What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-28 · 261 added, 207 removed, 403 unchanged (54% of the section changed)

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MD&A includes the following sections:

● 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;

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● Market Risks – information about market risks and risk management.

(See “Forward-Looking Statements” and “Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risks”).

(See “Forward-Looking Statements” and “Part II, Item 7A – Qualitative and Quantitative Disclosures About Market Risks”).

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.

Health and Safety of our Employees and Business Partners

From the beginning of the COVID-19 pandemic, our top priority has been the health, safety and well-being of our employees.

Early in March 2020, we implemented global travel restrictions and work-from-home policies for employees who are able to work remotely.

For those employees who are unable to work remotely, safety precautions have been instituted, which were developed and adopted in line with guidance from public health authorities and professional consultants.

Currently, certain of our 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 initially adversely affected as a result of a decrease in foot traffic in the 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 have recently seen a resurgence of the COVID-19 pandemic in the Northern 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 in consumer purchasing and consumption patterns, as well as continued economic uncertainty as a result of the COVID-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 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.

Liquidity and Capital Resources

As of the date of this filing, we expect to maintain substantial liquidity as we manage through the current environment as described in the “Liquidity and Capital Resources” section below.

We develop, market, sell and distribute energy drink beverages and concentrates for energy drink beverages, primarily under the following brand names:

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● Juice Monster®

● Monster Hydro®

● Monster Hydro® Energy Water

● Monster Hydro® Super Sport

● Monster HydroSport Super Fuel®

● Monster Super Fuel®

● Monster Dragon Tea®

● Caffé Monster®

● Reign Total Body Fuel TM

● Reign Inferno TM Thermogenic Fuel

● Reign Total Body Fuel®

● Reign Inferno® Thermogenic Fuel

● Full Throttle®

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Our net sales of $4.60 billion for the year ended December 31, 2020 represented record annual net sales.

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 “Canada Price Increase”), on certain of our Monster Energy® brand energy drinks.

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, 2020.

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Our Monster Energy® Drinks segment represented 93.6% and 92.9% of our net sales for the years ended December 31, 2020 and 2019, respectively.

Our Strategic Brands segment represented 6.5% and 7.5% of our net sales for the year ended December 31, 2019 and 2018, 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, 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 $44.0 million for the year ended December 31, 2020.

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Our growth strategy includes expanding our international business.

Gross sales to customers outside the United States amounted to $1.62 billion, $1.36 billion and $1.09 billion for the years ended December 31, 2019, 2018 and 2017, respectively.

Such sales were approximately 33%, 31% and 28% of gross sales for the years ended December 31, 2019, 2018 and 2017, respectively.

Our customers are primarily full service beverage bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, value stores, e-commerce

retailers and the military.

Percentages of our gross sales to our various customer types for the years ended December 31, 2019, 2018 and 2017 are reflected below.

Net sales to customers outside the United States amounted to $1.51 billion, $1.33 billion and $1.09 billion for the years ended December 31, 2020, 2019 and 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.

Percentages of our gross billings to our various customer types for the years ended December 31, 2020, 2019 and 2018 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.

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International full service bottlers/distributors

Club stores, mass merchandisers and e-commerce retailers

Retail grocery, specialty chains and wholesalers

Club stores and e-commerce retailers

Retail grocery, direct convenience, specialty chains and wholesalers

Direct value stores and other

Our customers include 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 (China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola İçecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Kalil Bottling Group (until March 5, 2019), Big Geyser, Inc.

(until April 5, 2019), Wal-Mart, Inc.

(including Sam’s Club) and Costco Wholesale Corporation.

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.

TCCC, through the TCCC Subsidiaries, accounted for approximately 2%, 3% and 18% of our net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

As part of TCCC’s North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent TCCC bottlers/distributors and/or TCCC Related Parties.

Accordingly, our percentage of net sales to the TCCC Subsidiaries significantly decreased for the years ended December 31, 2019, 2018 and 2017.

(including Sam’s Club), Costco Wholesale Corporation and Amazon.com, Inc.

A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material adverse effect on our financial condition and consolidated results of operations.

Coca-Cola Consolidated, Inc.

accounted for approximately 13% of our net sales for the years ended December 31, 2019, 2018 and 2017.

Reyes Coca-Cola Bottling, LLC accounted for approximately 11%, 12% and 6% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

Coca-Cola European Partners accounted for approximately 10%, 10% and 9% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

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.

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One or more of our products are distributed in approximately 154 countries and territories worldwide.

● 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 to provide more alternatives to consumers and launched Reign Total Body Fuel TM high performance energy drinks in the first quarter of 2019.

● 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.

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The ultimate measure of success is and will be reflected in our current and future results of operations.

