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Item 9A. Controls and Procedures

2021-03-01 compared with 2020-02-28 · 328 added, 332 removed, 1047 unchanged (39% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures – Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report.

Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and (2) accumulated and communicated to our management, including our principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosures.

Evaluation of Disclosure Controls and Procedures – Under the supervision and with the participation of the Company’s management, including our Co-Chief Executive Officers and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report.

Based upon this evaluation, the Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and (2) accumulated and communicated to our management, including our principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control Over Financial Reporting – Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our management’s evaluation under the framework in Internal Control - Integrated Framework (2013) , our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2019, of the Company and our report dated February 28, 2020, expressed an unqualified opinion on those financial statements and financial statement schedule.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2020, of the Company and our report dated March 1, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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Costa Mesa, California

February 28, 2020

March 1, 2021

OTHER INFORMATION

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Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers (including our principal executive officer, principal financial officer, principal accounting officer and controllers) and employees.

The Code of Business Conduct and Ethics and any amendment thereto, as well as any waivers that are required to be disclosed by the rules of the SEC or NASDAQ, may be obtained at http://investors.monsterbevcorp.com/governance.cfm or at no cost to you by writing or telephoning us at the following address or telephone number:

We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers (including our principal executive officers, principal financial officer, principal accounting officer and controllers) and employees.

The Code of Business Conduct and Ethics and any amendment thereto, as well as any waivers that are required to be disclosed by the rules of the SEC or NASDAQ, may be obtained at http://investors.monsterbevcorp.com/corporate-governance or at no cost to you by writing or telephoning us at the following address or telephone number:

Monster Beverage Corporation

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(b) each of the Company’s directors and nominees for director;

and (c) the Company’s executive officers and all of the Company’s current directors

and executive officers as a group is reported under the caption “Principal Stockholders and Security Ownership of Management” in our 2020 Proxy Statement and is incorporated herein by reference.

and (c) the Company’s executive officers and all of the Company’s current directors and executive officers as a group is reported under the caption “Principal Stockholders and Security Ownership of Management” in our 2021 Proxy Statement and is incorporated herein by reference.

Information concerning shares of the Company’s Common Stock authorized for issuance under the Company’s equity compensation plans is reported under the caption “Employee Equity Compensation Plan Information” in our 2021 Proxy Statement and is incorporated herein by reference.

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Asset Transfer Agreement, dated as of August 14, 2014, by and among Monster Beverage Corporation, New Laser Corporation and The Coca-Cola Company (incorporated by reference to Exhibit 2.2 to our Form 8-K dated August 18, 2014).

Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to our Form 10-K dated November 7, 2016).

Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to our Form 10-Q dated November 7, 2016).

Second Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to our Form 8-K dated April 16, 2018).

Description of Common Stock.

Description of Common Stock (incorporated by reference to Exhibit 4.1 to our Form 10-K dated February 28, 2020).

Amended and Restated Distribution Coordination Agreement, dated as of June 12, 2015, between Monster Energy Company and The Coca-Cola Company (incorporated by reference to Exhibit 10.1 to our Form 10-Q dated August 10, 2015).

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Form of Indemnification Agreement (to be provided by Monster Beverage Corporation to its directors and officers) (incorporated by reference to Exhibit 10.1 to our Form 8-K dated June 11, 2019).

Hansen Natural Corporation 2001 Amended and Restated Stock Option Plan (incorporated by reference to Exhibit A to our Proxy Statement dated September 25, 2007).

Form of Restricted Stock Unit Agreement pursuant to the 2009 Hansen Natural Corporation Stock Incentive Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.1 to our Form 10-K dated August 5, 2016).

Form of Restricted Stock Unit Agreement for grants under the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors.

Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to our Form 10-Q dated August 9, 2011).

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Schlosberg (incorporated by reference to Exhibit 10.2 to our Form 8-K dated March 19, 2014).

Form of Stock Option Agreement (incorporated by reference to Exhibit 10.10 to our Form 10-K dated March 1, 2018).

Form of Stock Option Agreement of Chief Executive Officer and President and Chief Financial Officer (incorporated by reference to Exhibit 10.11 to our Form 10-K dated March 1, 2018).

Form of Stock Option Agreement for grants under the Monster Beverage Corporation 2011 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to our Form 10-K dated March 1, 2018).

Form of Stock Option Agreement of Co-Chief Executive Officers for grants under the Monster Beverage Corporation 2011 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.11 to our Form 10-K dated March 1, 2018).

Form of 2020 Annual Incentive Award Agreement for grants under the Monster Beverage Corporation 2011 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to our Form 10-Q dated May 11, 2020).

Form of Performance Share Unit Award Agreement for grants under the Monster Beverage Corporation 2011 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to our Form 10-Q dated May 11, 2020).

Form of Restricted Stock Unit Agreement for grants under the Monster Beverage Corporation 2011 Omnibus Incentive Plan.

Form of Restricted Stock Unit Agreement of Co-Chief Executive Officers for grants under the Monster Beverage Corporation 2011 Omnibus Incentive Plan.

Monster Beverage Corporation 2020 Omnibus Incentive Plan (incorporated by reference to Appendix A to our Definitive Proxy Statement on Schedule 14A, filed April 21, 2020).

Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 4.1 to our Form S-8 dated June 21, 2017).

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Consent of Independent Registered Public Accounting Firm

Certification by CEO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

Certification by CFO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

Certification by CEO pursuant to 18 U.S.C.

Certification by Co-Chief Executive Officer pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification by Chief Financial Officer pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification by Co-Chief Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification by CFO pursuant to 18 U.S.C.

Certification by Co-Chief Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification by Chief Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The following materials from Monster Beverage Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 are furnished herewith, formatted in iXBRL (Inline eXtensible Business Reporting Language):

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/s/ RODNEY C.

February 28, 2020

Chairman of the Board

March 1, 2021

Chairman of the Board of

Directors and Co-Chief

Executive Officer

/s/ HILTON H.

March 1, 2021

Vice Chairman of the Board of

Directors and Co-Chief

Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

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Chairman of the Board of

February 28, 2020

Directors and Chief Executive

March 1, 2021

Directors and Co-Chief Executive

Officer (principal executive officer)

/s/ HILTON H.

Vice Chairman of the Board of

February 28, 2020

Directors, President, Chief

Operating Officer, Chief

Financial Officer and Secretary

(principal financial officer,

controller and principal

accounting officer)

/s/ KATHLEEN E.

February 28, 2020

Vice Chairman of the Board of Directors

March 1, 2021

and Co-Chief Executive Officer (principal

executive officer)

/s/ THOMAS J.

Chief Financial Officer (principal financial

March 1, 2021

officer, principal accounting officer)

March 1, 2021

/s/ JEANNE P.

February 28, 2020

March 1, 2021

/s/ STEVEN G.

February 28, 2020

March 1, 2021

/s/ BENJAMIN M.

February 28, 2020

March 1, 2021

/s/ SYDNEY SELATI

February 28, 2020

March 1, 2021

Sydney Selati

February 28, 2020

March 1, 2021

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

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● We tested the promotional expenditure amount recorded as a reduction to net sales and assessed the reasonableness of management’s estimate by developing an expectation of the amount, based on historical promotional expenditure amounts recorded as a percentage of sales, and compared our expectation to the recorded promotional expenditure amount.

● We performed inquiries with the Company’s sales and marketing personnel to corroborate our understanding of new and existing promotional programs that may alter the relationship between gross sales and promotional allowances, as such programs are considered by management when estimating future promotional claims.

