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Monster Beverage Corp - Quarter Report: 2022 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2022

Commission File 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)

(951) 739 - 6200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

MNST

Nasdaq Global Select Market

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  X    No __

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes  X    No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  __    No X

The registrant had 521,743,612 shares of common stock, par value $0.005 per share, outstanding as of October 31, 2022.

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

SEPTEMBER 30, 2022

INDEX

Part I.

FINANCIAL INFORMATION

    

Page No.

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Income for the Three- and Nine-Months Ended September 30, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income for the Three- and Nine-Months Ended September 30, 2022 and 2021

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three- and Nine-Months Ended September 30, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended September 30, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

Item 4.

Controls and Procedures

53

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 5.

Other Information

55

Item 6.

Exhibits

55

Signatures

56

2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

(In Thousands, Except Par Value) (Unaudited)

September 30, 

December 31, 

    

2022

    

2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

1,303,048

$

1,326,462

Short-term investments

 

1,346,781

 

 

1,749,727

Accounts receivable, net

 

1,051,642

 

 

896,658

Inventories

 

862,977

 

 

593,357

Prepaid expenses and other current assets

 

112,294

 

 

82,668

Prepaid income taxes

 

19,949

 

 

33,238

Total current assets

 

4,696,691

 

 

4,682,110

INVESTMENTS

 

72,373

 

 

99,419

PROPERTY AND EQUIPMENT, net

 

485,550

 

 

313,753

DEFERRED INCOME TAXES, net

 

195,511

 

 

225,221

GOODWILL

 

1,412,941

 

 

1,331,643

OTHER INTANGIBLE ASSETS, net

 

1,225,826

 

 

1,072,386

OTHER ASSETS

 

115,913

 

 

80,252

Total Assets

$

8,204,805

 

$

7,804,784

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

520,198

 

$

404,263

Accrued liabilities

 

198,692

 

 

210,964

Accrued promotional allowances

 

281,650

 

 

211,461

Deferred revenue

 

42,608

 

 

42,530

Accrued compensation

 

61,426

 

 

65,459

Income taxes payable

 

17,143

 

 

30,399

Total current liabilities

 

1,121,717

 

 

965,076

DEFERRED REVENUE

 

226,294

 

 

243,249

OTHER LIABILITIES

41,034

29,508

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ EQUITY:

Common stock - $0.005 par value; 1,250,000 shares authorized; 641,245 shares issued and 523,965 shares outstanding as of September 30, 2022; 640,043 shares issued and 529,323 shares outstanding as of December 31, 2021

3,206

3,200

Additional paid-in capital

 

4,736,141

 

 

4,652,620

Retained earnings

 

8,699,499

 

 

7,809,549

Accumulated other comprehensive loss

 

(224,455)

 

 

(69,165)

Common stock in treasury, at cost; 117,280 shares and 110,720 shares as of September 30, 2022 and December 31, 2021, respectively

 

(6,398,631)

 

 

(5,829,253)

Total stockholders’ equity

 

6,815,760

 

 

6,566,951

Total Liabilities and Stockholders’ Equity

$

8,204,805

 

$

7,804,784

See accompanying notes to condensed consolidated financial statements.

3

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE- AND NINE- MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In Thousands, Except Per Share Amounts) (Unaudited)

Three-Months Ended

Nine-Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

NET SALES

$

1,624,286

$

1,410,557

$

4,798,119

$

4,116,308

COST OF SALES

 

790,561

 

621,399

 

2,407,867

 

1,775,375

GROSS PROFIT

 

833,725

 

789,158

 

2,390,252

 

2,340,933

OPERATING EXPENSES

 

415,795

 

344,694

 

1,199,883

 

956,346

OPERATING INCOME

 

417,930

 

444,464

1,190,369

 

1,384,587

INTEREST and OTHER INCOME (EXPENSE), net

 

2,149

 

(2,290)

 

(11,932)

 

(2,179)

INCOME BEFORE PROVISION FOR INCOME TAXES

 

420,079

 

442,174

1,178,437

 

1,382,408

PROVISION FOR INCOME TAXES

97,692

104,969

288,487

326,247

NET INCOME

$

322,387

$

337,205

$

889,950

$

1,056,161

NET INCOME PER COMMON SHARE:

Basic

$

0.61

$

0.64

$

1.68

$

2.00

Diluted

$

0.60

$

0.63

$

1.66

$

1.97

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:

Basic

 

526,797

 

528,997

 

528,263

 

528,618

Diluted

 

533,300

 

535,915

 

534,599

 

535,554

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE- AND NINE- MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In Thousands) (Unaudited)

Three-Months Ended

    

Nine-Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Net income, as reported

$

322,387

$

337,205

$

889,950

$

1,056,161

Other comprehensive income (loss):

Change in foreign currency translation adjustment

 

(68,822)

 

(26,716)

 

(147,450)

 

(46,412)

Available-for-sale investments:

Change in net unrealized (losses) gains

 

(2,675)

 

43

 

(7,840)

 

(117)

Reclassification adjustment for net gains included in net income

 

 

 

 

Net change in available-for-sale investments

 

(2,675)

 

43

 

(7,840)

 

(117)

Other comprehensive income (loss)

 

(71,497)

 

(26,673)

 

(155,290)

 

(46,529)

Comprehensive income

$

250,890

$

310,532

$

734,660

$

1,009,632

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In Thousands) (Unaudited)

Accumulated Other

Total

Common stock

Additional

Retained

Comprehensive (Loss)

Treasury stock

Stockholders’

    

Shares

    

Amount

    

Paid-in Capital

    

Earnings

    

Income

    

Shares

    

Amount

    

Equity

Balance, December 31, 2021

 

640,043

 

$

3,200

 

$

4,652,620

 

$

7,809,549

 

$

(69,165)

(110,720)

 

$

(5,829,253)

 

$

6,566,951

Stock-based compensation

 

16,175

16,175

Exercise of stock options

 

485

3

4,507

4,510

Unrealized loss, net on available-for-sale securities

 

(4,059)

(4,059)

Repurchase of common stock

 

(166)

(12,187)

(12,187)

Foreign currency translation

 

1,079

1,079

Net income

294,203

294,203

Balance, March 31, 2022

640,528

3,203

4,673,302

8,103,752

(72,145)

(110,886)

(5,841,440)

6,866,672

Stock-based compensation

16,157

16,157

Exercise of stock options

416

2

18,110

18,112

Unrealized loss, net on available-for-sale securities

(1,106)

(1,106)

Repurchase of common stock

(3,286)

(284,311)

(284,311)

Foreign currency translation

(79,707)

(79,707)

Net income

 

273,360

273,360

Balance, June 30, 2022

 

640,944

3,205

4,707,569

8,377,112

(152,958)

(114,172)

(6,125,751)

6,809,177

Stock-based compensation

16,436

16,436

Exercise of stock options

301

1

12,136

12,137

Unrealized loss, net on available-for-sale securities

(2,675)

(2,675)

Repurchase of common stock

(3,108)

(272,880)

(272,880)

Foreign currency translation

(68,822)

(68,822)

Net income

322,387

322,387

Balance, September 30, 2022

641,245

$

3,206

$

4,736,141

$

8,699,499

$

(224,455)

(117,280)

$

(6,398,631)

$

6,815,760

Accumulated Other

Total

Common stock

Additional

Retained

Comprehensive (Loss)

Treasury stock

Stockholders’

    

Shares

    

Amount

    

Paid-in Capital

    

Earnings

    

Income

    

Shares

    

Amount

    

Equity

Balance, December 31, 2020

638,662

$

3,193

$

4,537,982

$

6,432,074

$

3,034

(110,565)

$

(5,815,423)

$

5,160,860

Stock-based compensation

 

17,949

17,949

Exercise of stock options

 

492

3

6,758

6,761

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

24

 

 

 

24

Repurchase of common stock

 

(150)

(13,419)

(13,419)

Foreign currency translation

 

(27,932)

(27,932)

Net income

 

315,194

315,194

Balance, March 31, 2021

 

639,154

 

3,196

 

4,562,689

 

6,747,268

 

(24,874)

(110,715)

 

(5,828,842)

 

5,459,437

Stock-based compensation

 