Gross and net sales, gross profit, operating income, net income and net income per share represent key measurements of the above value drivers.

Net 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 2021 and beyond (See “Part II, Item 7 – Results of Operations – Results of Operations for the Year Ended December 31, 2020, Compared to the Year Ended December 31, 2019”).

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For the year ended December 31, 2020, our net cash provided by operating activities was approximately $1.36 billion as compared to $1.11 billion for the year ended December 31, 2019.

Principal uses of cash flows in 2019, were purchases of investments, repurchase of our common stock, development of our Monster Energy® brand internationally and acquisitions of property and equipment.

Principal uses of cash flows in 2020, were purchases of investments, repurchase of our common stock, development of our Monster Energy® brand internationally and acquisitions of real property, 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 shareholder of the Company, in each case as described above under “Part I, Item 1A – Risk Factors.”

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 stockholder 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, require

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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;

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● costs of establishing and promoting our brands internationally;

● increase 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, related labor issues or other importation impediments;

● 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 as well as certain package containers and lids such as the aluminum 24-ounce cap can and resealable lids;

● limitations on available quantities of aluminum cans in general, and in particular, in certain package configurations such as the aluminum 24-ounce cap can and 550ml aluminum can utilizing BRE resealable lids;

● limitations on co-packing availability, particularly for retort production as well for 550ml products utilizing BRE resealable lids;

● the impact of Brexit on our business in Europe and the United Kingdom;

● the long-term impact of Brexit on our business in Europe and the United Kingdom;

● 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.

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Operating income as a percentage of net sales

Other income, net

Other (expense) income, net

Income before provision for income taxes 1,2

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Net sales were $4.60 billion for the year ended December 31, 2020, an increase of approximately $397.8 million, or 9.5% higher than net sales of $4.20 billion for the year ended December 31, 2019.

Net sales 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.

The COVID-19 pandemic had an adverse impact on net sales for the year ended December 31, 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 of approximately $48.2 million for the year ended December 31, 2020.

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 (i) sales of our Reign Total Body Fuel TM 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 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 an unfavorable impact on net sales for the Monster Energy® Drinks segment of approximately $44.0 million for the year ended December 31, 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 504.8 million cases for the year ended December 31, 2020, an increase of approximately 56.1 million cases or 12.5% higher than case sales of 448.8 million cases for the year ended December 31, 2019.

The overall average net sales per case (excluding net sales of AFF Third-Party Products of $27.0 million and $21.9 million for the years ended December 31, 2020 and 2019, respectively, as these sales do not have unit case equivalents) decreased to $9.06 for the year ended December 31, 2020, which was 2.8% lower than the average net sales per case of $9.31 for the year ended December 31, 2019.

Gross Profit.

Gross profit was $2.72 billion for the year ended December 31, 2020, an increase of approximately $205.3 million, or 8.2% higher than the gross profit of $2.52 billion for the year ended December 31, 2019.

The increase in gross profit dollars 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.

Gross profit as a percentage of net sales decreased to 59.2% for the year ended December 31, 2020 from 60.0% for the 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 the result of the impact of the Product Returns, associated inventory provisions and other related costs as well as geographical sales mix.

Gross profit as a percentage of net sales (excluding the Product Returns, associated inventory provisions and other related costs) was 59.6% for the year ended December 31, 2020.

Operating Expenses .

Total operating expenses were $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

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, 2020, a decrease of approximately $9.0 million, or 5.5% lower than operating income of $164.1 million for the year ended December 31, 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 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 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.

Price Increase”) and effective from February 1, 2019 in Canada (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 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.

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Operating income was $229.2 million and $180.8 million for the years ended December 31, 2019 and 2018, 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 was $1.57 billion for the year ended December 31, 2019, an increase of approximately $195.0 million, or 14.2% higher than operating income of $1.37 billion for the year ended December 31, 2018.

Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $1.57 billion for the year ended December 31, 2019, an increase of approximately $195.0 million, or 14.2% higher than operating income of $1.37 billion for the year ended December 31, 2018.

The increase in operating income for the Monster Energy® Drinks segment 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.

Operating income* for the Strategic Brands segment was $164.1 million for the year ended December 31, 2019, a decrease of approximately $12.5 million, or 7.1% lower than operating income of $176.5 million for the year ended December 31, 2018.

Operating income* for the Other segment was $3.7 million for the year ended December 31, 2019, a decrease of approximately $1.7 million, or 31.9% lower than operating income of $5.4 million for the year ended December 31, 2018.

*Exclusive of corporate and unallocated expenses.

Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $164.1 million for the year ended December 31, 2019, a decrease of approximately $12.5 million, or 7.1% lower than operating income of $176.5 million for the year ended December 31, 2018.

Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $3.7 million for the year ended December 31, 2019, a decrease of approximately $1.7 million, or 31.9% lower than operating income of $5.4 million for the year ended December 31, 2018.

Other Income, net .

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The increase in net income was partially offset by the increase in operating expenses of $103.9 million and an increase in the provision for income taxes of $7.9 million.

Results of Operations for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017.

Net sales were $3.81 billion for the year ended December 31, 2018, an increase of approximately $438.1 million, or 13.0% higher than net sales of $3.37 billion for the year ended December 31, 2017.

Net sales for the year ended December 31, 2018 were negatively impacted by approximately $42.2 million as a result of the adoption of ASC 606.

Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $14.8 million for the year ended December 31, 2018.

Net sales for the Monster Energy® Drinks segment were $3.50 billion for the year ended December 31, 2018, an increase of approximately $450.8 million, or 14.8% higher than net sales of $3.05 billion for the year ended December 31, 2017.

Net sales for the Monster Energy® Drinks segment for the year ended December 31, 2018 were negatively impacted by approximately $17.4 million as a result of the adoption of ASC 606.

Net changes in foreign currency exchange rates had a favorable impact on net sales for the Monster Energy® Drinks segment of approximately $14.6 million for the year ended December 31, 2018.

Net sales for the Monster Energy® Drinks segment increased primarily due to increased sales by volume of our Monster Energy® brand energy drinks as a result of increased domestic and international consumer demand.

Net sales for the Strategic Brands segment were $285.8 million for the year ended December 31, 2018, a decrease of approximately $14.0 million, or 4.7% lower than net sales of $299.8 million for the year ended December 31, 2017.

sales for the Strategic Brands segment for the year ended December 31, 2018 were negatively impacted by approximately $24.9 million as a result of the adoption of ASC 606.

Net changes in foreign currency exchange rates had a favorable impact on net sales for the Strategic Brands segment of approximately $0.2 million for the year ended December 31, 2018.

Net sales for the Other segment were $22.9 million for the year ended December 31, 2018, an increase of approximately $1.3 million, or 6.1% higher than net sales of $21.6 million for the year ended December 31, 2017.

Case sales, in 192-ounce case equivalents, were 410.9 million cases for the year ended December 31, 2018, an increase of approximately 50.9 million cases or 14.1% higher than case sales of 360.0 million cases for the year ended December 31, 2017.

The overall average net sales per case (excluding net sales of AFF Third-Party Products of $22.9 million and $21.6 million for the years ended December 31, 2018 and 2017, respectively, as these sales do not have unit case equivalents) decreased to $9.21 for the year ended December 31, 2018, which was 1.0% lower than the average net sales per case of $9.30 for the year ended December 31, 2017, due to the adoption of ASC 606.

Without the adoption of ASC 606, the overall average net sales per case increased to $9.31 for the year ended December 31, 2018, as compared to average net sales per case of $9.30 for the year ended December 31, 2017.

Gross Profit.

Gross profit was $2.30 billion for the year ended December 31, 2018, an increase of approximately $157.7 million, or 7.4% higher than the gross profit of $2.14 billion for the year ended December 31, 2017.

The increase in gross profit dollars was primarily the result of the $450.8 million increase in net sales of our Monster Energy® brand energy drinks segment for the year ended December 31, 2018.

Gross profit as a percentage of net sales decreased to 60.3% for the year ended December 31, 2018 from 63.5% for the year ended December 31, 2017.

Gross profit as a percentage of net sales, excluding the impact of ASC 606, was 60.7% for the year ended December 31, 2018.

The decrease in gross profit as a percentage of net sales was primarily attributable to (i) increases in certain input costs, principally aluminum cans, freight in and other input costs;

(ii) domestic product sales mix (iii) geographical sales mix, as a result of our international sales increasing as a percentage of total net sales (our foreign operations generally have lower gross profit margins);

(iv) the $42.2 million of commissions accounted for as a reduction to net sales due to the adoption of ASC 606;

and (v) increases in promotional allowances as a percentage of gross sales.

Operating Expenses .

Total operating expenses were $1.01 billion for the year ended December 31, 2018, an increase of approximately $72.9 million, or 7.8% higher than total operating expenses of $938.9 million for the year ended December 31, 2017.

The increase in operating expenses was primarily due to increased out-bound freight and warehouse costs of $38.5 million, increased payroll expenses of $28.6 million (of which $4.8 million was related to an increase in stock-based compensation), increased expenditures of $14.8 million for sponsorships and endorsements, and increased expenditures of $12.1 million for other marketing expenses.

The increase in operating expenses was partially offset by the $8.8 million decrease in costs associated with distributor terminations.

Commissions included in operating expenses were $16.7 million, or 65.1% lower than commissions included in operating expenses of $47.7 million for the year ended December 31, 2017.