● We performed inquiries with the Company’s sales and marketing personnel to corroborate our understanding of new and existing promotional programs that may alter the relationship between gross billings and promotional allowances, as such programs are considered by management when estimating future promotional claims.

● We evaluated management’s ability to estimate promotional allowances by comparing the actual promotional allowances subsequently paid to the original estimates of management.

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Costa Mesa, California

February 28, 2020

March 1, 2021

We have served as the Company’s auditor since 1991.

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Retained earnings

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Common stock in treasury, at cost;

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OPERATING INCOME

OTHER INCOME, NET

OTHER (EXPENSE) INCOME, NET

INCOME BEFORE PROVISION FOR INCOME TAXES

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Exercise of stock options

Unrealized loss on available-for-sale securities

Reversal of excess tax benefits from share based payment arrangements

Unrealized gain on available-for-sale securities

Adjustment to excess tax benefits from prior periods

2016-16 adoption

Repurchase of common stock

( 1,342,076 )

Foreign currency translation

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Adjustment to excess tax benefits from prior periods

2016-16 adoption

Repurchase of common stock

( 1,342,076 )

Foreign currency translation

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Exercise of stock options

Unrealized gain on available-for-sale securities

Adjustment to excess tax benefits from prior periods

Unrealized loss on available-for-sale securities

Repurchase of common stock

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Gain on disposal of property and equipment

Loss on impairment of intangibles

Stock-based compensation

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Accounts receivable

TCCC Transaction receivable

Distributor receivables

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( 1,299,981 )

( 1,067,736 )

Purchases of property and equipment

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Accounts payable included purchases of available-for-sale short-term investments of $ 8.7 million as of December 31, 2019.

No amounts were included as of December 31, 2020 and December 31, 2018.

See accompanying notes to consolidated financial statements.

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Nature of Operations – The Company develops, markets, sells and distributes energy drink beverages and concentrates for energy drink beverages, primarily under the following brand names:

Monster Energy®, Monster Energy Ultra®, Monster Rehab®, Monster MAXX®, Java Monster®, Muscle Monster®, Espresso Monster®, Caffé Monster®, Punch Monster®, Juice Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Predator®, Reign Total Body Fuel TM , Reign Inferno TM Thermogenic Fuel, Monster Dragon Tea®, NOS®, Full Throttle®, Burn®, Mother®, Nalu®, Ultra Energy®, Play® and Power Play® (stylized), Relentless®, BPM®, BU®, Gladiator®, Samurai® and Live+®.

Monster Energy®, Monster Energy Ultra®, Monster Rehab®, Monster MAXX®, Java Monster®, Muscle Monster®, Espresso Monster®, Punch Monster®, Juice Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Monster Super Fuel®, Predator®, Fury®, Reign Total Body Fuel®, Reign Inferno® Thermogenic Fuel, Monster Dragon Tea®, NOS®, Full Throttle®, Burn®, Mother®, Nalu®, Ultra Energy®, Play® and Power Play® (stylized), Relentless®, BPM®, BU®, Gladiator®, Samurai® and Live+®.

Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries.

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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 (See Note 5).

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 326-30-35, a security is considered to be impaired if the fair value of the security is less than its amortized

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

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.

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 the Company’s 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

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.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

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

Monster Rehab®, Monster MAXX®, Java Monster®, Muscle Monster®, Espresso Monster®, Punch Monster®, Juice Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Monster Super Fuel®, Reign Total Body Fuel®, Reign Inferno®, Predator®, Fury®, NOS®, Full Throttle®, Burn®, Mother®, Nalu®, Ultra Energy®, Play® and Power Play® (stylized), Relentless®, BPM®, BU®, Gladiator® and Samurai® trademarks, all used in connection with the manufacture, sale and distribution of beverages.

The Company also owns a number of other trademarks, flavors and formulas in the United States, as well as in a number of countries around the world.

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The Company amortizes its trademarks 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.

Leases – See Note 3.

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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, the Company entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries non-functional currency denominated assets and liabilities.

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The Company does not enter into forward currency exchange contracts for speculation or trading purposes.

The Company has not designated its foreign currency exchange contracts as hedge transactions under FASB ASC 815.

Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in other income, net, in the consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item.

For the years ended December 31, 2020, 2019 and 2018, aggregate foreign currency transaction losses, including the gains or losses on forward currency exchange contracts, amounted to $ 11.2 million, $ 4.1 million and

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The Company has not designated its foreign currency exchange contracts as hedge transactions under FASB ASC 815.

For the years ended December 31, 2019, 2018 and 2017, aggregate foreign currency transaction losses, including the gains or losses on forward currency exchange contracts, amounted to $ 4.1 million, $ 4.0 million and $ 3.3 million, respectively, and have been recorded in other income, net, in the accompanying consolidated statements of income.

$ 4.0 million, respectively, and have been recorded in other income, net, in the accompanying consolidated statements of income.

Revenue Recognition – See Note 2.

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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If in the future the Company determines that it would not be able to realize its recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the Company’s evaluation of the facts, circumstances and information available at the reporting date.

For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

knowledge of all relevant information.

For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.

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The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula.

Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common stock at the date of grant.

In the event that the Company has the option and intent to settle a restricted stock unit in cash, the award is classified as a liability and revalued at each balance sheet date.

Stock-based compensation cost for restricted stock units and performance share units is measured based on the closing fair market value of the Company’s common stock at the date of grant.

In the event that the Company has the option and intent to settle a restricted stock unit or performance share unit in cash, the award is classified as a liability and revalued at each balance sheet date.

Net Income Per Common Share – In accordance with FASB ASC 260, net income per common share, on a basic and diluted basis, is presented for all periods.

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The Coca-Cola Company (“TCCC”), through certain wholly-owned subsidiaries (the “TCCC Subsidiaries”), accounted for approximately 2 %, 2 % and 3 % of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018, respectively.

As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors.

Accordingly, the Company’s percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the years ended December 31, 2019, 2018 and 2017.

Coca-Cola Consolidated, Inc.

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

accounted for approximately 12 %, 13 % and 13 % of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018, respectively.

Reyes Coca-Cola Bottling, LLC accounted for approximately 11 %, 11 % and 12 % of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018, 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.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Coca-Cola European Partners accounted for approximately 10 %of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018.

Credit Risk – The Company sells its products nationally and internationally, primarily to bottlers and full service beverage distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military.

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The Company maintains reserves for estimated credit losses, and historically, such losses have been within management’s expectations.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Fair Value of Financial Instruments – The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the relatively short maturity of the respective instruments.

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Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes”, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes.

ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP.

The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

The Company is currently evaluating the impact of ASU No.

2019-12 on its financial position, results of operations and liquidity.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2019-12, “Simplifying the Accounting for Income Taxes”, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes.

2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP.

The guidance was effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

The adoption of ASU No.

2019-12 did not have a material impact on the Company’s financial position, results of operations and liquidity.

In August 2018, the FASB issued ASU No.

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The adoption of ASU No.

2018-15 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

2018-15 did not have a material impact on the Company’s financial position, results of operations and liquidity.

In August 2018, the FASB issued ASU No.

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The adoption of ASU No.

2018-14 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

2018-14 did not have a material impact on the Company’s disclosures, financial position, results of operations and liquidity.

In August 2018, the FASB issued ASU No.

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2018-13 removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements.

2018-13 disclosure requirements include disclosing the

2018-13 disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

2018-13 was effective for the Company beginning on January 1, 2020.

The adoption of ASU No.

