, $1.33 billion and $580.3 million$1.09 billion for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Such sales were approximately 27%33%, 24%32% and 21%29% of net sales for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Goodwill and other intangible assets for the Company’s reportable segments as of December 31, 20172020 and 20162019 are as follows:
|
| 2017 |
| 2016 |
| |||||||||
| | | | | | | ||||||||
|
| 2020 |
| 2019 | ||||||||||
Goodwill and other intangible assets: |
|
|
|
|
| | | | | | | |||
Monster Energy® Drinks |
| $ | 1,346,648 |
| $ | 1,334,494 |
| | $ | 1,406,646 | | $ | 1,384,940 | |
Strategic Brands |
| 995,582 |
| 1,001,749 |
| |
| 974,132 | |
| 984,393 | |||
Other |
| 23,498 |
| 28,035 |
| |
| 9,911 | |
| 14,415 | |||
Corporate and unallocated |
| - |
| - |
| |
| — | |
| — | |||
|
| $ | 2,365,728 |
| $ | 2,364,278 |
| |||||||
| | $ | 2,390,689 | | $ | 2,383,748 | ||||||||
19.
20. RELATED PARTY TRANSACTIONS
TCCC controls approximately 18%19.3% of the voting interests of the Company. The TCCC throughSubsidiaries, the TCCC SubsidiariesRelated Parties and through certain TCCC affiliated companies (the “TCCC Affiliates”) purchasesindependent bottlers, purchase and distributes certain ofdistribute the Company’s products both domesticallyin domestic and in certain international territories.markets. The Company also pays TCCC a commission based on certain sales within the TCCC distribution network.
123
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
TCCC commissions, based on sales to the TCCC AffiliatesSubsidiaries and the TCCC Related Parties, for the yearsyear ended December 31, 2017, 2016 and 2015,2020 were $45.0 million, $28.2$56.5 million, and $18.0are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Independent Bottlers for the year ended December 31, 2020 were $21.4 million, respectively.
and are included in operating expenses.
TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, for the year ended December 31, 2019 were $50.1 million, and are accounted forincluded as a reduction to revenue and are reported in net sales. TCCC commissions, based on sales to the TCCC Subsidiaries.Independent Bottlers for the year ended December 31, 2019 were $17.7 million, and are included in operating expenses.
TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, for the year ended December 31, 2018 were $48.0 million, and are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Independent Bottlers for the year ended December 31, 2018 were $14.8 million, and are included in operating expenses.
Net sales to the TCCC Subsidiaries for the years ended December 31, 2017, 20162020, 2019 and 20152018 were $594.1$83.3 million, $1,259.7$79.5 million and $1,151.7$132.5 million, respectively. As part of the North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company’s net sales classified as sales to the TCCC Subsidiaries decreased for year ended December 31, 2017.
The Company also purchases concentrates from TCCC which are then sold to bothcertain of the TCCC Affiliates and the TCCC Subsidiaries.Company's bottlers/distributors. Concentrate purchases from TCCC were $26.2$23.9 million, $26.2$25.4 million and $16.0$27.5 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Certain TCCC Subsidiaries also contract manufacture certain of the Company’s Monster Energy® brand energy drinks as well as Mutant® Super Soda drinks. ContractSuch contract manufacturing expenses were $11.8$17.2 million, $9.6$17.1 million and $6.9$22.8 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
Accounts receivable, accounts payable and accrued promotional allowances related to the TCCC Subsidiaries are as follows at:
|
| December 31, |
| December 31, |
| ||||||||
|
|
|
|
|
| ||||||||
| | | | | | | |||||||
| | December 31, | | December 31, | |||||||||
|
| 2020 |
| 2019 | |||||||||
Accounts receivable, net |
| $ | 32,607 |
| $ | 151,756 |
| | $ | 44,925 | | $ | 21,670 |
TCCC Transaction receivable |
| $ | - |
| $ | 125,000 |
| ||||||
Accounts payable |
| $ | (45,465) |
| $ | (41,210) |
| | $ | (30,792) | | $ | (18,217) |
Accrued promotional allowances |
| $ | (5,884) |
| $ | (27,056) |
| | $ | (5,834) | | $ | (5,321) |
Accrued liabilities | | $ | (15,446) | | $ | — | |||||||
Two directors and officersNaN director of the Company through certain trusts, and their familiesa family member of one director, are principal owners of a company that provides promotional materials to the Company. Expenses incurred with such company in connection with promotional materials purchased during the years ended December 31, 2017, 20162020, 2019 and 20152018 were $2.2$2.1 million, $1.5 million and $1.9$1.8 million, respectively.
20. SUBSEQUENT EVENTS
On February 27,In December 2018, the Company’s BoardCompany and a director of Directors authorizedthe Company entered into a new share repurchase program50-50 partnership that purchased land, and real property thereon, in Kona, Hawaii for the purchasepurpose of up to $250.0producing coffee products. The Company’s initial 50% contribution of $1.9 million was accounted for as an equity investment. During the year ended December 31, 2020, the Company recorded an equity loss of $0.3 million. As of December 31, 2020, the Company’s outstanding common stock (the “February 2018 Repurchase Plan”). As $250.0equity investment is $1.6 million remains available for grant underand is included in other assets (non-current) in the February 2017 Repurchase Plan, the aggregate amount available to repurchase the Company’s common stock is currently $500.0 million.accompanying consolidated balance sheet at December 31, 2020.