Without the adoption of ASC 606, an additional $42.2 million of commissions would have been included in operating expenses for the year ended December 31, 2018 (such commissions are included as a reduction to net sales).

Operating Income.

Operating income was $1.28 billion for the year ended December 31, 2018, an increase of approximately $84.8 million, or 7.1% higher than operating income of $1.20 billion for the year ended December 31, 2017.

Operating income as a percentage of net sales decreased to 33.7% for the year ended December 31, 2018 from 35.6% for the year ended December 31, 2017.

Operating income was $180.8 million and $139.3 million for the years ended December 31, 2018 and 2017, respectively, in connection with our operations in EMEA, Asia Pacific and South America.

Operating income* for the Monster Energy® Drinks segment was $1.37 billion for the year ended December 31, 2018, an increase of approximately $106.5 million, or 8.4% higher than operating income of $1.26 billion for the year ended

December 31, 2017.

The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the $455.1 million increase in net sales of our Monster Energy® brand energy drinks for the year ended December 31, 2018.

Operating income* for the Strategic Brands segment was $176.5 million for the year ended December 31, 2018, an increase of approximately $2.1 million, or 1.2% higher than operating income of $174.5 million for the year ended December 31, 2017.

Operating income* for the Other segment was $5.4 million for the year ended December 31, 2018, a decrease of approximately $0.2 million, or 4.0% lower than operating income of $5.6 million for the year ended December 31, 2017.

*Exclusive of corporate and unallocated expenses.

Other Income, net.

Other non-operating income, net, was $9.7 million for the year ended December 31, 2018, as compared to other non-operating income, net, of $2.8 million for the year ended December 31, 2017.

Foreign currency transaction (losses)/gains were ($4.0) million and ($3.3) million for the years ended December 31, 2018 and 2017, respectively.

Interest income was $13.8 million and $6.8 million for the years ended December 31, 2018 and 2017, respectively.

Provision for Income Taxes .

Provision for income taxes was $300.3 million for the year ended December 31, 2018, a decrease of $80.7 million, or 21.2% lower than the provision for income taxes of $380.9 million for the year ended December 31, 2017.

The effective combined federal, state and foreign tax rate decreased to 23.2% from 31.7% for the years ended December 31, 2018 and 2017, respectively.

The decrease in the effective tax rate was primarily due to the reduction in the U.S.

federal statutory tax rate as a result of the Tax Reform Act signed into law on December 22, 2017 (before considering the potential impact of further clarification of certain matters related to the Tax Reform Act), and to a reduction in certain foreign income that is subject to U.S.

The decrease in the provision for income taxes was partially offset by the elimination of the domestic production deduction following the Tax Reform Act as well as a decrease in the stock based compensation tax deduction.

Net income was $993.0 million for the year ended December 31, 2018, an increase of $172.3 million, or 21.0% higher than net income of $820.7 million for the year ended December 31, 2017.

The increase in net income was primarily due to the $157.7 million increase in gross profit and the $80.7 million decrease in the provision for income taxes.

The increase in net income was partially offset by the increase in operating expenses of $72.9 million.

Non-GAAP Financial Measures

For the year ended December 31, 2019 compared to the year ended December 31, 2018.

Gross Sales**.

Gross sales were $4.87 billion for the year ended December 31, 2019, an increase of approximately $438.2 million, or 9.9% higher than gross sales of $4.43 billion for the year ended December 31, 2018.

Gross sales for the year ended December 31, 2019 were positively impacted by approximately $101.9 million as a result of U.S.

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 Billings**.

Gross Billings were $5.33 billion for the year ended December 31, 2020, an increase of approximately $507.3 million, or 10.5% higher than gross billings of $4.82 billion for the year ended December 31, 2019.

The COVID-19 pandemic had an adverse impact on gross billings for the year ended December 31, 2020.

Gross billings 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 gross billings of approximately $50.0 million for the year ended December 31, 2020.

Gross billings for the Monster Energy® Drinks segment were $4.99 billion for the year ended December 31, 2020, an increase of approximately $509.4 million, or 11.4% higher than gross billings of $4.49 billion for the year ended December 31, 2019.

Gross billings 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 gross billings of the Monster Energy® Drinks segment for the year ended December 31, 2020.

Gross billings 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 an unfavorable impact on gross billings for the Monster Energy® Drinks segment of approximately $45.8 million for the year ended December 31, 2020.

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 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 sales of approximately $82.5 million for the year ended December 31, 2019.

Gross sales for the Monster Energy® Drinks segment were $4.53 billion for the year ended December 31, 2019, an increase of approximately $453.6 million, or 11.1% higher than gross sales of $4.08 billion for the year ended December 31, 2018.