2018-13 did not have a material impact on the Company’s disclosures, financial position, results of operations and liquidity.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

2018-13 was effective for the Company beginning on January 1, 2020.

Certain disclosures in the new guidance will need to be applied on a retrospective basis and others on a prospective basis.

The adoption of ASU No.

2018-13 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

In January 2017, the FASB issued ASU No.

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Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value.

This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

This amendment was effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

The adoption of ASU No.

2017-04 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

2017-04 did not have a material impact on the Company’s financial position, results of operations and liquidity.

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”.

The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded.

Measurement of Credit Losses on Financial Instruments.” The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded.

2016-13 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.

The adoption of ASU No.

2016-13 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

Recently adopted accounting pronouncements

In February 2018, the FASB issued ASU No.

2018-02 (ASU No.

2018-02), “Income Statement - Reporting Comprehensive Income (Topic 220)”, which amended the previous guidance to allow for certain tax effects “stranded” in accumulated other comprehensive income, which are impacted by the Tax Reform Act signed into law on December 22, 2017, to be reclassified from accumulated other comprehensive income into retained earnings.

This amendment pertains only to those items impacted by the new tax law and does not apply to any future tax effects stranded in accumulated other comprehensive income.

This standard was effective for fiscal years beginning after December 15, 2018, and allowed for early adoption.

The adoption of ASU No.

2018-02 did not have an impact on the Company’s financial position, results of operations and liquidity.

In February 2016, the FASB issued ASU No.

2016-02, “Leases (Topic 842)”.

2016-02 requires the recognition of lease assets and lease liabilities on the balance sheet for leases classified as operating leases under previous guidance.

The accounting for finance leases (capital leases) was substantially unchanged.

The original guidance required application on a modified retrospective basis with adjustments to the earliest comparative period presented.

In August 2018, the FASB issued ASU No.

2018-11, “Targeted Improvements to ASC 842,” which included an option to not restate comparative periods in transition and elect to use the effective date of ASU No.

2016-02 as the date of initial application, which the Company elected.

As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, and continues to be reported under previous guidance that did not require the recognition of operating lease liabilities and corresponding lease assets on the consolidated balance sheet.

With the adoption of ASU No.

2016-02 on January 1, 2019, the Company recorded operating lease right-of-use assets of $ 26.3 million and operating lease liabilities of $ 22.6 million.

The adoption of ASU No.

2016-02 had an immaterial impact on the Company’s consolidated statement of income and consolidated statement of cash flows for the year ended December 31, 2019.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the historical lease classification, not reassess prior conclusions related to expired or existing contracts that

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

are or that contain leases, and not reassess the accounting for initial direct costs.

Additional information and disclosures required by ASU No.

2016-02 are contained in Note 3.

2016-13 did not have a material impact on the Company’s disclosures, financial position, results of operations and liquidity.

REVENUE RECOGNITION

Revenues are accounted for in accordance with ASC 606 “Revenue from Contracts with Consumers” for the years ended December 31, 2019 and 2018.

For the year ended December 31, 2017, revenues were accounted for under prior accounting guidance, ASC 605 “Revenue Recognition.” Commissions paid to TCCC based on sales to certain of the Company’s bottlers/distributors who are (i) TCCC Subsidiaries, (ii) accounted for under the equity method by TCCC (the “TCCC Related Parties”) and (iii) those not included in (i) or (ii) (the “TCCC Independent Bottlers”) are accounted for as follows:

December 31, 2019

December 31, 2018

December 31, 2017

Commissions Related To:

TCCC Subsidiaries

Reduction to net sales

TCCC Related Parties

Reduction to net sales

Operating expenses

TCCC Independent Bottlers

Operating expenses

Revenues are accounted for in accordance with ASC 606 “Revenue from Contracts with Consumers”.

The Company has three operating and reportable segments:

(i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks and Reign Total Body Fuel TM high performance energy drinks, (ii) Strategic Brands segment (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from TCCC in 2015 as well as the Company’s affordable energy brands, and (iii) Other segment (“Other”), which is comprised of certain products sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary of the Company, to independent third-party customers.

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.

(i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks and Reign Total Body Fuel® high performance energy drinks, (ii) Strategic Brands segment (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from TCCC in 2015 as well as the Company’s affordable energy brands, and (iii) Other segment (“Other”), which is comprised of certain products sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary of the Company, to independent third-party customers (the “AFF Third-Party Products”).

The Company’s Monster Energy® Drinks segment generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage bottlers/distributors (“bottlers/distributors”).

In some cases, the Company sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military.

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Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks.

The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers and full service distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military.

To a lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage distributors.

The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers/distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military.

To a lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers/distributors.

The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer.

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In such cases, control of the Company’s products passes to such bottlers/distributors when they notify the Company that they have taken possession or transferred the relevant portion of the Company’s finished goods.

The Company’s general payment terms are short-term

The Company’s general payment terms are short-term in duration.

The Company does not have significant financing components or payment terms.

The Company did not have any material unsatisfied performance obligations as of December 31, 2020 and December 31, 2019.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The Company does not have significant financing components or payment terms.

The Company did not have any material unsatisfied performance obligations as of December 31, 2019 and December 31, 2018.

The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.

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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 the Company’s sales to the TCCC Subsidiaries and/or to the TCCC Related Parties.

● commissions to TCCC based on the Company’s sales to certain wholly-owned subsidiaries of TCCC (the “TCCC Subsidiaries”) and/or to certain companies accounted for under the equity method by TCCC (the “TCCC Related Parties”).

The 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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The Company’s promotional and other allowances are calculated based on various programs with bottlers/distributors and retail customers, and accruals are established at the time of initial product sale for the Company’s anticipated liabilities.

These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels.

These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or bottler/distributor and retail customer performance levels.

Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.

Amounts received pursuant to new and/or amended distribution agreements entered into with certain 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 over 20 years .

Amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors relating to the costs associated with terminating the Company’s prior distributors, are accounted for as revenue ratably over the anticipated life of the respective distribution agreements, generally over 20 years .

The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing the Company’s trademarks including, but not limited to, clothing, hats, t-shirts, jackets, helmets and automotive wheels.

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

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

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

Disaggregation of Revenue

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Total Net Sales

Year Ended December 31, 2018

Monster Energy® Drinks

Strategic Brands

Total Net Sales

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

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Lease and non-lease components are accounted for separately.

Leases are classified as either finance leases or operating leases based on criteria in ASC 842.

Leases are classified as either finance leases or operating leases based on criteria in ASC 842, “Leases”.

The Company’s operating leases are comprised of real estate and warehouse equipment, and the Company’s finance leases are comprised of vehicles.

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Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and is included in operating expenses in the consolidated statement of income.

Interest expense on finance leases is calculated using the amortized cost basis and is included in other income, net in the consolidated statement of income.

Interest expense on finance leases is calculated using the amortized cost basis and is included in other (expense) income, net in the consolidated statement of income.

The Company’s leases have remaining lease terms of less than one year to 13 years , some of which include options to extend the leases for up to five years , and some of which include options to terminate the leases within one year .

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The components of lease cost for the year ended December 31, 2019 was as follows:

The components of lease cost for the years ended December 31, 2020 and 2019 were as follows:

Operating lease cost

Short-term least cost

Short-term lease cost

Variable lease cost

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Total lease cost

Rent expense under operating lease agreements was $ 6.1 million and $ 10.7 million for the years ended December 31, 2018 and 2017, respectively.