16,921

16,921

Exercise of stock options

 

422

2

17,723

17,725

Unrealized loss, net on available-for-sale securities

 

 

 

 

 

(183)

 

 

 

(183)

Repurchase of common stock

 

(4)

(399)

(399)

Foreign currency translation

8,235

8,235

Net income

403,762

403,762

Balance, June 30, 2021

 

639,576

 

3,198

 

4,597,333

 

7,151,030

 

(16,822)

(110,719)

 

(5,829,241)

 

5,905,498

Stock-based compensation

 

16,293

16,293

Exercise of stock options

 

275

1

12,673

12,674

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

43

 

 

 

43

Foreign currency translation

 

(26,716)

(26,716)

Net income

337,205

337,205

Balance, September 30, 2021

 

639,851

$

3,199

$

4,626,299

$

7,488,235

$

(43,495)

(110,719)

$

(5,829,241)

$

6,244,997

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In Thousands) (Unaudited)

Nine-Months Ended

September 30, 

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

889,950

$

1,056,161

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

46,040

37,854

Non-cash lease expense

5,180

2,862

Gain on disposal of property and equipment

(253)

(984)

Stock-based compensation

49,167

52,391

Deferred income taxes

29,710

353

Effect on cash of changes in operating assets and liabilities net of acquisition:

Accounts receivable

(202,447)

(199,481)

Inventories

(297,140)

(149,414)

Prepaid expenses and other assets

(39,204)

(41,162)

Prepaid income taxes

7,867

(7,365)

Accounts payable

52,663

106,570

Accrued liabilities

(2,572)

39,387

Accrued promotional allowances

89,236

51,022

Accrued compensation

(6,636)

(2,888)

Income taxes payable

(12,823)

(114)

Other liabilities

(3,492)

574

Deferred revenue

(16,060)

(17,784)

Net cash provided by operating activities

589,186

927,982

CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of available-for-sale investments

1,823,943

1,016,556

Purchases of available-for-sale investments

(1,393,910)

(1,343,351)

Acquisition of CANarchy, net of cash

(329,472)

Purchases of property and equipment

(136,158)

(28,131)

Proceeds from sale of property and equipment

603

1,246

Additions to intangibles

(3,578)

(5,211)

Increase in other assets

(19,171)

(22,809)

Net cash used in investing activities

(57,743)

(381,700)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on debt

(719)

(1,814)

Issuance of common stock

34,759

37,160

Purchases of common stock held in treasury

(493,315)

(13,818)

Net cash (used in) provided by financing activities

(459,275)

21,528

Effect of exchange rate changes on cash and cash equivalents

(95,582)

(35,552)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(23,414)

532,258

CASH AND CASH EQUIVALENTS, beginning of period

1,326,462

1,180,413

CASH AND CASH EQUIVALENTS, end of period

$

1,303,048

$

1,712,671

SUPPLEMENTAL INFORMATION:

Cash paid during the period for:

Interest

$

359

$

99

Income taxes

$

297,526

$

338,584

See accompanying notes to condensed consolidated financial statements.

7

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(In Thousands) (Unaudited) (Continued)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS

Included in accrued liabilities as of September 30, 2022 and 2021 were $14.4 million and $13.0 million, respectively, related to net additions to other intangible assets.

Included in accounts payable as of September 30, 2022 and 2021 were $2.6 million and $0.5 million, respectively, related to equipment purchases.

Included in accounts payable as of September 30, 2021 were $2.0 million related to additions to other intangible assets.

Included in accounts payable as of September 30, 2022 were available-for-sale short-term investment purchases of $7.9 million.

Included in accounts payable as of September 30, 2022 were purchases of common stock held in treasury of $76.1 million.

See accompanying notes to condensed consolidated financial statements.

8

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

1.

BASIS OF PRESENTATION

Reference is made to the Notes to Consolidated Financial Statements, in Monster Beverage Corporation and Subsidiaries (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2021 for a summary of significant accounting policies utilized by the Company and its consolidated subsidiaries and other disclosures, which should be read in conjunction with this Quarterly Report on Form 10-Q (“Form 10-Q”).

The Company’s condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. They do not include all the information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP. The information set forth in these interim condensed consolidated financial statements for the three- and nine-months ended September 30, 2022 and 2021, respectively, is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed consolidated financial statements not misleading. Results of operations for periods covered by this report may not necessarily be indicative of results of operations for the full year.

The preparation of financial statements in conformity with GAAP necessarily 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 periods. Actual results could differ from these estimates.

Recent Accounting Pronouncements

There have been no changes in recently issued or adopted accounting pronouncements that would materially impact the Company from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

2.

ACQUISITIONS

On February 17, 2022, the Company completed its acquisition of CANarchy Craft Brewery Collective LLC (“CANarchy”), a craft beer and hard seltzer company, for $330.4 million in cash, subject to adjustments (the “CANarchy Transaction”). The CANarchy Transaction facilitates the Company’s entry into the alcohol beverage sector and brings the Cigar CityTM family of brands including Jai Alai® IPA and Florida ManTM IPA, the Oskar BluesTM family of brands including Dale’s Pale Ale® and Wild BasinTM Hard Seltzers, the Deep EllumTM family of brands including Dallas Blonde® and Deep EllumTM IPA, the Perrin BrewingTM family of brands including Black Ale, the Squatters® family of brands including Hop Rising® Double IPA and Juicy IPA, the Wasatch® family of brands including Apricot Hefeweizen, as well as certain other brands (collectively the “CANarchy Brands”) to the Company’s beverage portfolio. The transaction did not include CANarchy’s stand-alone restaurants. The Company’s organizational structure for its existing energy beverage business remains unchanged. CANarchy is functioning independently, retaining its own organizational structure and team.

The Company accounted for the CANarchy Transaction in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”.

9

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The following table summarizes the fair value allocations of the CANarchy Transaction:

Identifiable

Assets Acquired

and Liabilities

Consideration

Assumed

Transferred

Intangibles - trademarks (non-amortizing)

$

94,500

$

Intangibles - customer relationships (amortizing)

54,500

 

Intangibles - permits (non-amortizing)

6,000

 

Property and equipment, net

81,285

 

Inventory

18,300

 

Right-of -use assets

12,836

 

Operating lease liabilities

(12,836)

 

Working capital (excluding inventory)

(5,640)

 

Other

(770)

 

Goodwill

81,298

 

Cash

 

3,248

 

332,721

Total

$

332,721

$

332,721

The Company determined the fair values as follows:

Trademarks – relief-from-royalty method of the income approach
Customer relationships – distributor method of the income approach
Permits – with-and-without method of the income approach
Property and equipment – cost approach
Inventory – comparative sales method and replacement cost method

The book value of the working capital (excluding inventory) approximates fair value due to the short-term nature of the accounts.

The Company has determined goodwill in accordance with ASC 805, which requires the recognition of goodwill for the excess of the aggregate consideration over the net amounts of identifiable assets acquired and liabilities assumed as of the acquisition date.

For tax purposes, the CANarchy Transaction was recorded as an asset purchase. As such, the Company received a step-up in tax basis of the CANarchy assets, net, equal to the purchase price.

In accordance with Regulation S-X, pro forma unaudited condensed financial information for the CANarchy Transaction has not been provided as the impact of the transaction on the Company’s financial position, results of operations and liquidity was not material.

On May 5, 2022, the Company acquired certain real property and equipment in Norwalk, California for a purchase price of $62.5 million. The acquisition was treated as an asset acquisition for accounting purposes. The fair value allocations include $50.6 million for land, $10.0 million for building and $1.9 million for equipment. The Company intends to utilize the property as a manufacturing facility for certain of its products.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

3.

REVENUE RECOGNITION

The Company has four operating and reportable segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks, Reign Total Body Fuel® high performance energy drinks and True North® Pure Energy Seltzers, (ii) Strategic Brands segment (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”) in 2015 as well as the Company’s affordable energy brands, (iii) Alcohol Brands segment (“Alcohol Brands”), which is primarily comprised of the various craft beers and hard seltzers purchased as part of the CANarchy Transaction on February 17, 2022 and (iv) Other segment (“Other”), which is comprised of certain products sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary of the Company, to 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 full service beverage bottlers/distributors (“bottlers/distributors”). In some cases, the Company sells ready-to-drink packaged energy drinks 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 lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers/distributors.

The Company’s Alcohol Brands segment primarily generates operating revenues by selling kegged and canned beer as well as hard seltzers primarily to distributors in the United States.

The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to 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, control of the Company’s products passes to such bottlers/distributors when they notify the Company that they have taken possession or transferred 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 September 30, 2022 and December 31, 2021.

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;

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

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 wholly-owned subsidiaries of TCCC (the “TCCC Subsidiaries”) and/or to TCCC bottlers/distributors accounted for under the equity method by TCCC (the “TCCC Related Parties”).

The Company’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.

Amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors relating to the costs associated with terminating the Company’s prior distributors, are accounted for as deferred revenue and recognized as revenue ratably over the anticipated life of the respective 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 automotive wheels.

Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

Disaggregation of Revenue

The following tables disaggregate the Company’s revenue by geographical markets and reportable segments:

Three-Months Ended September 30, 2022

    

    

    

Latin

    

America

 

U.S. and

and

 

Net Sales

    

Canada

    

EMEA1

    

Asia Pacific

    

Caribbean

    

Total

Monster Energy® Drinks

$

982,952

$

288,077

$

100,288

$

130,902

$

1,502,219

Strategic Brands

 

44,025

 

32,565

 

8,805

 

3,407

 

88,802

Alcohol Brands

26,818

26,818

Other

 

6,447

 

 

 

 

6,447

Total Net Sales

$

1,060,242

$

320,642

$

109,093

$

134,309

$

1,624,286

Three-Months Ended September 30, 2021

    

    

    

Latin

    

America

U.S. and

and

Net Sales

    

Canada

    

EMEA1

    

Asia Pacific

    

Caribbean

    

Total

Monster Energy® Drinks

$

880,012

$

252,101

$

120,864

$

76,816

$

1,329,793

Strategic Brands

35,417

 

28,450

 

5,603

 

4,979

 

74,449

Alcohol Brands

Other

6,315

 

 

 

 

6,315

Total Net Sales

$

921,744

$

280,551

$

126,467

$

81,795

$

1,410,557

1Europe, Middle East and Africa (“EMEA”)

Nine-Months Ended September 30, 2022

    

    

    

Latin 

    

America 

U.S. and 

 

and 

Net Sales

    

Canada

    

EMEA1

    

Asia Pacific

    

Caribbean

    

Total

Monster Energy® Drinks

$

2,882,306

$

857,805

$

327,632

$

377,012

$

4,444,755

Strategic Brands

 

135,445

 

91,912

 

22,943

 

10,236

 

260,536

Alcohol Brands2

 

74,472

 

 

 

 

74,472

Other

 

18,356

 

 

 

 

18,356

Total Net Sales

$

3,110,579

$

949,717

$

350,575

$

387,248

$

4,798,119

Nine-Months Ended September 30, 2021

    

    

    

    

Latin 

    

America 

U.S. and 

 

and 

Net Sales

    

Canada

    

EMEA1

    

Asia Pacific

    

Caribbean

    

Total

Monster Energy® Drinks

$

2,548,873

$

741,208

$

346,545

$

230,536

$

3,867,162

Strategic Brands

 

122,487

 

76,234

 

21,047

 

9,425

 

229,193

Alcohol Brands

 

 

 

 

 

Other

 

19,953

 

 

 

 

19,953

Total Net Sales

$

2,691,313

$

817,442

$

367,592

$

239,961

$

4,116,308

1Europe, Middle East and Africa (“EMEA”)

2Effectively from February 17, 2022 to September 30, 2022

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

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 deferred revenue. As of September 30, 2022, the Company had $268.9 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. As of December 31, 2021, the Company had $285.8 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. During the three-months ended September 30, 2022 and 2021, $10.0 million and $10.4 million, respectively, of deferred revenue was recognized in net sales. See Note 11. During the nine-months ended September 30, 2022 and 2021, $30.0 million and $31.3 million, respectively, of deferred revenue was recognized in net sales. See Note 11.

4.

LEASES

The Company leases identified assets comprising of 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, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the 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 the 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 will 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 condensed consolidated statement of income. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and is included in operating expenses in the condensed consolidated statement of income. Interest expense on finance leases is calculated using the amortized cost basis and is included in interest and other income (expense), net in the condensed consolidated statement of income.

The Company’s leases have remaining lease terms of less than one year to 12 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.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The components of lease cost were comprised of the following:

Three-Months

Three-Months

Nine-Months

Nine-Months

Ended

Ended

Ended

Ended

September 30,

September 30,

September 30,

September 30,

    

2022

    

2021

    

2022

    

2021

Operating lease cost

$

2,306

$

1,103

$

6,238

$

3,348

Short-term lease cost

 

1,001

 

1,235

 

2,870

 

3,370

Variable lease cost

 

189

 

185

 

567

 

532

Finance leases:

Amortization of ROU assets

 

140

 

138

 

415

 

394

Interest on lease liabilities

 

8

 

6

 

18

 

15

Finance lease cost

 

148

 

144

 

433

 

409

Total lease cost

$

3,644

$

2,667

$

10,108

$

7,659

Supplemental cash flow information for the following periods:

Nine-Months

Nine-Months

Ended September 30,

Ended September 30,

    

2022

    

2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflows from operating leases

$

5,859

$

3,057

Operating cash outflows from finance leases

18

15

Financing cash outflows from finance leases

1,678

1,970

ROU assets obtained in exchange for lease obligations:

Finance leases

1,654

2,767

Operating leases

20,093

251

ROU assets for operating and finance leases recognized in the Company’s condensed consolidated balance sheets were comprised of the following at:

September 30, 2022

    

Real Estate

    

Equipment

    

Total

    

Balance Sheet Location

Operating leases

$

36,681

$

404

$

37,085

Other Assets

Finance leases

 

 

1,753

 

1,753

Property and Equipment, net

December 31, 2021

    

Real Estate

    

Equipment

    

Total

    

Balance Sheet Location

Operating leases

$

22,518

$

639

$

23,157

Other Assets

Finance leases

 

 

2,646

 

2,646

Property and Equipment, net

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

Operating and finance lease liabilities recognized in the Company’s condensed consolidated balance sheets were as follows at:

September 30, 2022

    

Operating Leases

    

Finance Leases

Accrued liabilities

$

7,028

$

917

Other liabilities

 

29,265

 

48

Total

$

36,293

$

965

December 31, 2021

    

Operating Leases

    

Finance Leases

Accrued liabilities

$

3,990

$

960

Other liabilities

 

17,389

 

41

Total

$

21,379

$

1,001

The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases at September 30, 2022 and December 31, 2021 were as follows:

September 30, 2022

    

Operating Leases

    

Finance Leases

 

Weighted-average remaining lease term (years)

7.1

 

0.8

Weighted-average discount rate

3.4

%  

2.7

%

December 31, 2021

    

Operating Leases

    

Finance Leases

Weighted-average remaining lease term (years)

 

8.1

0.7

Weighted-average discount rate

 

3.5

%  

1.3

%

The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance leases recorded in the Company’s condensed consolidated balance sheet at September 30, 2022:

    

Undiscounted Future Lease Payments

    

Operating Leases

    

Finance Leases

2022 (from October 1, 2022 to December 31, 2022)

$

2,038

$

410

2023

 

7,829

 

525

2024

 

6,473

 

23

2025

 

4,808

 

17

2026

3,895

2

2027 and thereafter

 

15,974

 

Total lease payments

 

41,017

 

977

Less imputed interest

 

(4,724)

 

(12)

Total

$

36,293

$

965

As of September 30, 2022, the Company did not have any significant additional operating or finance leases that have not yet commenced.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

5.