Gross sales for the Monster Energy® Drinks segment increased primarily due to (i) sales of our Reign Total Body Fuel TM 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 sales for the Monster Energy® Drinks segment of approximately $72.9 million for the year ended December 31, 2019.

Gross sales 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 sales of $327.1 million for the year ended December 31, 2018.

Net changes in foreign currency exchange rates had an unfavorable impact on gross sales in the Strategic Brands segment of approximately $9.6 million for the year ended December 31, 2019.

Gross sales 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 sales of $22.9 million for the year ended December 31, 2018.

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

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 $9.6 million for the year ended December 31, 2019.

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 sales decreased to 13.7% from 14.0% for the year ended December 31, 2019 and 2018, respectively.

For the year ended December 31, 2018 compared to the year ended December 31, 2017.

Gross Sales**.

Gross sales were $4.43 billion for the year ended December 31, 2018, an increase of approximately $568.2 million, or 14.7% higher than gross sales of $3.86 billion for the year ended December 31, 2017.

Gross sales for the Monster Energy® Drinks segment were $4.08 billion for the year ended December 31, 2018, an increase of $558.2 million, or 15.9% higher than gross sales of $3.52 billion for the year ended December 31, 2017.

Gross sales of our Monster Energy® Drinks segment increased partially due to increased sales by volume as a result of increased domestic and international consumer demand.

Gross sales for the Strategic Brands segment were $327.1 million for the year ended December 31, 2018, an increase of $8.6 million, or 2.7% higher than gross sales of $318.5 million for the year ended December 31, 2017.

Gross sales for the Other segment were $22.9 million for the year ended December 31, 2018, an increase of $1.3 million, or 6.1% higher than gross sales of $21.6 million for the year ended December 31, 2017.

No other individual product line contributed either a material increase or decrease to gross sales for the year ended December 31, 2018.

Promotional and other allowances, as described in the footnote below, were $622.3 million for the year ended December 31, 2018, an increase of $130.0 million, or 26.4% higher than promotional and other allowances of $492.3 million for the year ended December 31, 2017.

Promotional and other allowances as a percentage of gross sales increased to 14.0% from 12.7% for the years ended December 31, 2018 and 2017, respectively, partially due to an increase in commissions of $42.2 million included in net sales, related to the adoption of ASC 606.

Net changes in foreign currency exchange rates had a favorable impact on gross sales in the Monster Energy® Drinks segment of approximately $21.6 million for the year ended December 31, 2018.

Net changes in foreign currency exchange rates had a favorable impact on gross sales in the Strategic Brands segment of approximately $0.2 million for the year ended December 31, 2018.

**Gross sales 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 overall Company performance.

The use of gross sales 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 sales provides a useful measure of our operating performance.

The use of gross sales 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 sales may not be comparable to similarly titled measures used by other companies, as gross sales has been defined by our internal reporting practices.

In addition, gross sales 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 sales with the most directly comparable GAAP financial measure of net sales:

Gross sales, net of discounts and returns

Promotional and other allowances***

Promotional allowances, commissions and other expenses as a percentage of gross billings decreased to 13.8% from 14.2% for the years ended December 31, 2019 and 2018, respectively.

Revenue recognized was $46.3 million and $44.3 million for the years ended December 31, 2019 and 2018, respectively.

**Gross Billings (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 billings 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 billings provides a useful measure of our operating performance.

The 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 billings may not be comparable to similarly titled measures used by other companies, as gross billings has been defined by our internal reporting practices.

In addition, gross billings 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 billings with the most directly comparable GAAP financial measure of net sales:

Gross Billings

Deferred Revenue

Promotional allowances, commissions and other expenses***

***Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the presentation thereof does not conform to GAAP presentation requirements.

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and (viii) certain commissions paid based on sales to our bottlers/distributors.

The 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.

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.

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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/distributors and customers, changes in the sales mix of our products and changes in and/or increased advertising and promotional expenses.

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/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”).

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Adjusted Average Net Sales Per Case

1 Excludes Other segment net sales of $21.9 million, $22.9 million and $21.6 million for the years ended December 31, 2019, 2018 and 2017, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents.

1 Excludes 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)

(In thousands, except average net sales per case)

AFF third-party sales

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Average net sales per case

1 Excludes 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.

We do not believe that inflation had a significant impact on our results of operations for the years ended December 31, 2020, 2019 or 2018.

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Cash provided by operating activities was $1.36 billion for the year ended December 31, 2020, as compared with cash provided by operating activities of $1.11 billion for the year ended December 31, 2019.

For the year ended December 31, 2020, cash provided by operating activities was primarily attributable to net income earned of $1.41 billion and adjustments for certain non-cash expenses, consisting of $61.0 million of depreciation and amortization, $70.3 million of stock-based compensation and $8.7 million of intangible impairments.