Supplemental cash flow information for leases for the year ended December 31, 2019 was as follows:

Rent expense under operating lease agreements was $ 6.1 million for the year ended December 31, 2018.

Supplemental cash flow information for leases for the years ended December 31, 2020 and 2019 were as follows:

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

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Operating leases

ROU assets for operating and finance leases at December 31, 2019 were comprised of the following:

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

December 31, 2020

Balance Sheet Location

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Property and Equipment, net

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at December 31, 2019 was as follows:

December 31, 2019

Balance Sheet Location

Operating leases

Finance leases

Weighted-average remaining lease term (years)

Weighted-average discount rate

Property and Equipment, net

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance lease liabilities recorded in the consolidated balance sheet at December 31, 2019:

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

December 31, 2020

Operating Leases

Finance Leases

Accrued liabilities

Other liabilities

December 31, 2019

Operating Leases

Finance Leases

Accrued liabilities

Other liabilities

The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as follows at:

December 31, 2020

Operating Leases

Finance Leases

Weighted-average remaining lease term (years)

Weighted-average discount rate

December 31, 2019

Operating Leases

Finance Leases

Weighted-average remaining lease term (years)

Weighted-average discount rate

The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance leases recorded in the consolidated balance sheet at December 31, 2020:

Undiscounted Future Lease Payments

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Less imputed interest

Accrued liabilities

Other liabilities

As of December 31, 2019, the Company had additional operating leases for office and warehouse space that had not yet commenced of $ 0.7 million.

These operating leases will commence in 2020 with lease terms of three to five years.

As of December 31, 2019, the Company did not have any significant additional finance leases that had not yet commenced.

The Company’s future minimum operating lease commitments, as of December 31, 2018, under ASC 840, the predecessor to ASC 842, were as follows:

Year Ending December 31:

2024 and thereafter

As of December 31, 2020, the Company did not have any significant additional operating or finance leases that had not yet commenced.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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government agency securities

Variable rate demand notes

Municipal securities

government agency securities

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Variable rate demand notes

Municipal securities

government agency securities

During the years ended December 31, 2020, 2019 and 2018, realized gains or losses recognized on the sale of investments were not significant.

The Company’s investments at December 31, 2019 and 2018 in commercial paper, certificates of deposit, municipal securities, U.S.

government agency securities, U.S.

treasuries and/or variable rate demand notes (“VRDNs”) carried investment grade credit ratings.

VRDNs are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest.

The Company’s investments at December 31, 2020 and 2019 carried investment grade credit ratings.

Variable rate demand notes (“VRDNs”) are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest.

All of the put options are secured by a pledged liquidity source.

While they are classified as marketable investment securities, the put option allows the VRDNs to be liquidated at par on a same day, or more generally, on a seven-day settlement basis.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

While they are classified as marketable investment securities, the put option allows the VRDNs to be liquidated at par on a same day, or more generally, on a seven-day settlement basis.

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

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The following tables present the Company’s financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:

The following tables present the fair value of Company's financial assets and liabilities that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:

December 31, 2020

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Commercial paper

Variable rate demand notes

Municipal securities

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Accrued liabilities

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

All of the Company’s short-term and long-term investments are classified within Level 1 or Level 2 within the fair value hierarchy.

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treasuries, certificates of deposit, VRDNs and U.S.

government agency securities, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

systems, mathematical tools and other relevant information for the same or similar securities.

government agency securities, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical tools and other relevant information for the same or similar securities.

The Company’s valuation of its Level 2 foreign currency exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk.

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Foreign currency exchange contracts:

Receive EUR/pay USD

Receive SGD/pay USD

Accounts receivable, net

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Accounts receivable, net

Receive NOK/pay USD

Accounts receivable, net

Receive USD/pay SGD

Accounts receivable, net

Foreign currency exchange contracts:

Receive EUR/pay USD

Accrued liabilities

Receive USD/pay GBP

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Accrued liabilities

Receive USD/pay ZAR

Accrued liabilities

Receive USD/pay COP

Accrued liabilities

Receive USD/pay CNY

Accrued liabilities

Receive USD/pay RUB

Accrued liabilities

Receive USD/pay NZD

Receive NOK/pay USD

Accrued liabilities

Receive USD/pay ZAR

Receive USD/pay NZD

Accrued liabilities

Receive USD/pay COP

Receive SEK/pay USD

Accrued liabilities

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Foreign currency exchange contracts:

Receive SGD/pay USD

Receive EUR/pay USD

Accounts receivable, net

Receive RSD/pay USD

Accounts receivable, net

Receive NOK/pay USD

Accounts receivable, net

Receive USD/pay SGD

Accounts receivable, net

Foreign currency exchange contracts:

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Accrued liabilities

Receive USD/pay RUB

Accrued liabilities

Receive USD/pay NZD

Accrued liabilities

Receive USD/pay ZAR

2 unchanged sentences

Accrued liabilities

Receive USD/pay NZD

Accrued liabilities

Receive USD/pay EUR

Receive USD/pay DKK

Accrued liabilities

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Foreign currency exchange contracts

Other income, net

Other (expense) income, net

Inventories consist of the following at December 31:

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Total amortization expense recorded was $ 7.7 million, $ 11.6 million and $ 11.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The following is the future estimated amortization expense related to amortizing intangibles as of December 31, 2019:

Year Ending December 31:

2025 and thereafter

Total impairment recorded was $ 8.7 million for the year ended December 31, 2020.

No impairment was recorded for the years ended December 31, 2019 and 2018.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The following is the future estimated amortization expense related to amortizing intangibles as of December 31, 2020:

Year Ending December 31:

2026 and thereafter

At December 31, 2020, non-amortizing intangibles primarily consist of indefinite-lived tradenames, flavors and formulas.

DISTRIBUTION AGREEMENTS

In accordance with FASB ASC No.

420 “Exit or Disposal Cost Obligations”, the Company expenses distributor termination costs in the period in which the written notification of termination occurs.

In accordance with FASB ASC 420 “Exit or Disposal Cost Obligations”, the Company expenses distributor termination costs in the period in which the written notification of termination occurs.

As a result, the Company incurred termination costs of $ 0.2 million, $ 11.3 million and $ 26.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Such termination costs have been expensed in full and are included in operating expenses for the years ended December 31, 2020, 2019 and 2018.

In the normal course of business, amounts received pursuant to new and/or amended distribution agreements entered into with certain distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years .

In the normal course of business, amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years .

Revenue recognized was $ 21.4 million, $ 25.0 million and $ 21.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company entered into a credit facility with Comerica Bank (“Comerica”) consisting of a revolving line of credit, which was amended in June 2017, under which the Company may borrow up to $ 10.0 million of non-collateralized debt.

The Company entered into a credit facility with Comerica Bank (“Comerica”) consisting of a revolving line of credit, which was amended in April 2020, under which the Company may borrow up to $ 10.0 million of non-collateralized debt.

The revolving line of credit is effective through June 1, 2025.

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As of December 31, 2020, the Company had no amounts outstanding on this line of credit.

COMMITMENTS AND CONTINGENCIES

The Company is obligated under various non-cancellable lease agreements providing for office space, warehouse space, vehicles and warehouse equipment that expire at various dates through the year 2033.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

Contractual obligations – The Company has the following contractual obligations related primarily to sponsorships and other commitments as of December 31, 2019:

COMMITMENTS AND CONTINGENCIES

Contractual Obligations – The Company had the following contractual obligations related primarily to sponsorships and other commitments as of December 31, 2020:

Year Ending December 31:

2026 and thereafter

Purchase Commitments – The Company has purchase commitments aggregating approximately $ 86.7 million at December 31, 2019, which represent commitments made by the Company and its subsidiaries to various suppliers of raw materials for the production of its products.