INVESTMENTS

The following table summarizes the Company’s investments at:

Continuous

Continuous

Gross

Gross

Unrealized

Unrealized

Unrealized

Unrealized

Loss Position

Loss Position

Amortized

Holding

Holding

Fair

less than 12

greater than 12

September 30, 2022

    

Cost

    

Gains

    

Losses

    

Value

    

Months

    

Months

Available-for-sale

Short-term:

Commercial paper

$

218,573

$

$

7

$

218,566

$

7

$

Certificates of deposit

20,035

20,035

Municipal securities

 

193,567

4

1,142

192,429

1,142

U.S. government agency securities

 

88,573

 

 

851

 

87,722

 

851

 

U.S. treasuries

834,249

 

 

6,220

 

828,029

 

6,220

 

Long-term:

U.S. treasuries

55,684

476

55,208

476

Municipal securities

5,562

35

5,527

35

U.S. government agency securities

11,711

1

74

11,638

74

Total

$

1,427,954

$

5

$

8,805

$

1,419,154

$

8,805

$

Continuous

Continuous

Gross

Gross

Unrealized

Unrealized

Unrealized

Unrealized

Loss Position

Loss Position

Amortized

Holding

Holding

Fair

less than 12

greater than 12

December 31, 2021

    

Cost

    

Gains

    

Losses

    

Value

    

Months

    

Months

Available-for-sale

Short-term:

Commercial paper

$

334,077

$

$

$

334,077

$

$

Certificates of deposit

44,502

44,502

Municipal securities

 

666

 

 

 

666

 

 

U.S. government agency securities

 

62,687

 

 

26

 

62,661

 

26

 

U.S. treasuries

1,308,536

2

717

1,307,821

717

Long-term:

U.S. government agency securities

12,500

24

12,476

24

U.S. treasuries

87,133

190

86,943

190

Total

$

1,850,101

$

2

$

957

$

1,849,146

$

957

$

During the three- and nine-months ended September 30, 2022 and 2021, realized gains or losses recognized on the sale of investments were not significant.

The Company’s investments at September 30, 2022 and December 31, 2021 carried investment grade credit ratings.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The following table summarizes the underlying contractual maturities of the Company’s investments at:

September 30, 2022

December 31, 2021

    

Amortized Cost

    

Fair Value

    

Amortized Cost

    

Fair Value

Less than 1 year:

Commercial paper

$

218,573

$

218,566

 

$

334,077

$

334,077

Municipal securities

 

193,567

 

192,429

 

 

666

 

666

U.S. government agency securities

 

88,573

 

87,722

 

 

62,687

 

62,661

Certificates of deposit

 

20,035

 

20,035

 

 

44,502

 

44,502

U.S. treasuries

834,249

828,029

1,308,536

1,307,821

Due 1 -10 years:

Municipal securities

 

5,562

 

5,527

 

 

 

U.S. treasuries

55,684

55,208

87,133

86,943

U.S. government agency securities

 

11,711

 

11,638

 

 

12,500

 

12,476

Total

$

1,427,954

$

1,419,154

 

$

1,850,101

$

1,849,146

6.

FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

ASC 820, “Fair Value Measurement”, provides a framework for measuring fair value and requires disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that 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 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.

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.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The following tables present the fair value of the 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:

September 30, 2022

    

Level 1

    

Level 2

    

Level 3

    

Total

Cash

$

1,113,207

$

$

$

1,113,207

Money market funds

 

116,952

 

 

 

116,952

Certificates of deposit

20,035

20,035

Commercial paper

 

 

234,310

 

 

234,310

Municipal securities

 

 

203,159

 

 

203,159

U.S. government agency securities

 

 

99,361

 

 

99,361

U.S. treasuries

935,178

935,178

Foreign currency derivatives

 

 

(204)

 

 

(204)

Total

$

1,230,159

$

1,491,839

$

$

2,721,998

Amounts included in:

Cash and cash equivalents

$

1,230,159

$

72,889

$

$

1,303,048

Short-term investments

 

 

1,346,781

 

 

1,346,781

Accounts receivable, net

 

 

694

 

 

694

Investments

 

 

72,373

 

 

72,373

Accrued liabilities

 

 

(898)

 

 

(898)

Total

$

1,230,159

$

1,491,839

$

$

2,721,998

December 31, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

Cash

$

749,089

$

$

$

749,089

Money market funds

 

440,826

 

 

 

440,826

Certificates of deposit

44,502

44,502

Commercial paper

 

 

335,477

 

 

335,477

Municipal securities

 

 

2,428