For the year ended December 31, 2020, cash provided by operating activities also increased due to a $30.3 million decrease in inventories, a $26.4 million increase in accrued liabilities, an $18.7 million increase in accounts payable, a $13.8 million increase in accrued promotional allowances, a $10.4 million increase in income taxes payable, a $7.5 million increase in accrued compensation, a $5.5 million decrease in prepaid income taxes and a $1.0 million decrease in prepaid expenses and other assets.

For the year ended December 31, 2020, cash used in operating activities was primarily attributable to a $156.9 million increase in deferred income taxes, a $120.1 million increase in accounts receivable and a $21.5 million decrease in deferred revenue.

For the year ended December 31, 2019, cash provided by operating activities was primarily attributable to net income earned of $1.11 billion and adjustments for certain non-cash expenses, consisting of $64.8 million of depreciation and amortization and $63.4 million of stock-based compensation.

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For the year ended December 31, 2019, cash used in operating activities was primarily attributable to an $85.2 million increase in inventories, a $66.4 million increase in accounts receivable, a $24.9 million decrease in deferred revenue, a $14.3 million decrease in accrued liabilities and a $13.8 million increase in prepaid expenses and other assets.

For the year ended December 31, 2018, cash provided by operating activities was primarily attributable to net income earned of $993.0 million and adjustments for certain non-cash expenses, consisting of $57.1 million of stock-based compensation and $57.0 million of depreciation and amortization.

For the year ended December 31, 2018, cash provided by operating activities also increased due to a $98.7 million decrease in prepaid income taxes, an $11.7 million increase in accrued promotional allowances, an $18.1 million increase in accrued liabilities, a $10.0 million decrease in distributor receivables, a $9.9 million increase in accounts payable, a $5.5 million increase in accrued compensation and a $1.9 million increase in income taxes payable.

For the year ended December 31, 2018, cash used in operating activities was primarily attributable to a $48.4 million increase in accounts receivable, a $26.1 million increase in inventories, a $20.0 million decrease in deferred revenue and a $6.7 million increase in prepaid expenses and other assets.

Cash flows (used in) provided by investing activities.

Net cash used in investing activities was $326.7 million for the year ended December 31, 2019 as compared to cash provided by investing activities of $273.0 million for the year ended December 31, 2018.

Cash flows used in investing activities.

Net cash used in investing activities was $472.5 million for the year ended December 31, 2020 as compared to cash used in investing activities of $326.7 million for the year ended December 31, 2019.

For both the years ended December 31, 2020 and 2019, cash provided by investing activities was primarily attributable to sales of available-for-sale investments.

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Cash flows used in financing activities.

Cash used in financing activities was $628.5 million for the year ended December 31, 2019 as compared to cash used in financing activities of $1.32 billion for the year ended December 31, 2018.

Cash used in financing activities was $526.1 million for the year ended December 31, 2020 as compared to cash used in financing activities of $628.5 million for the year ended December 31, 2019.

The cash flows used in financing activities for both the years ended December 31, 2020 and 2019 was primarily the result of the repurchases of our common stock.

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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, 2019, we had $798.0 million in cash and cash equivalents, $533.1 million in short-term investments and $12.9 million in long-term investments.

We have historically invested these amounts in U.S.

treasuries, U.S.

government agency securities and municipal securities (which may have an auction reset feature), certificates of deposit, commercial paper, variable rate demand notes and money market funds meeting certain criteria.

Cash and cash equivalents, short-term and long-term investments – As of December 31, 2020, we had $1.18 billion in cash and cash equivalents, $881.4 million in short-term investments and $44.3 million in long-term investments, including certificates of deposit, commercial paper, U.S.

government agency securities, U.S.

treasuries, and to a lesser extent, municipal securities.

We maintain our investments for cash management purposes and not for purposes of speculation.

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These risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition.

Of our $798.0 million of cash and cash equivalents held at December 31, 2019, $416.9 million was held by our foreign subsidiaries.

Of our $1.18 billion of cash and cash equivalents held at December 31, 2020, $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, 2020.

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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.

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.

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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 loss as a separate component of stockholders’ equity.

Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive income (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, 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 the security’s amortized cost basis and the investor intends, or will be required, to sell the security before recovery of the security’s amortized cost basis.

If an other-than-temporary impairment exists, the charge to earnings 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 in other comprehensive loss, net of applicable taxes.

The Company evaluates whether the decline in fair value of its investments is other-than-temporary at each quarter-end.

Under FASB ASC 326-30-35, a security is considered to be impaired if the fair value of the security is less than its amortized cost basis.

Where the decline in fair value below the amortized cost basis has resulted from a credit loss, the Company will record an impairment relating to credit losses through an allowance for credit losses.