Purchase Commitments – The Company had purchase commitments aggregating approximately $ 101.8 million at December 31, 2020, which represent commitments made by the Company and its subsidiaries to various suppliers of raw materials for the production of its products.

These obligations vary in terms, but are generally satisfied within one year .

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Generally, the Company believes that its insurance coverage is adequate to cover any resulting liabilities or claims.

Litigation – The Company is currently a defendant in a number of personal injury lawsuits, claiming that the death or other serious injury of the plaintiffs was caused by consumption of Monster Energy® brand energy drinks.

The plaintiffs in these lawsuits allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death.

The Company believes that each complaint is without merit and plans a vigorous defense.

The Company also believes that any damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.

Furthermore, from time to time in the normal course of business, the Company is named in other litigation, including consumer class actions, intellectual property litigation and claims from prior distributors.

Litigation – From time to time in the normal course of business, the Company is named in litigation, including labor and employment matters, personal injury matters, consumer class actions, intellectual property matters and claims from prior distributors.

Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to the Company, management believes that such litigation in aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, or in the amount of any related insurance reimbursements recorded.

As of December 31, 2019, the Company’s consolidated balance sheet includes accrued loss contingencies of approximately $ 15.5 million.

ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows at December 31:

On September 18, 2020, a derivative complaint was filed on purported behalf of the Company in the United States District Court for the Central District of California.

The action is styled Falat v.

Sacks, et al., 8:20-cv-01782 , and asserts claims against certain officers, current and former directors, and employees of the Company, including Rodney C.

Sacks, Hilton H.

Schlosberg, Guy P.

Carling, Thomas J.

Kelly, Emelie C.

Tirre, Mark J.

Hall, Kathleen E.

Ciaramello, Gary P.

Fayard, Jeanne P.

Jackson, Steven G.

Pizula, Benjamin M.

Polk, Sydney Selati and Mark S.

Vidergauz (collectively, the “Individual Defendants”).

The Company is named as a nominal defendant.

The derivative complaint alleges, among other things, that the Individual Defendants breached their fiduciary duties to the Company by allowing others to cause, or themselves causing, the Company to hide discrimination and failing to ensure sufficient diversity, including by permitting conduct to occur that was inconsistent with statements made in the Company’s policies and disclosures, and failing to ensure the Company’s compliance with laws regarding diversity and anti-discrimination.

The complaint also asserts claims for abuse of control, unjust enrichment and violation of Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The complaint seeks from the Individual Defendants an unspecified amount of damages, restitution, punitive damages and costs to be paid to the Company, and seeks to require the Company to adopt corporate governance reforms, and other equitable relief.

On January 15, 2021, the Company filed a motion to dismiss the action because the plaintiff failed to make a demand on the Company as required by Federal Rule of Civil Procedure 23.1 or to show that demand would have been futile.

The Individual Defendants also filed a motion to dismiss the complaint for failure to state a claim against the Individual Defendants, among other reasons.

Those motions are scheduled for hearing in the 2021 second quarter.

While the Company continues to evaluate these claims, management believes that such litigation will likely not have a material adverse effect on the Company’s financial position or results of operations.

As of December 31, 2020, the Company’s consolidated balance sheet included accrued loss contingencies of approximately $ 18.4 million.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (loss) are as follows at December 31:

Accumulated net unrealized (gain) loss on available-for-sale securities

Foreign currency translation adjustments, net of tax

Total accumulated other comprehensive loss

Total accumulated other comprehensive income (loss)

TREASURY STOCK PURCHASE

On August 7, 2018, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $ 500.0 million of the Company’s outstanding common stock (the “August 2018 Repurchase Plan”).

During the year ended December 31, 2019, the Company purchased 2.9 million shares of common stock at an average purchase price of $ 54.68 per share, for a total amount of $ 159.6 million (excluding broker commissions), which exhausted the availability under the August 2018 Repurchase Plan.

Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2019.

On February 26, 2019, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $ 500.0 million of the Company’s outstanding common stock (the “February 2019 Repurchase Plan”).

During the year ended December 31, 2019, the Company purchased 8.1 million shares of common stock at an average purchase price of $ 57.16 per share, for a total amount of $ 463.3 million (excluding broker commissions), under the February 2019 Repurchase Plan.

During the year ended December 31, 2020, the Company purchased 0.6 million shares of common stock at an average purchase price of $ 58.16 per share, for a total amount of $ 36.6 million (excluding broker commissions), which exhausted the availability under the February 2019 Repurchase Plan.

Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020.

As of February 28, 2020, $ 36.6 million remained available for repurchase under the February 2019 Repurchase Plan.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

On November 6, 2019, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $ 500.0 million of the Company’s outstanding common stock (the “November 2019 Repurchase Plan”).

No shares were purchased during the year ended December 31, 2019 under the November 2019 Repurchase Plan.

As of February 28, 2020, $ 500.0 million remained available for repurchase under the November 2019 Repurchase Plan.

During the year ended December 31, 2020, the Company purchased 9.1 million shares of common stock at an average purchase price of $ 54.86 per share, for a total amount of $ 499.9 million (excluding broker commissions), which exhausted the availability under the November 2019 Repurchase Plan.

Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020.

On March 13, 2020, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $ 500.0 million of the Company’s outstanding common stock (the “March 2020 Repurchase Plan”).

During the year ended December 31, 2020, the Company purchased 1.0 million shares of common stock at an average purchase price of $ 55.85 per share, for a total amount of $ 58.5 million (excluding broker commissions), under the March 2020 Repurchase Plan.

Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2020.

As of March 1, 2021, $ 441.5 million remained available for repurchase under the March 2020 Repurchase Plan.

During the year ended December 31, 2020, 0.02 million shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $ 1.0 million.

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The Company has two stock-based compensation plans under which shares were available for grant at December 31, 2020:

the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”), including

(i) the Monster Beverage Corporation 2020 Omnibus Incentive Plan (the “2020 Omnibus Incentive Plan”), which includes the Monster Beverage Corporation Deferred Compensation Plan as a sub plan thereunder, and (ii) the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors, which includes the Monster Beverage Corporation Deferred Compensation Plan for Non-Employee Directors as a sub plan thereunder.

The 2020 Omnibus Incentive Plan was approved by the Board of Directors on April 14, 2020 and approved by the stockholders of the Company at the annual meeting of the Company’s stockholders held on June 3, 2020 (the “Effective Date”).

The 2020 Omnibus Incentive Plan replaced the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”).

The 2020 Omnibus Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other share-based awards up to an aggregate of 46,169,367 shares of the Company’s common stock, comprised of 32,000,000 new shares of common stock reserved under the 2020 Omnibus Incentive Plan and 14,169,367 shares of common stock that were available for grant under the 2011 Omnibus Incentive Plan as of December 31, 2019 and prior to the Effective Date.

Shares authorized under the 2020 Omnibus Incentive Plan are reduced by one (1) share for options or stock appreciation rights granted under the 2020 Omnibus Incentive Plan and for any grants after December 31, 2019 under the 2011 Omnibus Incentive Plan, and by 2.6 shares for each share granted or issued with respect to a Full Value Award under either the 2020 Omnibus Incentive Plan or for any shares granted after December 31, 2019 under the 2011 Omnibus Incentive Plan.