124
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)
21.QUARTERLY FINANCIAL DATA (Unaudited)
|
|
|
|
|
|
|
| Net Income per Common |
| |||||||
|
| Net Sales |
| Gross Profit |
| Net Income |
| Basic |
| Diluted |
| |||||
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
| |||||
March 31, 2017 |
| $ | 742,146 |
| $ | 480,874 |
| $ | 177,980 |
| $ | 0.31 |
| $ | 0.31 |
|
June 30, 2017 |
| 907,068 |
| 583,497 |
| 222,633 |
| $ | 0.39 |
| $ | 0.39 |
| |||
September 30, 2017 |
| 909,476 |
| 569,709 |
| 218,744 |
| $ | 0.39 |
| $ | 0.38 |
| |||
December 31, 2017 |
| 810,355 |
| 503,610 |
| 201,321 |
| $ | 0.36 |
| $ | 0.35 |
| |||
|
| $ | 3,369,045 |
| $ | 2,137,690 |
| $ | 820,678 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
| |||||
March 31, 2016 |
| $ | 680,186 |
| $ | 423,098 |
| $ | 163,877 |
| $ | 0.27 |
| $ | 0.26 |
|
June 30, 2016 |
| 827,488 |
| 517,814 |
| 184,219 |
| $ | 0.31 |
| $ | 0.30 |
| |||
September 30, 2016 |
| 787,954 |
| 502,975 |
| 191,643 |
| $ | 0.34 |
| $ | 0.33 |
| |||
December 31, 2016 |
| 753,765 |
| 498,113 |
| 172,946 |
| $ | 0.30 |
| $ | 0.30 |
| |||
|
| $ | 3,049,393 |
| $ | 1,942,000 |
| $ | 712,685 |
|
|
|
|
| ||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Net Income per Common | ||||
| | | | | | | | | |
| Share | ||||
|
| Net Sales |
| Gross Profit |
| Net Income |
| Basic |
| Diluted | |||||
Quarter ended: | | | | | | | | | | | | | | | |
March 31, 2020 | | $ | 1,062,097 | | $ | 637,196 | | $ | 278,835 | | $ | 0.52 | | $ | 0.52 |
June 30, 2020 | |
| 1,093,896 | |
| 659,469 | |
| 311,369 | | $ | 0.59 | | $ | 0.59 |
September 30, 2020 | |
| 1,246,362 | |
| 736,531 | |
| 347,654 | | $ | 0.66 | | $ | 0.65 |
December 31, 2020 | |
| 1,196,283 | |
| 690,684 | |
| 471,736 | | $ | 0.89 | | $ | 0.88 |
| | $ | 4,598,638 | | $ | 2,723,880 | | $ | 1,409,594 | | | | | | |
Quarter ended: | | | | | | | | | | | | | | | |
March 31, 2019 | | $ | 945,991 | | $ | 573,532 | | $ | 261,485 | | $ | 0.48 | | $ | 0.48 |
June 30, 2019 | |
| 1,104,045 | |
| 661,283 | |
| 292,473 | | $ | 0.54 | | $ | 0.53 |
September 30, 2019 | |
| 1,133,577 | |
| 673,002 | |
| 298,923 | | $ | 0.55 | | $ | 0.55 |
December 31, 2019 | |
| 1,017,206 | |
| 610,768 | |
| 254,954 | | $ | 0.47 | | $ | 0.47 |
| | $ | 4,200,819 | | $ | 2,518,585 | | $ | 1,107,835 | | | | | | |
Certain of the figures reported above may differ from previously reported figures for individual quarters due to rounding.
125
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 20162020, 2019 AND 20152018 (Dollars in Thousands)
Description |
| Balance at |
| Charged to |
| Deductions |
| Balance at |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Allowance for doubtful accounts, sales returns and cash discounts: |
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||
2017 |
| $ | 1,121 |
| $ | 8,364 |
| $ | (8,380) |
| $ | 1,105 |
|
2016 |
| $ | 1,248 |
| $ | 7,389 |
| $ | (7,516) |
| $ | 1,121 |
|
2015 |
| $ | 1,704 |
| $ | 8,407 |
| $ | (8,863) |
| $ | 1,248 |
|
|
|
|
|
|
|
|
|
|
| ||||
Allowance on Deferred Tax Assets and Unrecognized Tax Benefits: |
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||
2017 |
| $ | 26,086 |
| $ | 14,594 |
| $ | - |
| $ | 40,680 |
|
2016 |
| $ | 17,846 |
| $ | 8,240 |
| $ | - |
| $ | 26,086 |
|
2015 |
| $ | 19,786 |
| $ | (1,940) |
| $ | - |
| $ | 17,846 |
|
| | | | | | | | | | | | |
| | Balance at | | Charged to | | | | | Balance at | |||
| | beginning | | cost and | | | | | end of | |||
Description |
| of period |
| expenses |
| Deductions |
| period | ||||
Allowance for doubtful accounts, sales returns and cash discounts: | | | | | | | | | | | | |
| | | | | | | | | | | | |
2020 | | $ | 2,045 | | $ | 9,664 | | $ | (9,831) | | $ | 1,878 |
2019 | | $ | 1,589 | | $ | 9,583 | | $ | (9,127) | | $ | 2,045 |
2018 | | $ | 1,105 | | $ | 7,890 | | $ | (7,406) | | $ | 1,589 |
| | | | | | | | | | | | |
Allowance on Deferred Tax Assets and Unrecognized Tax Benefits: | | | | | | | | | | | | |
| | | | | | | | | | | | |
2020 | | $ | 43,853 | | $ | (7,860) | | $ | — | | $ | 35,993 |
2019 | | $ | 42,748 | | $ | 1,105 | | $ | — | | $ | 43,853 |
2018 | | $ | 40,680 | | $ | 2,068 | | $ | — | | $ | 42,748 |
126