The allowance is limited by the amount that the fair value is less than the amortized cost basis.

Impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income (loss), net of applicable taxes.

The Company evaluates whether the decline in fair value of its investments has 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 a loss is temporary 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.

Factors considered in determining whether an impairment has resulted from credit loss or 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.

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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 determines that the fair value is less than the carrying value, the Company will use a two-step process to determine the amount of goodwill impairment.

The first step requires comparing the fair value of the reporting unit to its net book value, including goodwill.

A potential 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 of the carrying value of goodwill over its implied fair value.

For the years ended December 31, 2019, 2018 and 2017 there were no impairments recorded.

Other Intangibles – Other Intangibles are comprised of trademarks that represent the Company’s exclusive ownership of the Monster Energy®, ®, Monster Energy Ultra®, Unleash the Beast!®, Monster Rehab®, Java Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Espresso Monster®, Caffé Monster®, Monster Energy Extra Strength Nitrous Technology®, Muscle Monster®, Punch Monster®, Juice Monster®, Reign Total Body Fuel TM , Reign Inferno TM , M3(stylized)®, BU®, Nalu®, NOS®, Full Throttle®, Burn®, Mother®, Ultra Energy®, Play® and Power Play® (stylized), Gladiator®, Relentless®, Samurai®, Predator® and BPM® trademarks, all used in connection with the manufacture, sale and distribution of beverages.

If the Company reasonably determines that it is more-likely-than-not that the fair value is less than the carrying value, the Company performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

The Company will recognize an impairment for the amount by which the carrying amount exceeds a reporting unit’s fair value.

For the years ended December 31, 2020, 2019 and 2018 there were no impairments 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®, Unleash the Beast!®, Monster Rehab®, Java Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Monster Super Fuel®, Espresso Monster®, Monster Energy Extra Strength Nitrous Technology®, Muscle Monster®, Punch Monster®, Juice Monster®, Reign Total Body Fuel®, Reign Inferno®, M3(stylized)®, BU®, Nalu®, NOS®, Full Throttle®, Burn®, Mother®, Ultra Energy®, Play® and Power 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.

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The Company amortizes its intangibles with finite useful lives over their respective useful lives.

For the years ended December 31, 2019, 2018 and 2017 there were no impairments recorded.

For the year ended December 31, 2020, an impairment charge of $8.7 million was recorded to intangibles.

For the years ended December 31, 2019 and 2018 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.

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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 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 loss in stockholders’ equity.

dollar are recorded as a part of accumulated other comprehensive income (loss) in stockholders’ equity.

During the years ended December 31, 2020, 2019 and 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.

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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 sells 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.

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 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.

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● 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;

● commissions paid to TCCC based on our sales to the TCCC Subsidiaries and/or the TCCC Related Parties.

● 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 the ordinary course of business.

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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.

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 agreements, generally 20 years.

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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 and/or beverage bases, the costs of raw materials utilized in the manufacture of beverages, co-packing fees, repacking fees, in-bound freight charges, as well as internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products and certain quality control costs.

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 beverages, co-packing fees, repacking fees, in-bound freight charges, as well as 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.

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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.

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.

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Recent Accounting Pronouncements

pronouncements including the respective expected dates of adoption and expected effects on the Company’s consolidated financial position, results of operations or liquidity.

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

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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:

● 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, bottlers/ distributors, co-packers and other service providers) and the public at large to limit the COVID-19 pandemic;

● 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 impact of temporary plant closures, production slowdowns and disruptions in operations experienced by our suppliers, bottlers/distributors and/or co-packers as a result of the COVID-19 pandemic, including any material disruptions on the production and distribution of our products;

● 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;

● The effect of TCCC being one of our significant shareholders and the potential divergence of TCCC’s interests from those of our other shareholders;

● The effect of TCCC’s refranchising initiative to transition from a TCCC owned system to an independent bottling system, including our ability to maintain relationships with TCCC system bottlers/distributors and manage their ongoing commitment to focus on our products;

● The possible slowing of and/or decline in the sales growth rates of the domestic and international energy drink categories and/or the U.S.

convenience store market generally;

● Disruption in distribution or sales and/or decline in sales due to the termination and/or appointment of existing and/or new domestic and/or international distributors;

● 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 product sampling programs;

● The effect of TCCC being one of our significant stockholders and the potential divergence of TCCC’s interests from those of our other stockholders;

● Our ability to maintain relationships with TCCC system bottlers/distributors and manage their ongoing commitment to focus on our products;

● Disruption in distribution channels and/or decline in sales due to the termination and/or insolvency of existing and/or new domestic and/or international bottlers/distributors;

● Lack of anticipated demand for our products in domestic and/or international markets;

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● 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 FDA, municipalities, city attorneys, other government agencies, quasi-government agencies, government officials (including members of U.S.