A “Full Value Award” is an award other than an incentive stock option, a non-qualified stock option, or a stock appreciation right, which is settled by the issuance of shares.

Options granted under the 2020 Omnibus Incentive Plan may be incentive stock options under Section 422 of the Internal Revenue Code, as amended (the “Code”), or non-qualified stock options.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

the Monster Beverage Deferred Compensation Plan (the “Deferred Compensation Plan”) as a sub plan thereunder, and the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (the “2017 Directors Plan”), including the Monster Beverage Deferred Compensation Plan for Non-Employee Directors as a sub plan thereunder.

The 2011 Omnibus Incentive Plan permits the granting of options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards up to an aggregate of 43,500,000 shares of the common stock of the Company to employees or consultants of the Company and its subsidiaries.

Shares authorized under the 2011 Omnibus Incentive Plan are reduced by 2.16 shares for each share granted or issued with respect to a Full Value Award (as defined in the 2011 Omnibus Incentive Plan).

A Full Value Award is an award other than an incentive stock option, a non-qualified stock option, or a stock appreciation right, which is settled by the issuance of shares.

Options granted under the 2011 Omnibus Incentive Plan may be incentive stock options under Section 422 of the Internal Revenue Code, as amended, or non-qualified stock options.

Shares previously granted under the 2011 Omnibus Incentive Plan after December 31, 2019 and prior to the Effective Date of the 2020 Omnibus Incentive Plan reduced the number of shares available for grant under the 2020 Omnibus Incentive Plan.

As of December 31, 2020, 1,431,030 shares of the Company’s common stock have been granted, net of cancellations, and 44,201,385 shares (as adjusted for Full Value Awards) of the Company’s common stock remain available for grant under the 2020 Omnibus Incentive Plan.

The Compensation Committee of the Board of Directors (the “Compensation Committee”) has sole and exclusive authority to grant stock awards to all employees who are not new hires and to all new hires who are subject to Section 16 of the Exchange Act.

The Compensation Committee and the Executive Committee of the Board of Directors (the “Executive Committee”) each independently has the authority to grant stock awards to new hires who are not Section 16 employees.

Each of the Compensation Committee and the Executive Committee of the Board of Directors (the “Executive Committee”) independently has the authority to grant stock awards to new hires and employees receiving a promotion who are not Section 16 employees.

Awards granted by the Executive Committee are not subject to approval or ratification by the Board of Directors or the Compensation Committee.

Options granted under the 2011 Omnibus Incentive Plan generally vest over a five-year period from the grant date and are generally exercisable up to 10 years after the grant date.

As of December 31, 2019, 24,555,792 shares of the Company’s common stock have been granted, net of cancellations, and 14,169,367 shares (as adjusted for Full Value Awards) of the Company’s common stock remain available for grant under the 2011 Omnibus Incentive Plan.

Options granted under the 2020 Omnibus Incentive Plan generally vest over a three - to five-year period from the grant date and are generally exercisable up to 10 years after the grant date.

Restricted stock units granted under the 2020 Omnibus Incentive Plan generally vest over a three - or five-year period from the grant date.

Performance share units will generally vest based on the achievement of performance goals specified for the applicable award.

In 2016, the Company adopted the Deferred Compensation Plan (as a sub plan to the 2011 Omnibus Incentive Plan), pursuant to which eligible employees may elect to defer cash and/or equity based compensation and to receive the deferred amounts, together with an investment return (positive or negative), either at a pre-determined time in the future or upon termination of their employment with the Company or its subsidiaries or affiliates that are participating employers under the Deferred Compensation Plan, as provided under the Deferred Compensation Plan and in relevant deferral elections.

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(a) the last business day immediately preceding the annual meeting of the Company’s stockholders in the calendar year following the calendar year in which the grant date occurs, (b) a Change of Control (as defined in the 2017 Directors Plan), (c) the non-employee director’s death, or (d) the date of the non-employee director’s separation from service due to disability, so long as the non-employee director remains a non-employee director through such date.

The Board of Directors may in its discretion award non-employee directors stock options, stock appreciation rights, restricted stock and other share-

The Board of Directors may in its discretion award non-employee directors stock options, stock appreciation rights, restricted stock and other share-based awards in lieu of or in addition to restricted stock units.

The Board of Directors may amend or terminate the 2017 Directors Plan at any time, subject to certain limitations set forth in the 2017 Directors Plan.

As of December 31, 2020, 85,699 shares of the Company’s common stock had been granted under the 2017 Directors Plan, and 1,164,301 shares of the Company’s common stock remain available for grant.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

based awards in lieu of or in addition to restricted stock units.

The Board of Directors may amend or terminate the 2017 Directors Plan at any time, subject to certain limitations set forth in the 2017 Directors Plan.

As of December 31, 2019, 68,774 shares of the Company’s common stock had been granted under the 2017 Directors Plan, and 1,181,226 shares of the Company’s common stock remain available for grant.

In 2017, the Company adopted the Deferred Compensation Plan for Non-Employee Directors (as a sub plan to the 2017 Directors Plan), pursuant to which the Board of Directors may permit non-employee directors to elect, at such times and in accordance with rules and procedures (or sub-plan) adopted by the Board of Directors (which are intended to comply with Code Section 409A, as applicable), to receive all or any portion of such non-employee director’s compensation, whether payable in cash or in equity, on a deferred basis.

In 2017, the Company adopted the Deferred Compensation Plan for Non-Employee Directors (as a sub plan to the 2017 Directors Plan), pursuant to which the Board of Directors may permit non-employee directors to elect, at such times and in accordance with rules and procedures (or sub-plan) adopted by the Board of Directors (which are intended to comply with Section 409A of the Code, as applicable), to receive all or any portion of such non-employee director’s compensation, whether payable in cash or in equity, on a deferred basis.

Deferrals under the Deferred Compensation Plan for Non-Employee Directors are unfunded and unsecured.

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For this purpose, deferred shares or deferred restricted stock units will be deemed held, to the extent vested.

● The minimum stock ownership level must be achieved by each non-employee director by the third (3rd) anniversary of such non-employee director’s initial appointment to the Board of Directors.

● The minimum stock ownership level must be achieved by each non-employee director by the third anniversary of such non-employee director’s initial appointment to the Board of Directors.

● Once achieved, ownership of the guideline amount should be maintained for so long as the non-employee director retains his or her seat on the Board of Directors.

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In these cases or in similar circumstances, the Board of Directors will make the final decision as to developing an alternative stock ownership guideline for a non-employee director that reflects the intention of these guidelines and his or her personal circumstances.

The Company recorded $ 63.4 million, $ 57.1 million and $ 52.3 million of compensation expense relating to stock options, restricted stock awards and restricted stock units during the years ended December 31, 2019, 2018 and 2017, respectively.

The tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units for the years ended December 31, 2019, 2018 and 2017 was $ 25.9 million, $ 8.5 million and $ 96.7 million, respectively.

The Company recorded $ 70.3 million, $ 63.4 million and $ 57.1 million of compensation expense relating to outstanding options, restricted stock units, performance share units and other share-based awards during the years ended December 31, 2020, 2019 and 2018, respectively.

The tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units and performance share units for the years ended December 31, 2020, 2019 and 2018 was $ 10.5 million, $ 25.9 million and $ 8.5 million, respectively.

Stock Options

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The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below.

The Company records

The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below.

The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.

The following weighted-average assumptions were used to estimate the fair value of options granted during:

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That cost is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock Units

Stock-based compensation cost for restricted stock units is measured based on the closing fair market value of the Company’s common stock at the date of grant.

In the event that the Company has the option and intent to settle a restricted stock unit in cash, the award is classified as a liability and revalued at each balance sheet date.

Restricted Stock Units and Performance Share Units

The cost of stock-based compensation for restricted stock units and performance share units is measured based on the closing fair market value of the Company’s common stock at the date of grant.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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(Tabular Dollars in Thousands, Except Per Share Amounts)

The following table summarizes the Company’s activities with respect to non-vested restricted stock units as follows:

The following table summarizes the Company’s activities with respect to non-vested restricted stock units and performance share units as follows:

Non-vested at January 1, 2020

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Non-vested at December 31, 2020

The weighted-average grant-date fair value of restricted stock units granted during the years ended December 31, 2019, 2018 and 2017 was $ 59.79 , $ 57.59 and $ 46.74 per share, respectively.

As of December 31, 2019, 0.7 million of restricted stock units are expected to vest.

At December 31, 2019, total unrecognized compensation expense relating to non-vested restricted stock units was $ 29.3 million, which is expected to be recognized over a weighted-average period of 2.6 years.

1 The grant activity for performance share units is recorded based on the target performance level earning 100 % of target performance share units.

The actual number of performance share units earned could range from 0 % to 200 % of target dependent on the pre-established performance goals.

The weighted-average grant-date fair value of restricted stock units and/or performance share units granted during the years ended December 31, 2020, 2019 and 2018 was $ 62.97 , $ 59.79 and $ 57.59 per share, respectively.

As of December 31, 2020, 0.8 million of restricted stock units and performance share units are expected to vest.

At December 31, 2020, total unrecognized compensation expense relating to non-vested restricted stock units and performance share units was $ 32.1 million, which is expected to be recognized over a weighted-average period of 2.3 years.

Other Share-Based Awards

The Company has granted other share-based awards to certain employees that are payable in cash.

These awards are classified as liabilities and are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement with compensation expense being recognized in proportion to the completed requisite service period up until date of settlement.

At December 31, 2020, other share-based awards outstanding included grants that vest over three years payable in the first quarters of 2022 and 2023.

At December 31, 2020, there was $ 2.3 million of total unrecognized compensation expense related to nonvested other share-based awards granted to employees under the Company’s stock-based compensation plans.

That cost is expected to be recognized over a weighted-average period of 1.6 years.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Employee and Non-Employee Share-Based Compensation Expense

The table below shows the amounts recognized in the consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 for share-based compensation related to employees and non-employees.

Employee and non-employee share-based compensation expense of $ 63.4 million for the year ended December 31, 2019 is comprised of $ 10.0 million relating to incentive stock options and $ 53.4 million relating to non-qualified stock options and restricted units.

Employee and non-employee share-based compensation expense of $ 70.3 million for the year ended December 31, 2020 is comprised of $ 9.4 million relating to incentive stock options, $ 2.7 million relating to other share-based awards and $ 58.2 million relating to non-qualified stock options, restricted units and performance units.

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Amount charged against net income

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

On December 22, 2017, the President of the United States signed into law the Tax Reform Act.

The legislation significantly changes U.S.

tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

The Tax Reform Act permanently reduces the U.S.

corporate income tax rate from a maximum of 35 % to a flat 21 % rate, effective January 1, 2018.

The SEC staff issued Staff Accounting Bulletin No.

118 to address the application of U.S.

GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act.

A company may select between one of three scenarios to determine a reasonable estimate for certain income tax effects arising from the Tax Reform Act.

Those scenarios are (i) a final estimate which effectively closes the measurement window;

(ii) a reasonable estimate leaving the measurement window open for future revisions;

and (iii) no estimate as the law is still being analyzed.

The Company was able to provide a reasonable estimate for the revaluation of deferred taxes and the effects of the toll charge on undistributed foreign subsidiary earnings and profits (“E&P”).

As a result of the reduction in the U.S.

corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its net deferred tax assets at December 31, 2017, resulting in a provisional $39.8 million charge included in the provision for income taxes for the year ended December 31, 2017.

The Tax Reform Act also provided for a one-time deemed mandatory repatriation of post-1986 E&P through the year ended December 31, 2017.

As a result, the Company recognized a provisional $ 2.1 million charge in the provision for income taxes for the year ended December 31, 2017 related to such deemed mandatory repatriation.

The Company completed its analysis of the Tax Reform Act during 2018 and adjusted the 2017 provisional estimate to the final amounts in accordance with Staff Accounting Bulletin No.

The measurement window begins in the reporting period that includes the enactment date and ends when an entity has obtained, prepared and analyzed the information needed in order to complete the accounting requirements under ASC 740.

For the year ended December 31, 2018, the Company made an adjustment to the provisional amount and recognized an additional $ 1.8 million provision for income tax related to the deemed mandatory repatriation.

The Company has not made additional measurement window adjustments to these items during the year ended December 31, 2019.

The Company evaluated the various provisions of the Tax Reform Act, including, the global intangible low-taxed income (“GILTI”) and the foreign derived intangible income provisions.

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Deferred income taxes have not been recorded for Japan, as any federal, state, or foreign withholding taxes associated with the repatriation of those earnings would be immaterial.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The domestic and foreign components of the Company’s income before provision for income taxes are as follows:

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*After intercompany royalties, management fees and interest charges from the Company’s domestic to foreign entities of $ 54.2 million, $ 51.2 million and $ 40.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Components of the provision for income taxes are as follows:

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A reconciliation of the total provision for income taxes after applying the U.S.

federal statutory rate of 21 % for 2019 and 2018 and 35 % for 2017 to income before provision for income taxes to the reported provision for income taxes are as follows:

federal statutory rate of 21 % to income before provision for income taxes to the reported provision for income taxes are as follows for the years ended:

Year Ended December 31,

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Stock based compensation

Domestic production deduction

Deferred tax asset reduction (Tax Reform Act)

Intra-company transfer benefit

Foreign rate differential

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Operating lease liabilities

Impairment-trademarks and others

Other deferred tax assets

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During the years ended December 31, 2020, 2019 and 2018, the Company established full valuation allowances against certain deferred tax assets, resulting from cumulative net operating losses incurred by certain foreign subsidiaries of the Company.

The effect of the valuation allowances and the subsequent related impact on the Company’s overall tax rate was to increase the Company’s provision for income taxes by $ 3.7 million, $ 4.0 million and $ 6.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The effect of the valuation allowances and the subsequent related impact on the Company’s overall tax rate was to decrease the Company’s provision for income taxes by $ 5.4 million for the year ended December 31, 2020, and increase $ 3.7 million and $ 4.0 million for the years ended December 31, 2019 and 2018, respectively.

At December 31, 2020, the Company had net operating loss carryforwards of approximately $ 84.5 million.

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(Tabular Dollars in Thousands, Except Per Share Amounts)

In October 2020, the Company completed an intra-entity transfer of intangible assets between certain of the Company’s foreign subsidiaries to better align its international structure with its expanding operations.

The transfer resulted in a step-up of the tax-deductible basis in the transferred assets in a foreign jurisdiction, and created a temporary difference between the tax basis and book basis for such intangible assets.

The Company recognized deferred tax assets of approximately $ 165.1 million, with a corresponding reduction to the provision for income taxes during the fourth quarter of 2020 in its consolidated financial statements.

The tax deductions for the amortization of the deferred tax assets will be recognized in the future and any amortization not deducted for tax purposes will be carried forward indefinitely.

The tax impact on the foreign subsidiary transferor was not material.

The following is a roll-forward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31, 2020, 2019 and 2018:

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If the Company were to prevail on all uncertain tax positions it would not have a significant impact on the Company’s effective tax rate.

It is expected that the amount of unrecognized tax benefit change within the next 12 months will not be significant.

It is expected that any change in the amount of unrecognized tax benefit change within the next 12 months will not be significant.

The Company is subject to U.S.

federal income tax as well as to income tax in multiple state and foreign jurisdictions.

On October 18, 2016, the IRS began its examination of the Company’s U.S.

federal income tax return for the year ended December 31, 2014.

On March 27, 2017, the IRS began its examination of the Company’s U.S.

federal income tax return for the year ended December 31, 2015.

Both examinations were completed in November 2019 with no material adjustments.

The Company is in various stages of examination with certain states and certain foreign jurisdictions, including the United Kingdom and Ireland.

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Participating employees may contribute into a traditional plan with pretax salary or into a Roth plan with after tax salary up to statutory limits.

The Company contributes 50 % of the employee contribution, up to 6 % of each employee’s earnings ( 8 % starting January 1, 2020), which vest over four years (2 years of service = 50 %, 3 years of service = 75 %, 4 years of service = 100 %).

The Company contributes 50 % of the employee contribution, up to 8 % of each employee’s earnings, which vest over four years (2 years of service = 50 %, 3 years of service = 75 %, 4 years of service = 100 %).

Matching contributions were $ 4.7 million, $ 3.4 million and $ 2.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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The Company has three operating and reportable segments:

(i) Monster Energy® Drinks segment, which is primarily comprised of the Company’s Monster Energy® drinks and Reign Total Body Fuel TM high performance energy drinks, (ii) Strategic Brands segment, which is comprised primarily of the various energy drink brands acquired from TCCC in 2015 as well as the Company’s affordable energy brands, and (iii) Other segment, which is comprised of the AFF Third-Party Products.

The Company’s Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged drinks primarily to bottlers and full service beverage distributors.

In some cases, the Company sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, value stores, e-commerce retailers and the military.

(i) Monster Energy® Drinks segment, which is primarily comprised of the Company’s Monster Energy® drinks and Reign Total Body Fuel® high performance energy drinks, (ii) Strategic Brands segment, which is primarily comprised of the various energy drink brands acquired from TCCC in 2015 as well as the Company’s affordable energy brands, and (iii) Other segment, which is comprised of the AFF Third-Party Products.

The Company’s Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged drinks primarily to bottlers/distributors.

The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations.

Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks.

The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers, full service distributors or retailers, including, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military.

To a lesser extent, the Company’s Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage distributors.

To a lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers/distributors.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

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Monster Energy® Drinks

Stategic Brands

Strategic Brands

Corporate and unallocated

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Corporate and unallocated expenses were $ 269.3 million for the year ended December 31, 2018 and included $ 174.9 million of payroll costs, of which $ 57.1 million was attributable to stock-based compensation expense (See Note 15, “Stock-Based Compensation”), $ 53.6 million of professional service expenses, including accounting and legal costs, $ 6.0 million of insurance costs and $ 34.8 million of other operating expenses.

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

As part of the North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors.

Accordingly, the Company's percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the years ended December 31, 2019, 2018 and 2017.

Coca-Cola Consolidated, Inc.

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

accounted for approximately 12 %, 13 % and 13 % of the Company's net sales for the years ended December 31, 2020, 2019 and 2018, respectively.

Reyes Coca-Cola Bottling, LLC accounted for approximately 11 %, 11 % and 12 % of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018, 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.

Net sales to customers outside the United States amounted to $ 1.33 billion, $ 1.09 billion and $ 909.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Coca-Cola European Partners accounted for approximately 10 % of the Company’s net sales for the years ended December 31, 2020, 2019 and 2018.

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.

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Corporate and unallocated

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

RELATED PARTY TRANSACTIONS

TCCC controls approximately 19.3 % of the voting interests of the Company.

The TCCC Subsidiaries, the TCCC Related Parties and the TCCC Independent Bottlers, purchase and distribute the Company’s products in domestic and certain international markets.

The TCCC Subsidiaries, the TCCC Related Parties and certain TCCC independent bottlers, purchase and distribute the Company’s products in domestic and certain international markets.

The Company also pays TCCC a commission based on certain sales within the TCCC distribution network.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, for the year ended December 31, 2020 were $ 56.5 million, and are included as a reduction to net sales.

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TCCC commissions, based on sales to the TCCC Independent Bottlers for the year ended December 31, 2019 were $ 17.7 million, and are included in operating expenses.

TCCC commissions, based on sales to the TCCC Subsidiaries, for the year ended December 31, 2017 were $ 9.8 million, and are included as a reduction to net sales.

TCCC commissions, based on sales to the TCCC Related Parties and the TCCC Independent Bottlers, for the year ended December 31, 2017 were $ 45.0 million, and are included in operating expenses.

Upon adoption of ASC 606, commissions paid to TCCC, based on sales to the TCCC Related Parties, are included as a reduction to net sales.

Prior to January 1, 2018, such commissions, based on sales to the TCCC Related Parties, were included in operating expenses.

TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, for the year ended December 31, 2018 were $ 48.0 million, and are included as a reduction to net sales.

TCCC commissions, based on sales to the TCCC Independent Bottlers for the year ended December 31, 2018 were $ 14.8 million, and are included in operating expenses.

Net sales to the TCCC Subsidiaries for the years ended December 31, 2020, 2019 and 2018 were $ 83.3 million, $ 79.5 million and $ 132.5 million, respectively.

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

Accordingly, the Company’s net sales classified as sales to the TCCC Subsidiaries significantly decreased for the years ended December 31, 2019, 2018 and 2017.

The Company also purchases concentrates from TCCC which are then sold to certain of the Company's bottlers/distributors.

2 unchanged sentences

Such contract manufacturing expenses were $ 17.2 million, $ 17.1 million and $ 22.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Accounts receivable, accounts payable and accrued promotional allowances related to the TCCC Subsidiaries are as follows at:

2 unchanged sentences

Accrued promotional allowances

One director of the Company and his family, and one director's family, are principal owners of a company that provides promotional materials to the Company.

Accrued liabilities

One director of the Company through certain trusts, and a family member of one director, are principal owners of a company that provides promotional materials to the Company.

Expenses incurred with such company in connection with promotional materials purchased during the years ended December 31, 2020, 2019 and 2018 were $ 2.1 million, $ 1.5 million and $ 1.8 million, respectively.

In December 2018, the Company and a director of the Company entered into a 50-50 partnership that purchased land, and real property thereon, in Kona, Hawaii for the purpose of producing coffee products.

The Company’s initial 50 % contribution of $ 1.9 million was accounted for as an equity investment and is included in other assets (non-current) in the accompanying consolidated balance sheet at December 31, 2018.

During the year ended December 31, 2019, the Company made an additional $ 0.05 million capital contribution, made a loan of $ 0.15 million and recorded an equity loss of $ 0.09 million.

The Company’s initial 50 % contribution of $ 1.9 million was accounted for as an equity investment.

During the year ended December 31, 2020, the Company recorded an equity loss of $ 0.3 million.

As of December 31, 2020, the Company’s equity investment is $ 1.6 million and is included in other assets (non-current) in the accompanying consolidated balance sheet at December 31, 2020.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

QUARTERLY FINANCIAL DATA (Unaudited)

17 unchanged sentences

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 9A. Controls and Procedures