● 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, government officials (including members of U.S.

Congress) and/or analogous central and local agencies and other authorities in the foreign countries in which our products are manufactured and/or distributed, into the advertising, marketing, promotion, ingredients, sale and/or consumption of our energy drink products, including voluntary and/or required changes to our business practices;

● Our ability to comply with laws, regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the GDPR and the CCPA;

● Our ability to achieve profitability 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 distributors;

● 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;

● 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;

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dollar, which will continue to increase as foreign sales increase;

● Uncertainties surrounding Brexit;

● 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 OECD’s BEPS project;

● Any proceedings which may be brought against us by the SEC, the FDA, the FTC or other governmental agencies or bodies;

● 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;

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● 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, 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, water usage, environmental impact, human rights and labor and workplace laws;

● Changes in demand that are weather related and/or for other reasons, including changes in product category consumption and changes in cost and availability of certain key ingredients, as well as disruptions to the supply chain, as a result of climate change and extreme weather conditions;

● 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;

● The impact on our global supply chain and our operations due to the recent coronavirus (or COVID-19) outbreak;

● 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 and/or package consumption and changes in cost and availability of certain key ingredients including aluminum cans, as well as disruptions to the supply chain, as a result of climate change and extreme weather conditions;

● 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 competitors, including unsubstantiated and/or misleading claims, false advertising claims and tortious interference, as well as competitors selling misbranded products;

● The impact on our business of trademark and trade dress infringement proceedings brought against us relating to our Reign Total Body Fuel TM high performance energy drinks;

● Our ability to introduce new products;

● 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 products and the impact of the COVID-19 pandemic on our innovation activities;

● Our ability to implement and/or maintain price increases;

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● 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 our Strategic Brands;

● 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), limits caffeine content in beverages, requires certain product labeling disclosures and/or warnings, imposes excise and/or sales taxes, limits product sizes and/or imposes age restrictions for the sale of energy drinks;

● Our ability to comply with and/or resulting lower consumer demand for energy drinks due to proposed and/or future U.S.

caffeine content in beverages, requires certain product labeling disclosures and/or warnings, imposes excise and/or sales taxes, limits product sizes and/or imposes age restrictions for the sale of energy drinks;

● 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, and Cosmetic Act and regulations or rules made thereunder or in connection therewith by the FDA, as well as changes in any other food, drug or similar laws in the United States and internationally, especially those changes that may 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 certain product labeling disclosures and/or warnings, impose excise taxes, impose sugar taxes, limit product sizes, or impose age restrictions for the sale of energy drinks, as well as laws and regulations or rules made or enforced by the Bureau of Alcohol, Tobacco, Firearms and Explosives and/or the FTC or their foreign counterparts;

● 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 the Company is a member, and/or any international beverage association and the impact on the Company of such guidelines;

● 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 we are a member, and/or any international beverage associations and the impact of our failure to satisfy such guidelines may have on our business;

● 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, 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, aluminum cans generally, PET containers used for our Monster Hydro® energy drinks and 24-ounce aluminum cap cans;

● 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;

● The impact on our cost of sales of corporate activity among the limited number of suppliers from whom we purchase certain raw materials;

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● 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;

● The effectiveness of sales and/or marketing efforts by us and/or by the full service bottlers/distributors of our products, most of whom distribute products that may be regarded as competitive with our products;

● Unilateral decisions by full service bottlers/distributors, convenience chains, grocery chains, mass merchandisers, specialty chain stores, club stores and other customers to discontinue carrying all or any of our products that they are carrying at any time, restrict the range of our products they carry and/or devote less resources to the sale of our products;

● The effectiveness of sales and/or marketing efforts by us and/or by the bottlers/distributors of our products, most of whom distribute products that may be regarded as competitive with our products;

● Unilateral decisions by bottlers/distributors, buying groups, convenience chains, grocery chains, mass merchandisers, specialty chain stores, e-commerce retailers, e-commerce websites, club stores and other customers to discontinue carrying all or any of our products that they are carrying at any time, restrict the range of our products they carry, impose restrictions or limitations on the sale of our products and/or devote less resources to the sale of our products;

● 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 business and our ability to successfully adapt to the rapidly changing retail landscape;

● 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 endeavors both domestically and internationally;

● 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 defective production;

● 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;

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● 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 contract packers to manufacture our products on a timely basis or at all;

● The failure of our bottlers and/or co-packers to manufacture our products on a timely basis or at all;

● The impact of any reductions in productivity and disruptions to our business routines while most office-based employees of the Company are working remotely;

● Other effects of the COVID-19 pandemic on our employees, such as mental health challenges that employees may face;

● 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 relationships, as well as cybersecurity incidents involving data shared with third parties;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis