What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 192 added, 323 removed, 341 unchanged (60% of the section changed)

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● Our Business – a general description of our business, the value drivers of our business, and opportunities and risks facing our Company, stock repurchases, acquisitions and divestitures;

● Results of Operations – an analysis of our consolidated results of operations for the three years presented in our financial statements;

● Results of Operations – an analysis of our consolidated results of operations for the years ended December 31, 2021 and 2020;

● Sales – details of our sales measured on a quarterly basis in both dollars and cases;

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The COVID – 19 Pandemic

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the global economy and financial markets.

The human and economic consequences of the COVID-19 pandemic as well as the measures taken or that may be taken in the future by governments, and consequently businesses (including the Company and its suppliers, full service beverage bottlers/distributors (“bottlers/distributors”), co-packers and other service providers) and the public at large to limit the COVID-19 pandemic, has directly and indirectly impacted our business.

The duration and severity of this impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the COVID-19 pandemic, the actions taken to limit its spread and the economic impact on local, regional, national and international markets.

The COVID-19 pandemic has directly and indirectly impacted our business.

The duration and severity of this impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information regarding the COVID-19 pandemic, as well as the emergence of new variants, the actions taken to limit its spread and the economic impact on local, regional, national and international markets.

See “Part I, Item 1A – Risk Factors.”

We have been actively addressing the COVID-19 pandemic with a global task force team working to mitigate the potential impacts to our people and business.

Health and Safety of our Employees and Business Partners

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

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

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

Currently, certain of our offices have partially reopened in the U.S.

and in certain countries, and generally, our field sales teams are working with our bottler/distributors and retailers subject to certain safety protocols.

During the COVID-19 pandemic, we have taken a number of steps to support our employees, including increasing employee communications, including topics such as mental health and family welfare;

creating wellness hotlines and enhancing employee assistance programs;

and conducting employee surveys to evaluate employee morale.

We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers/distributors around the world who are ensuring the integrity of our supply chain.

Customer Demand

Despite the ongoing impact of the COVID-19 pandemic, we achieved record fourth quarter net sales.

While the performance in Europe, Middle East and Africa (“EMEA”) was solid in the fourth quarter, EMEA remained adversely affected by the COVID-19 pandemic.

Since mid-March 2020, we have seen a shift in consumer channel preferences and package configurations, including an increase in at-home consumption and a decrease in food service on-premise consumption.

Our sales in the 2020 second quarter were initially adversely affected as a result of a decrease in foot traffic in the convenience and gas channel (which is our largest channel) but improved sequentially from the latter half of the 2020 second quarter and throughout the 2020 third and fourth quarters.

Our e-commerce, club store, mass merchandiser and grocery and related business continued to increase in 2020, while our food service on-premise business, which is a small channel for the Company, remained challenged.

The duration of these trends and the magnitude of such impacts on future periods cannot be precisely estimated at this time, as they are affected by a number of factors (many of which are outside our control).

We have recently seen a resurgence of the COVID-19 pandemic in the Northern Hemisphere while cases in the Southern Hemisphere continue to increase.

As a result, a number of countries, particularly in EMEA, have reinstituted lockdowns and other restrictions, which could further impact customer demand.

We continue to address the COVID-19 pandemic with a global task force team working to mitigate the potential impacts on our people and business.

We are incredibly proud of the teamwork exhibited by our employees, co-packers and bottlers/distributors around the world who are endeavoring to maintain the integrity of our supply chain.

Despite the ongoing impact of the COVID-19 pandemic, we achieved record annual net sales in 2021.

As countries continue to combat the COVID-19 pandemic, and as governments and/or local authorities impose regulations regarding COVID-19 testing, vaccine mandates and related workplace restrictions, there remains a risk that the COVID-19 pandemic may continue to impact our business and supply chain, including our ability to recruit and/or retain our employees as well as impact our co-packers, bottlers/distributors and/or suppliers.

A reduction in demand for our products or changes in consumer purchasing and consumption patterns, as well as continued economic uncertainty as a result of the COVID-19 pandemic, could adversely affect the financial conditions of retailers and consumers, resulting in reduced or canceled orders for our products, purchase returns and closings of retail or wholesale establishments or other locations in which our products are sold.

Our Distribution and Supply Chain

As of the date of this filing, we do not foresee a material impact on the ability of our co-packers to manufacture and our bottlers/distributors to distribute our products as a result of the COVID-19 pandemic.

We are continually addressing the increase in our aluminum can requirements given our volume growth and the current supply constraints in the aluminum can industry.

Overall, we are not experiencing significant raw material or finished product shortages and our supply chain remains intact.

Depending on the duration of any COVID-19 pandemic related issues, we may experience material disruptions in our supply chain as the pandemic continues.

In 2021, we experienced a number of global supply chain challenges as a result of unanticipated increases in demand, in part due to the COVID-19 pandemic, which adversely impacted both cost of sales and operating costs, and in certain markets, affected the availability of our products on shelves at retailers.

In particular, we have experienced shortages in our aluminum can requirements, freight inefficiencies, shortages of shipping containers, port of entry congestion, and delays in the receipt and/or availability of certain ingredients.

In the United States, we lacked sufficient co-packing capacity to meet increased demand for certain of our products.

We have also experienced increased aluminum can costs attributable to higher aluminum commodity pricing as well as the costs of importing aluminum cans.

In addition, we experienced increased ingredient and other input costs, including shipping and freight, labor, trucking, fuel, co-packing fees, secondary packaging materials, increased outbound freight costs and production inefficiencies, which resulted in increased costs of sales and increased operating costs.

We have addressed and will continue to address the controllable challenges in our supply chain, which remains largely intact.

Additional can manufacturing capacity in the United States has been secured for 2022, although the Company will continue to import aluminum cans to supplement its domestic can supply.

Can capacity in EMEA remains challenging and the Company expects to continue to import aluminum cans into EMEA for at least 2022.

While co-packing capacity in the United States and EMEA also continues to be challenging, we have expanded our network in the United States and EMEA to substantially address supply constraints.

Our flavor facility in Athy, Ireland is operational, producing certain flavors and blends for the EMEA region, is steadily increasing production, and is investigating the feasibility of a juice plant to produce EMEA’s juice product requirements.

We continue to implement measures to mitigate our increased operating costs through pricing actions and reductions in promotions.

Liquidity and Capital Resources

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● Monster Rehab®

● Monster MAXX®

● Monster Energy® Nitro

● Java Monster®

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● Relentless®

● True North®

The comparative results of operations for the twelve-months ended December 31, 2020 included a non-recurring tax benefit of approximately $165.1 million due to an intra-entity transfer of intangible assets between certain of the Company’s foreign subsidiaries, which resulted in a step-up of the tax-deductible basis in the transferred assets in a foreign jurisdiction, and created a temporary difference between the tax basis and the book basis for such intangible assets (the “Non-Recurring Tax Benefit”), as well as reduced marketing, sponsorships and certain other operating expenses, largely as a consequence of the COVID-19 pandemic.

These items should be taken into consideration when evaluating comparative performance for the twelve-months ended December 31, 2021 as compared to the twelve-months ended December 31, 2020.

Our net sales of $5.5 billion for the year ended December 31, 2021 represented record annual net sales.

Net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to product returns from our customers as a result of a European formulation issue with a limited number of products in Europe and a labeling issue concerning one product in Japan (the “Product Returns”).

Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $48.2 million for the year ended December 31, 2020.

The comparative net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to product returns from our customers as a result of a European formulation issue with a limited number of products in Europe and a labeling issue concerning one product in Japan (the “Product Returns”).

Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $61.9 million for the year ended December 31, 2021.

The vast majority of our net sales are derived from our Monster Energy® Drinks segment.

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Our Other segment represented 0.5% and 0.6% of our net sales for the years ended December 31, 2021 and 2020, respectively.

Net sales for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Monster Energy® Drinks segment of approximately $44.0 million for the year ended December 31, 2020.

Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Strategic Brands segment of approximately $4.2 million for the year ended December 31, 2020.

The comparative net sales for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net changes in foreign currency exchange rates had a favorable impact on our net sales of the Monster Energy® Drinks segment of approximately $57.6 million for the year ended December 31, 2021.

Net changes in foreign currency

exchange rates had a favorable impact on net sales in the Strategic Brands segment of approximately $4.3 million for the year ended December 31, 2021.

Our growth strategy includes expanding our international business.

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Such sales were approximately 37%, 33% and 32% of net sales for the years ended December 31, 2021, 2020 and 2019, respectively.

Net sales to customers outside the United States for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

The comparative net sales to customers outside the United States for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

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

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Our customers include Coca-Cola Canada Bottling Limited, Coca-Cola Consolidated, Inc., Coca-Cola Bottling Company United, Inc., Reyes Coca-Cola Bottling, LLC, Great Lakes Coca-Cola Distribution, LLC, Coca-Cola Southwest Beverages LLC, The Coca-Cola Bottling Company of Northern New England, Inc., Swire Pacific Holdings, Inc.

(USA), Liberty Coca-Cola Beverages, LLC, Coca-Cola European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola (China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola İçecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Wal-Mart, Inc.

(USA), Liberty Coca-Cola Beverages, LLC, Coca-Cola Europacific Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola (China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola İçecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Wal-Mart, Inc.

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

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Reyes Coca-Cola Bottling, LLC accounted for approximately 10%, 11% and 11% of our net sales for the years ended December 31, 2021, 2020 and 2019, respectively.

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

Coca-Cola Europacific Partners accounted for approximately 12%, 10% and 10% of our net sales for the years ended December 31, 2021, 2020 and 2019, respectively.

We continue to incur expenditures in connection with the development and introduction of new products and flavors.

CANarchy Acquisition

On February 17, 2022, we completed our acquisition of CANarchy Craft Brewery Collective LLC (“CANarchy”), a craft beer and hard seltzer company, for $330.0 million in cash, subject to adjustments.

The transaction allows us to enter the alcohol beverage

sector and brings the Cigar City family of brands including Jai Alai IPA and Florida Man IPA, the Oskar Blues family of brands including Dale’s Pale Ale and Wild Basin Hard Seltzers, the Deep Ellum family of brands including Dallas Blonde and Deep Ellum IPA, the Perrin Brewing family of brands including Black Ale, the Squatters family of brands including Hop Rising Double IPA and Juicy IPA and the Wasatch family of brands including Apricot Hefeweizen to our beverage portfolio.

The transaction does not include CANarchy’s stand-alone restaurants.

Our organizational structure for our existing energy beverage business will remain unchanged.

CANarchy will function independently, retaining its own organizational structure and team.

Value Drivers of our Business

We believe that the key value drivers of our business include the following:

● International Growth – The introduction, development and sustained profitability of our Monster Energy® brand internationally remains a key value driver for our corporate growth.

● International Growth – The introduction, development and sustained profitability of our brands internationally remains a key value driver for our corporate growth.

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

● Profitable Growth – We believe “functional” value-added beverage brands supported by marketing and innovation and targeted to a diverse consumer base, drive profitable growth.

We continue to broaden our family of products to provide more alternatives to consumers and launched Reign Total Body Fuel® high performance energy drinks in the first quarter of 2019.

We are focused on increasing the profit margins for both our Monster Energy® Drinks segment and our Strategic Brands segment, and believe that tailored branding, packaging, pricing and distribution channel strategies help achieve profitable growth.

We are implementing these strategies with a view to continuing profitable growth.

● Cost Management – The principal focus of cost management will continue to be on reducing input procurement and production costs on a per-case basis, including raw material costs and co-packing fees, as well as reducing freight costs by securing additional co-packing facilities strategically localized.

● Cost Management – The principal focus of cost management will continue to be on mitigating increases and/or reducing input procurement and production costs on a per-case basis, including raw material costs and co-packing fees, as well as reducing freight costs by securing additional co-packing facilities strategically localized.

Another key area of focus is to decrease promotional allowances, selling and general and administrative costs, including sponsorships, sampling, promotional and marketing expenses, as a percentage of net sales.

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

These measurements will continue to be a key management focus in 2021 and beyond (See “Part II, Item 7 – Results of Operations – Results of Operations for the Year Ended December 31, 2020, Compared to the Year Ended December 31, 2019”).

These measurements will continue to be a key management focus in 2022 and beyond (See “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations”).

As of December 31, 2021, the Company had working capital of $3.72 billion compared to $2.39 billion as of December 31, 2020.

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For the year ended December 31, 2021, our net cash provided by operating activities was approximately $1.16 billion as compared to $1.36 billion for the year ended December 31, 2020.

Principal uses of cash flows in 2020, were purchases of investments, repurchase of our common stock, development of our Monster Energy® brand internationally and acquisitions of real property, property and equipment.

These principal uses of cash flows are expected to be and remain our principal recurring use of cash and working capital funds in the future (See “Part II, Item 7 – Liquidity and Capital Resources”).

Principal uses of cash flows in 2021, were purchases of investments, development of our Monster Energy® brand internationally and

acquisitions of real property, property and equipment.

These principal uses of cash flows are expected to be and remain our principal recurring use of cash and working capital funds in the future (See “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”).

Opportunities, Challenges and Risks

Looking forward, our management has identified certain challenges and risks for the beverage industry and the Company, including our significant commercial relationship with TCCC and TCCC’s status as a significant stockholder of the Company, in each case as described above under “Part I, Item 1A – Risk Factors.”

In addition, legislation has been proposed and/or adopted at the U.S., state, county and/or municipal level and proposed and/or adopted in certain foreign jurisdictions to restrict the sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limit caffeine content, require

certain product labeling disclosures and/or warnings, impose taxes, limit product sizes or impose age restrictions for the sale of energy drinks.

In addition, articles critical of the caffeine content in energy drinks and their perceived benefits and articles indicating certain health risks of energy drinks have been published.

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● the risks associated with the realization of benefits from our relationship with TCCC;

● the impact of TCCC’s bottlers/distributors distributing Coca-Cola brand energy drinks;

● changes in consumer preferences and demand for our products;

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● costs of establishing and promoting our brands internationally;

● the risks associated with entering into new sectors in the beverage industry, in particular the alcohol beverage sector, and making acquisitions to implement our growth strategy;

● increases in costs of raw materials used by us;

● restrictions on imports and sources of supply, duties or tariffs, changes in related government regulations and disruptions in the timely import or export of our products and/or ingredients due to port strikes and/or port congestion, delays due to the COVID-19 pandemic, related labor issues or other importation impediments;

● restrictions on imports and sources of supply, duties or tariffs, changes in related government regulations and disruptions in the timely import or export of our products and/or ingredients including flavors, flavor ingredients and supplement ingredients, due to port strikes and/or port congestion, delays due to the COVID-19 pandemic, related labor issues or other importation impediments;

● protection of our existing intellectual property portfolio of trademarks and copyrights and the continuous pursuit to develop and protect new and innovative trademarks and copyrights for our expanding product lines;

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

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

● limitations on available quantities of aluminum cans;

● the increased costs resulting from importing aluminum cans and other raw materials and ingredients;

● limitations on co-packing availability;

● increases in ocean and domestic freight rates;

● shortages of shipping containers and port congestion;

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

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● growth potential of the energy drink category, both domestically and internationally;

● growth potential of the affordable energy drink category;

● planned and future new product and product line introductions with the objective of increasing sales and/or contributing to higher profitability;

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● continued focus on reducing our cost base ;

● our entry into the alcohol category and development of our alcoholic portfolio.

Results of Operations

This section of the Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

A detailed discussion of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The following table sets forth key statistics for the years ended December 31, 2021, 2020 and 2019, respectively.

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Operating income as a percentage of net sales

Other (expense) income, net

Other income (expense), net

Income before provision for income taxes 1

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Income taxes as a percentage of income before taxes

Net income 1,2

Net income as a percentage of net sales

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¹Includes $41.5 million, $42.1 million and $46.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, related to the recognition of deferred revenue.

2 Includes $0.2 million, $11.3 million and $26.6 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to distributor termination costs.

*Gross profit may not be comparable to that of other entities since some entities include all costs associated with their distribution process in cost of sales, whereas others exclude certain costs and instead include such costs within another line item such as operating expenses.

We include out-bound freight and warehouse costs in operating expenses rather than in cost of sales.

Results of Operations for the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019.

Net sales were $5.54 billion for the year ended December 31, 2021, an increase of approximately $942.7 million, or 20.5% higher than net sales of $4.60 billion for the year ended December 31, 2020.

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

Net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $48.2 million for the year ended December 31, 2020.

Net sales for the Monster Energy® Drinks segment were $4.31 billion for the year ended December 31, 2020, an increase of approximately $401.2 million, or 10.3% higher than net sales of $3.90 billion for the year ended December 31, 2019.

Net sales for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks and increased sales by volume for our Reign Total Body Fuel® high performance energy drinks, both as a result of increased consumer demand.

The COVID-19 pandemic had an adverse impact on net sales of the Monster Energy® Drinks segment for the year ended December 31, 2020.

Net sales for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Monster Energy® Drinks segment of approximately $44.0 million for the year ended December 31, 2020.

Net sales for the Strategic Brands segment were $266.4 million for the year ended December 31, 2020, a decrease of approximately $8.6 million, or 3.1% lower than net sales of $274.9 million for the year ended December 31, 2019.

The COVID-19 pandemic had a material adverse impact on net sales of the Strategic Brands segment for the year ended December 31, 2020.

The impact of the COVID-19 pandemic was more pronounced in the Strategic Brand segment, particularly in EMEA, as our largest revenue generating countries for this segment experienced extended lockdowns.

Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Strategic Brands segment of approximately $4.2 million for the year ended December 31, 2020.

Net sales for the Other segment were $27.0 million for the year ended December 31, 2020, an increase of approximately $5.2 million, or 23.7% higher than net sales of $21.9 million for the year ended December 31, 2019.

Case sales, in 192-ounce case equivalents, were 504.8 million cases for the year ended December 31, 2020, an increase of approximately 56.1 million cases or 12.5% higher than case sales of 448.8 million cases for the year ended December 31, 2019.

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

Gross Profit.

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

The increase in gross profit dollars was primarily the result of the $401.2 million increase in net sales of our Monster Energy® Drinks segment for the year ended December 31, 2020.

Gross profit as a percentage of net sales decreased to 59.2% for the year ended December 31, 2020 from 60.0% for the year ended December 31, 2019.

The decrease in gross profit as a percentage of net sales for the year ended December 31, 2020 was primarily the result of the impact of the Product Returns, associated inventory provisions and other related costs as well as geographical sales mix.

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

Operating Expenses .

Total operating expenses were $1.09 billion for the year ended December 31, 2020, a decrease of approximately $24.9 million, or 2.2% lower than total operating expenses of $1.12 billion for the year ended December 31, 2019.

The decrease in operating expenses was primarily due to decreased expenditures of $46.7 million for sponsorship and endorsements, decreased expenditures of $27.7 million for travel and entertainment, each largely as a consequence of the COVID-19 pandemic, decreased expenditures of $14.7 million for legal settlements and decreased expenditures of $11.1 million related to the costs associated with distributor terminations.

The costs for certain postponed or rescheduled events have been, or may be, deferred to future periods.

Due to the uncertainty surrounding the COVID-19 pandemic, we are unable to estimate in what future periods, if any, such deferred sponsorship and endorsement costs will be recognized.

Provision for legal settlements for the year ended December 31, 2020 was lower by $14.7 million than in the comparable 2019 period.

The decrease in operating expenses was partially offset by increased payroll expenses of $43.1 million (of

which $6.9 million was related to an increase in stock-based compensation), increased expenditures of $25.3 million for social media and digital marketing, and increased out-bound freight and warehouse costs of $21.7 million.

Operating Income.

Operating income was $1.63 billion for the year ended December 31, 2020, an increase of approximately $230.2 million, or 16.4% higher than operating income of $1.40 billion for the year ended December 31, 2019.

Operating income as a percentage of net sales was 35.5% and 33.4% for the years ended December 31, 2020 and December 31, 2019, respectively.

Operating income was $270.8 million and $229.2 million for the years ended December 31, 2020 and 2019, respectively, in connection with our operations in Europe, Middle East and Africa (“EMEA”), Asia Pacific and South America.

Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $1.82 billion for the year ended December 31, 2020, an increase of approximately $254.4 million, or 16.2% higher than operating income of $1.57 billion for the year ended December 31, 2019.

The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the $401.2 million increase in net sales of our Monster Energy® Drinks segment for the year ended December 31, 2020.

Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $155.0 million for the year ended December 31, 2020, a decrease of approximately $9.0 million, or 5.5% lower than operating income of $164.1 million for the year ended December 31, 2019.

Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $5.9 million for the year ended December 31, 2020, an increase of approximately $2.3 million, or 62.3% higher than operating income of $3.7 million for the year ended December 31, 2019.

Other (Expense) Income, net .

Other non-operating (expense) income, net, was $(7.0) million for the year ended December 31, 2020, as compared to other non-operating (expense) income, net, of $13.0 million for the year ended December 31, 2019.

Foreign currency transaction losses were $11.2 million and $4.1 million for the years ended December 31, 2020 and 2019, respectively.

Interest income was $8.1 million and $17.8 million for the years ended December 31, 2020 and 2019, respectively.

Provision for Income Taxes .

Provision for income taxes was $216.6 million for the year ended December 31, 2020, a decrease of $91.6 million, or 29.7% lower than the provision for income taxes of $308.1 million for the year ended December 31, 2019.

The effective combined federal, state and foreign tax rate decreased to 13.3% from 21.8% for the year ended December 31, 2020 and 2019, respectively.

The decrease in the effective tax rate was primarily attributable to a non-recurring tax benefit of approximately $165.1 million due to an intra-entity transfer of intangible assets between certain of the Company’s foreign subsidiaries which resulted in a step-up of the tax-deductible basis in the transferred assets in a foreign jurisdiction, and created a temporary difference between the tax basis and the book basis for such intangible assets.

The decrease in the effective tax rate was partially offset by the decrease in the equity compensation deduction.

Net income was $1.41 billion for the year ended December 31, 2020, an increase of $301.8 million, or 27.2% higher than net income of $1.11 billion for the year ended December 31, 2019.

The increase in net income was primarily due to the $205.3 million increase in gross profit, the decrease in the provision for income taxes of $91.6 million and the decrease in operating expenses of $24.9 million.

Results of Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018.

Net sales were $4.20 billion for the year ended December 31, 2019, an increase of approximately $393.6 million, or 10.3% higher than net sales of $3.81 billion for the year ended December 31, 2018.

Net sales for the year ended December 31, 2019 were positively impacted by approximately $101.9 million as a result of a price increase effective from November 1, 2018 in the United States (“the U.S.

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

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

Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately $69.2 million for the year ended December 31, 2019.

Net sales increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand.

Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $61.9 million for the year ended December 31, 2021.

The comparative net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net sales for the Monster Energy® Drinks segment were $5.22 billion for the year ended December 31, 2021, an increase of approximately $915.4 million, or 21.3% higher than net sales of $4.31 billion for the year ended December 31, 2020.

Net sales for the Monster Energy® Drinks segment increased primarily due to (i) sales of our Reign Total Body Fuel® high performance energy drinks, introduced in the first quarter of 2019, (ii) the price increases described above, and (iii) increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand.

Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Monster Energy® Drinks segment of approximately $59.6 million for the year ended December 31, 2019.

Net sales for the Strategic Brands segment were $274.9 million for the year ended December 31, 2019, a decrease of approximately $10.9 million, or 3.8% lower than net sales of $285.8 million for the year ended December 31, 2018.

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

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

Net changes in foreign currency exchange rates had a favorable impact on net sales for the Monster Energy® Drinks segment of approximately $57.6 million for the year ended December 31, 2021.

The comparative net sales for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net sales for the Strategic Brands segment were $294.8 million for the year ended December 31, 2021, an increase of approximately $28.4 million, or 10.7% higher than net sales of $266.4 million for the year ended December 31, 2020.

Net sales for the Strategic Brands segment increased primarily due to increased worldwide sales by volume of our Predator®, Burn® and Mother® brand energy drinks as a result of increased consumer demand.

Shortages of certain NOS® concentrates negatively impacted net sales for the year ended December 31, 2021.

Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $4.3 million for the Strategic Brands segment for the year ended December 31, 2021.

Net sales for the Other segment were $25.9 million for the year ended December 31, 2021, a decrease of approximately $1.1 million, or 4.1% lower than net sales of $27.0 million for the year ended December 31, 2020.

Case sales, in 192-ounce case equivalents, were 613.4 million cases for the year ended December 31, 2021, an increase of approximately 108.6 million cases or 21.5% higher than case sales of 504.8 million cases for the year ended December 31, 2020.

The overall average net sales per case (excluding net sales of AFF Third-Party Products of $21.9 million and $22.9 million for the years ended December 31, 2019 and 2018, respectively, as these sales do not have unit case equivalents) increased to $9.31 for the year ended December 31, 2019, which was 1.1% higher than the average net sales per case of $9.21 for the year ended December 31, 2018.

The increase in the average net sales per case was primarily attributable to a price increase effective from November 1, 2018 in the United States and effective from February 1, 2019 in Canada, on certain of our Monster Energy® brand energy drinks.

Gross Profit.

The overall average net sales per case (excluding net sales of AFF Third-Party Products of $25.9 million and $27.0 million for the year ended December 31, 2021 and 2020, respectively, as these sales do not have unit case equivalents) decreased to $8.99 for the year ended December 31, 2021, which was 0.7% lower than the average net sales per case of $9.06 for the year ended December 31, 2020.

The decrease in the average net sales per case was primarily the result of geographical sales mix.

Gross profit was $3.11 billion for the year ended December 31, 2021, an increase of approximately $384.6 million, or 14.1% higher than the gross profit of $2.72 billion for the year ended December 31, 2020.

The increase in gross profit dollars was primarily the result of the $405.6 million increase in net sales of our Monster Energy® Drinks segment for the year ended December 31, 2019.

The increase in gross profit dollars was primarily the result of the $942.7 million increase in net sales for the year ended December 31, 2021.

Gross profit as a percentage of net sales decreased to 56.1% for the year ended December 31, 2021 from 59.2% for the year ended December 31, 2020.

The decrease for the year ended December 31, 2019 was primarily the result of geographical and product sales mix.

Such decrease was partially offset by the sales price increases discussed above.

The decrease for the year ended December 31, 2021 was primarily the result of increased aluminum can costs attributable to higher aluminum commodity pricing, increased costs of certain other raw materials and ingredients, increased freight-in costs and geographical sales mix.

Operating Expenses

Total operating expenses were $1.31 billion for the year ended December 31, 2021, an increase of approximately $220.3 million, or 20.2% higher than total operating expenses of $1.09 billion for the year ended December 31, 2020.

The increase in operating expenses was primarily due to increased payroll expenses of $36.0 million (of which $6.2 million was related to an increase in stock-based compensation), increased expenditures of $25.1 million for professional service fees, including legal and accounting costs, increased expenditures of $13.4 million for sponsorships and endorsements, and increased expenditures of $19.1 million in other marketing expenses.

The increase in operating expenses was partially offset by decreased expenditures of $15.4 million related to the costs associated with distributor terminations.

Operating expenses for the year ended December 31, 2019 included a $15.5 million provision in connection with an intellectual property claim brought by the descendants of Hubert Hansen in relation to the Company’s use of the Hubert Hansen name prior to the transaction with TCCC, that closed in 2015.

As a percentage of net sales, operating expenses were 23.7% for both the years ended December 31, 2021 and 2020.

The increase in operating expenses was primarily due to increased out-bound freight and warehouse costs of $86.1 million, increased payroll expenses of $42.5 million, increased expenditures of $38.1 million for sponsorships and endorsements, increased expenditures of $15.7 million for social media and digital marketing, and increased expenditures of $10.4 million for professional service expenses, including accounting and legal costs.

The increase in operating expenses for the year ended December 31, 2021, was partially offset by $16.9 million due to the reversal of amounts previously accrued in connection with an intellectual property claim.

During the comparative 2020 period, the Company decreased expenditures for sponsorship and endorsements and decreased expenditures for travel and entertainment, each largely as a consequence of the COVID-19 pandemic.

The impact of the COVID-19 pandemic was less pronounced on our sales and marketing programs during the year ended December 31, 2021.

Operating expenses for the year ended December 31, 2019 (pre COVID-19) were $1.12 billion, or 26.6% of net sales.

Operating Income

Operating income was $1.80 billion for the year ended December 31, 2021, an increase of approximately $164.3 million, or 10.1% higher than operating income of $1.63 billion for the year ended December 31, 2020.

Operating income as a percentage of net sales was 33.4% and 33.7% for the years ended December 31, 2019 and December 31, 2018, respectively.

Operating income was $229.2 million and $180.8 million for the years ended December 31, 2019 and 2018, respectively, in connection with our operations in Europe, Middle East and Africa (“EMEA”), Asia Pacific and South America.

Operating income as a percentage of net sales decreased to 32.4% for the year ended December 31, 2021 from 35.5% for the year ended December 31, 2020.

Operating income was $402.8 million and $279.7 million for the year ended December 31, 2021 and 2020, respectively, for our operations in EMEA, Asia Pacific, Latin America and the Caribbean.

Operating income for the year ended December 31,2019 (pre COVID-19) was $1.4 billion, or 33.4% of net sales.

Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $1.99 billion for the year ended December 31, 2021, an increase of approximately $170.4 million, or 9.4% higher than operating income of $1.82 billion for the year ended December 31, 2020.

The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the $405.6 million increase in net sales of our Monster Energy® Drinks segment for the year ended December 31, 2019.

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

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

Other Income, net .

Other non-operating income, net, was $13.0 million for the year ended December 31, 2019, as compared to other non-operating income, net, of $9.7 million for the year ended December 31, 2018.

Foreign currency transaction losses were $4.1 million and $4.0 million for the years ended December 31, 2019 and 2018, respectively.

Interest income was $17.8 million and $13.8 million for the years ended December 31, 2019 and 2018, respectively.

The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the $915.4 million increase in net sales for the year ended December 31, 2021.

Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $173.7 million for the year ended December 31, 2021, an increase of approximately $18.6 million, or 12.0% higher than operating income of $155.0 million for the year ended December 31, 2020.

The increase in operating income for the Strategic Brands segment was primarily the result of the $28.4 million increase in net sales.

Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $6.9 million for the year ended December 31, 2021, an increase of approximately $1.0 million, or 16.9% higher than operating income of $5.9 million for the year ended December 31, 2020.

Other Income (Expense), net

Other income (expense), net, was $4.0 million for the year ended December 31, 2021, as compared to other income (expense), net, of ($7.0) million for the year ended December 31, 2020.

Foreign currency transaction gains (losses) were $0.3 million and ($11.2) million for the year ended December 31, 2021 and 2020, respectively.

Interest income was $4.2 million and $8.1 million for the year ended December 31, 2021 and 2020, respectively.

Provision for Income Taxes

Provision for income taxes was $423.9 million for the year ended December 31, 2021, an increase of $207.4 million, or 95.8% higher than the provision for income taxes of $216.6 million for the year ended December 31, 2020.

The effective combined federal, state and foreign tax rate decreased to 21.8% from 23.2% for the year ended December 31, 2019 and 2018, respectively.

The decrease in effective tax rate was primarily attributable to an increase in equity compensation deductions.

The decrease in the effective tax rate was partially offset by increased income taxes in certain foreign jurisdictions.

Net income was $1.11 billion for the year ended December 31, 2019, an increase of $114.8 million, or 11.6% higher than net income of $993.0 million for the year ended December 31, 2018.

The increase in net income was primarily due to the $223.2 million increase in gross profit.

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

The effective combined federal, state and foreign tax rate was 23.5% and 13.3% for the year ended December 31, 2021 and 2020, respectively.

The comparative provision for income taxes for the year ended December 31, 2020 included the Non-Recurring Tax Benefit of approximately $165.1 million.

Net income was $1.38 billion for the year ended December 31, 2021, a decrease of $32.1 million, or 2.3% lower than net income of $1.41 billion for the year ended December 31, 2020.

The decrease in net income for the year ended December 31, 2021 was primarily due to the $207.4 million increase in the provision for income taxes and the $220.3 million increase in operating expenses, partially offset by the $393.1 million increase in gross profit.

Key Business Metrics

We use certain key metrics and financial measures not prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) to evaluate and manage our business.

For a further discussion of how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures and Other Key Metrics”.

For a further discussion of how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures and Other Key Metrics” below.

Non-GAAP Financial Measures and Other Key Metrics

Year Ended December 31, 2020 compared to the Year Ended December 31, 2019.

Gross Billings**

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

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

Gross billings for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $50.0 million for the year ended December 31, 2020.

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

Gross billings for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks and increased sales by volume for our Reign Total Body Fuel® high performance energy drinks, both as a result of increased consumer demand.

The COVID-19 pandemic had an adverse impact on gross billings of the Monster Energy® Drinks segment for the year ended December 31, 2020.

Gross billings for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Monster Energy® Drinks segment of approximately $45.8 million for the year ended December 31, 2020.

Gross billings for the Strategic Brands segment were $305.4 million for the year ended December 31, 2020, a decrease of approximately $7.3 million, or 2.3% lower than gross billings of $312.7 million for the year ended December 31, 2019.

The COVID-19 pandemic had a material adverse impact on gross billings of the Strategic Brands segment for the year ended December 31, 2020.

The impact of the COVID-19 pandemic was more pronounced in the Strategic Brands segment, particularly in EMEA, as our largest revenue generating countries for this segment experienced extended lockdowns.

Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Strategic Brands segment of approximately $4.2 million for the year ended December 31, 2020.

Gross billings for the Other segment were $27.0 million for the year ended December 31, 2020, an increase of approximately $5.2 million, or 23.7% higher than gross billings of $21.9 million for the year ended December 31, 2019.

Promotional allowances, commissions and other expenses ***.

Promotional allowances, commissions and other expenses, as described in the footnote below, were $772.2 million for the year ended December 31, 2020, an increase of $105.3 million, or 15.8% higher than promotional allowances, commissions and other expenses of $666.9 million for the year ended December 31, 2019.

Promotional allowances, commissions and other expenses as a percentage of gross billings increased to 14.5% from 13.8% for the years ended December 31, 2020 and 2019, respectively.

Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution contract, generally 20 years, or through completion of the sales/marketing program.

Revenue recognized was $42.1 million and $46.3 million for the years ended December 31, 2020 and 2019, respectively.

Year Ended December 31, 2019 compared to the Year Ended December 31, 2018.

Gross Billings.

Gross billings were $4.82 billion for the year ended December 31, 2019, an increase of approximately $436.1 million, or 9.9% higher than gross billings of $4.39 billion for the year ended December 31, 2018.

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

Price Increase and the Canada Price Increase, on certain of our Monster Energy® brand energy drinks.

Net changes in foreign currency exchange rates had an unfavorable impact on gross billings of approximately $82.5 million for the year ended December 31, 2019.

Gross billings for the Monster Energy® Drinks segment were $4.49 billion for the year ended December 31, 2019, an increase of approximately $451.6 million, or 11.2% higher than gross billings of $4.04 billion for the year ended

December 31, 2018.

Gross billings for the Monster Energy® Drinks segment increased primarily due to (i) sales of our Reign Total Body Fuel ® high performance energy drinks, introduced in the first quarter of 2019, (ii) the price increases described above, and (iii) increased sales by volume of our Monster Energy® brand energy drinks as a result of increased domestic and international consumer demand.

Net changes in foreign currency exchange rates had an unfavorable impact on gross billings for the Monster Energy® Drinks segment of approximately $72.9 million for the year ended December 31, 2019.

Gross billings for the Strategic Brands segment were $312.7 million for the year ended December 31, 2019, a decrease of $14.4 million, or 4.4% lower than gross billings of $327.1 million for the year ended December 31, 2018.

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

Gross billings were $6.42 billion for the year ended December 31, 2021, an increase of approximately $1.10 billion, or 20.6% higher than gross billings of $5.33 billion for the year ended December 31, 2020.

Net changes in foreign currency exchange rates had a favorable impact on gross billings of approximately $83.1 million for the year ended December 31, 2021.

The comparative gross billings for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Gross billings for the Monster Energy® Drinks segment were $6.06 billion for the year ended December 31, 2021, an increase of approximately $1.06 billion, or 21.3% higher than gross billings of $5.00 billion for the year ended December 31, 2020.

Gross billings for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand.

Net changes in foreign currency exchange rates had a favorable impact on gross billings for the Monster Energy® Drinks segment of approximately $78.7 million for the year ended December 31, 2021.

The comparative gross billings for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns.

Gross billings for the Strategic Brands segment were $340.2 million for the year ended December 31, 2021, an increase of $34.8 million, or 11.4% higher than gross billings of $305.4 million for the year ended December 31, 2020.

Shortages of NOS® concentrate negatively impacted gross billings for the year ended December 31, 2021.

Net changes in foreign currency exchange rates had a favorable impact on gross billings in the Strategic Brands segment of approximately $4.4 million for the year ended December 31, 2021.

Gross billings for the Other segment were $25.9 million for the year ended December 31, 2021, a decrease of $1.1 million, or 4.1% lower than gross billings of $27.0 million for the year ended December 31, 2020.

Promotional allowances, commissions and other expenses .

Promotional allowances, commissions and other expenses, as described in the footnote below, were $666.9 million for the year ended December 31, 2019, an increase of $44.5 million, or 7.2% higher than promotional allowances, commissions and other expenses of $622.3 million for the year ended December 31, 2018.

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

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

**Gross Billings (titled Gross Sales in prior filings) represent amounts invoiced to customers net of cash discounts and returns.

Promotional allowances, commissions and other expenses, as described in the footnote below, were $924.7 million for the year ended December 31, 2021, an increase of $152.6 million, or 19.8% higher than promotional allowances,

commissions and other expenses of $772.2 million for the year ended December 31, 2020.

Promotional allowances as a percentage of gross billings decreased to 12.8% from 13.1% for the year ended December 31, 2021 and 2020, respectively.

**Gross billings represent amounts invoiced to customers net of cash discounts and returns.

Gross billings are used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and is useful to investors in evaluating overall Company performance.

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

presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales.

The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales.

Promotional and other allowances constitute a material portion of our marketing activities.

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The primary drivers of our promotional and other allowance activities for the years ended December 31, 2021 and 2020 were (i) to increase sales volume and trial, (ii) to address market conditions, and (iii) to secure shelf and display space at retail.

The table set forth below discloses selected quarterly data regarding sales for the past five years.

The table set forth below discloses selected quarterly data regarding sales for the past three years.

Data from any one or more quarters is not necessarily indicative of annual results or continuing trends.

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Adjusted Net Sales (in Thousands)¹

Unit Case Volume / Sales (in Thousands)

Case Volume / Sales (in Thousands)

Adjusted Average Net Sales Per Case

1 Excludes Other segment net sales of $27.0 million, $21.9 million, $22.9 million, $21.6 million and $17.0 million for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents.

1 Excludes Other segment net sales of $25.9 million, $27.0 million and $21.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents.

The following represents case sales by segment for the years ended December 31:

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Average net sales per case

1 Excludes Other segment net sales of $27.0 million, $21.9 million, $22.9 million, $21.6 million and $17.0 million for the years ended December 31, 2020, 2019, 2018, 2017, and 2016, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents.

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

Inflation had a negative impact on our results of operations, leading to increased cost of sales and operating expenses for the year ended December 31, 2021.

Inflation did not have a significant impact on our results of operations for the years ended December 31, 2020 or 2019.

Liquidity and Capital Resources

Cash flows provided by operating activities.

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

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

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

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

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

For the year ended December 31, 2019, cash provided by operating activities also increased due to a $28.8 million increase in accounts payable, a $21.9 million increase in accrued promotional allowances, a $9.5 million decrease in prepaid income taxes, an $8.1 million increase in income taxes payable, a $7.2 million increase in accrued compensation, a $6.5 million decrease in distributor receivables and a $1.3 million decrease in deferred income taxes.

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

Cash flows used in investing activities.

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

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

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

For both the years ended December 31, 2020 and 2019, cash used in investing activities also included the acquisition of fixed assets consisting of vans and promotional vehicles, coolers and other equipment to support our marketing and promotional activities, production equipment, furniture and fixtures, office and computer equipment, real property, computer software, equipment used for sales and administrative activities, certain leasehold improvements, improvements to real property as well as the acquisition, defense and maintenance of trademarks.

We expect to continue to use a portion of our cash in excess of our requirements for operations for purchasing short-term and long-term investments, leasehold improvements, the acquisition of capital equipment (specifically, vans, trucks and promotional vehicles, coolers, other promotional equipment, merchandise displays, warehousing racks as well as items of production equipment required to produce certain of our existing and/or new products and to develop our brand in international markets) and for other corporate purposes.

From time to time, we may also use cash to purchase additional real property related to our beverage business and/or acquire compatible businesses.

Cash flows used in financing activities.

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

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

The cash flows provided by financing activities for both the years ended December 31, 2020, and 2019 was primarily attributable to the issuance of our common stock.

Purchases of inventories, increases in accounts receivable and other assets, acquisition of property and equipment (including real property, personal property and coolers), leasehold improvements, advances for or the purchase of equipment for our bottlers, acquisition and maintenance of trademarks, payments of accounts payable, income taxes payable and purchases of our common stock are expected to remain our principal recurring use of cash.

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

Cash and cash equivalents, short-term and long-term investments – As of December 31, 2021, we had $1.33 billion in cash and cash equivalents, $1.75 billion in short-term investments and $99.4 million in long-term investments, including certificates of deposit, commercial paper, U.S.

government agency securities, U.S.

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However, future business opportunities may cause a change in this estimate.

The following summarizes our cash flows for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Cash flows provided by operating activities.

Cash provided by operating activities was $1.16 billion for the year ended December 31, 2021, as compared with cash provided by operating activities of $1.36 billion for the year ended December 31, 2020.

For the year ended December 31, 2021, cash provided by operating activities was primarily attributable to net income earned of $1.38 billion and adjustments for certain non-cash expenses, consisting of $50.2 million of depreciation and amortization, and $70.5 million of stock-based compensation.

For the year ended December 31, 2021, cash provided by operating activities also increased due to a $114.3 million increase in accounts payable, a $71.6 million increase in accrued liabilities, a $31.5 million increase in accrued promotional allowances, a $16.4 million increase in deferred income taxes, an $8.0 million increase in accrued compensation and a $7.2 million increase in income taxes payable.

For the year ended December 31, 2021, cash used in operating activities was primarily attributable a $277.8 million increase in inventories, a $254.2 million increase in accounts receivable, a $29.3 million increase in prepaid expenses and other assets, a $22.7 million decrease in deferred revenue and a $10.9 million increase in prepaid income taxes.

For the year ended December 31, 2020, cash provided by operating activities was primarily attributable to net income earned of $1.41 billion and adjustments for certain non-cash expenses, consisting of $57.0 million of depreciation and amortization, $70.3 million of stock-based compensation and $8.7 million of intangible impairments.

Cash flows used in investing activities.

Net cash used in investing activities was $992.0 million for the year ended December 31, 2021 as compared to cash used in investing activities of $472.5 million for the year ended December 31, 2020.

For both the years ended December 31, 2021 and 2020, cash provided by investing activities was primarily attributable to sales of available-for-sale investments.

For both the years ended December 31, 2021 and 2020, cash used in investing activities was primarily attributable to purchases of available-for-sale investments.

For both the years ended December 31, 2021 and 2020, cash used in investing activities also included the acquisition of fixed assets consisting of vans and promotional vehicles, coolers and other equipment to support our marketing and promotional activities, production equipment, furniture and fixtures, office and computer equipment, real property, computer software, equipment used for sales and administrative activities, certain leasehold improvements, improvements to real property as well as the acquisition, defense and maintenance of trademarks.

From time to time, we may also use cash to purchase additional real property related to our beverage business and/or acquire compatible businesses.

Cash flows provided by (used in) financing activities.

Cash provided by financing activities was $34.8 million for the year ended December 31, 2021 as compared to cash used in financing activities of ($526.1) million for the year ended December 31, 2020.

The cash flows provided by financing activities for both the years ended December 31, 2021, and 2020 was primarily attributable to the issuance of our common stock related to stock-based compensation.

The cash flows used in financing activities for both the years ended December 31, 2021 and 2020 was primarily the result of the repurchases of our common stock related to stock-based compensation.

The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of December 31, 2021:

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Purchase Commitments 2

1 Contractual obligations include our obligations related to sponsorships and other commitments.

¹ Contractual obligations include our obligations related to sponsorships, other marketing activities and AFF new production facility construction costs.

² Purchase commitments include obligations made by us and our subsidiaries to various suppliers for raw materials used in the production of our products.

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

In addition, approximately $0.7 million of unrecognized tax benefits have been recorded as liabilities as of December 31, 2020.

In addition, no unrecognized tax benefits have been recorded as liabilities as of December 31, 2021.

It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months.

As of December 31, 2020, we had $0.1 million of accrued interest and penalties related to unrecognized tax benefits.

Accounting Policies and Pronouncements

Critical Accounting Policies

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP.

GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements.

The following summarizes our most significant accounting and reporting policies and practices:

Business Combinations – Business acquisitions are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”.

FASB ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase.

The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition.

Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill.

Adjustments to fair value assessments are recorded to goodwill over the measurement period (not longer than twelve months).

The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.

Cash and Cash Equivalents – The Company considers all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents.

Throughout the year, the Company has had amounts on deposit at financial institutions that exceed the federally insured limits.

The Company has not experienced any loss as a result of these deposits and does not expect to incur any losses in the future.

Investments – The Company’s investments in debt securities are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320.

Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity.

Trading securities are those securities that the Company intends to sell in the near term.

All other securities not included in the held-to-maturity or trading category are classified as available-for-sale.

Held-to-maturity securities are recorded at amortized cost which approximates fair market value.

Trading securities are carried at fair value with unrealized gains and losses charged to earnings.

Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.

FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available.

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

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

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

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

The Company evaluates whether the decline in fair value of its investments has resulted from credit loss or other factors at each quarter-end.

This evaluation consists of a review by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer’s financial condition and, if applicable, information on the guarantors’ financial condition.

Factors considered in determining whether 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.

In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected.

In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding.

In accordance with FASB ASC 210-20-45, in its consolidated balance sheets, the Company has presented accounts receivable, net of promotional allowances, only for those customers that it allows net settlement.

All other accounts receivable and related promotional allowances are shown on a gross basis.

Inventories – Inventories are valued at the lower of first-in, first-out, cost or market value (net realizable value).

Property and Equipment – Property and equipment are stated at cost.

Depreciation of furniture and fixtures, office and computer equipment, computer software, equipment, and vehicles is based on their estimated useful lives (three to ten years) and is calculated using the straight-line method.

Amortization of leasehold improvements is based on the lesser of their estimated useful lives or the terms of the related leases and is calculated using the straight-line method.

Normal repairs and maintenance costs are expensed as incurred.

Expenditures that materially increase values or extend useful lives are capitalized.

The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.

Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations.

Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.

See “Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 – Organization and Summary of Significant Accounting Policies” for a summary of our significant accounting policies.

The following summarizes our most significant critical accounting estimates:

Goodwill – The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects.

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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.

Application of the goodwill impairment test requires significant judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.

The fair value of each reporting unit is estimated through the use of a discounted cash flow methodology.

This analysis requires significant assumptions, including discount rate, projected future revenues, projected future operating margins and terminal growth rates.

The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and other factors.

Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.

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, 2021, 2020 and 2019, there were no impairments recorded and there are no accumulated impairment balances.

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

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

In addition, in 2016 through our acquisition of AFF, we secured the intellectual property of our most important flavors for certain of our Monster Energy® Brand energy drinks in perpetuity.

In accordance with FASB ASC 350, intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists.

The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value.

If the carrying value exceeds the estimate of fair value a write-down is recorded.

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

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

Other Intangibles – In accordance with FASB ASC 350, intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists.

Recoverability of indefinite-lived intangible assets is determined on a relief from royalty methodology, which is based on the implied royalty paid, at an appropriate discount rate, to license the use of an asset rather than owning the asset.

The present value of the after-tax cost savings (i.e.

royalty relief) indicates the estimated fair value of the asset.

Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.

This analysis requires significant assumptions, including discount rate, projected future revenues and terminal growth rates.

A significant change in any or a combination of the assumptions used to estimate fair value of our indefinite-lived intangible assets could have a negative impact on the estimated fair values.

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

For the years ended December 31, 2021 and 2019 no impairments were recorded.

Long-Lived Assets – Management regularly reviews property and equipment and other long-lived assets, including certain definite-lived intangible assets, for possible impairment.

This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

If there is indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition.

If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value.

The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks.

Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions.

For the years ended December 31, 2020, 2019 and 2018, there were no impairment indicators identified.

Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.

Foreign Currency Translation and Transactions – The accounts of the Company’s foreign subsidiaries are translated in accordance with FASB ASC 830.

Foreign currency transaction gains and losses are recognized in other income, net, at the time they occur.

Net foreign currency exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries whose functional currency is not the U.S.

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

During the years ended December 31, 2020, 2019 and 2018, we entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries non-functional currency denominated assets and liabilities.

All foreign currency exchange contracts outstanding as of December 31, 2020 have terms of three months or less.

We do not enter into forward currency exchange contracts for speculation or trading purposes.

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

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

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

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

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

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

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

Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements.

Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s behalf.

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

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

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

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

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

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s bottlers/distributors or retail customers including, but not limited to the following:

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

Revenue Recognition – Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s bottlers/distributors or retail customers including, but not limited to the following:

● discounts granted off list prices to support price promotions to end-consumers by retailers;

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

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

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

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

Cost of Sales – Cost of sales consists of the costs of flavors, concentrates, supplement ingredients and/or beverage bases, the costs of raw materials utilized in the manufacture of 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.

Raw materials account for the largest portion of cost of sales.

Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.

Operating Expenses – Operating expenses include selling expenses such as distribution expenses to transport products to customers and warehousing expenses after manufacture, as well as expenses for advertising, sampling and in-store demonstration costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses.

Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), termination payments made to certain of the Company’s prior distributors, depreciation and other general and administrative costs.

Income Taxes – The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC 740.

Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse.

A valuation allowance is recorded when it is more likely than not that some of the deferred

tax assets will not be realized.

In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies.

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

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

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

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

Recent Accounting Pronouncements

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Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company.

Certain statements made in this report may constitute forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, as amended) regarding our expectations with respect to revenues, profitability, adequacy of funds from operations and our existing credit facility, among other things.

All statements containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items, a statement of management’s plans and objectives for future operations, or a statement of future economic performance contained in management’s discussion and analysis of financial condition and results of operations, including statements related to new products, volume growth and statements encompassing general optimism about future operating results and non-historical information, are forward-looking statements within the meaning of the Act.

Certain statements made in this report may constitute forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) (the “Exchange Act”) regarding the expectations of management with respect to revenues, profitability, adequacy of funds from operations and our existing credit facility, among other things.

Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects,” “estimates” and similar expressions are intended to identify forward-looking statements.

Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside our control and involve a number of risks, uncertainties and other factors, that could cause actual results and events to differ materially from the statements made including, but not limited to, the following:

● The human and economic consequences of the COVID-19 pandemic, as well as the measures taken or that may be taken in the future by governments, and consequently, businesses (including the Company and its suppliers, bottlers/ distributors, co-packers and other service providers) and the public at large to limit the COVID-19 pandemic;

● The impact on consumer demand of the resurgence of the COVID-19 pandemic, resulting in a number of countries, particularly in EMEA, reinstituting lockdowns and other restrictions as well as the impact of possible resurgences in other countries;

● Our ability to absorb, mitigate or pass on to our bottlers/distributors and/or consumers increases in commodity, freight and other costs;

● The human and economic consequences of the COVID-19 pandemic, including new variants, as well as the measures taken or that may be taken in the future by governments, and consequently, businesses (including the Company and its suppliers, bottlers/ distributors, co-packers and other service providers) and the public at large to limit the COVID-19 pandemic;

● Fluctuations in growth and/or growth rates and/or decline in sales of the domestic and international energy drink categories generally, including in the convenience and gas channel (which is our largest channel) and the impact on demand for our products resulting from deteriorating economic conditions and/or financial uncertainties due to the COVID-19 pandemic;

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

● The impact of the reduction in our sponsorship and endorsement activities as well as our sampling activities as a result of COVID-19 on our future sales and market share;

● We have extensive commercial arrangements with TCCC and, as a result, our future performance is substantially dependent on the success of our relationship with TCCC;

● The impact of TCCC’s bottlers/distributors distributing Coca-Cola brand energy drinks and possible reductions in the number of our SKUs carried by such bottlers/distributors and/or such bottlers/distributors imposing limitations on distributing new product SKUs;

● The impact of the reduction in 2020 or future reductions of our sponsorship and endorsement activities as well as our sampling activities as a result of COVID-19 or other pandemics on our future sales and market share;

● The impact of countries being in lockdown due to the COVID-19 pandemic at various times;

● Delays in the availability and/or administration and/or acceptance of vaccines may prolong the COVID-19 pandemic;

● The impact of vaccine mandates on our business and supply chain, including our ability to recruit and/or retain employees, and disruptions in the business of our co-packers, bottlers/distributors and/or suppliers.

● Closures of, and continued restrictions on, on-premise retailers and other establishments which sell our products as the result of the COVID-19 pandemic;

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● The impact of the COVID-19 pandemic on our product sampling programs;

● Our ability to introduce new products and the impact of the COVID-19 pandemic on our innovation activities;

● Our ability to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic;

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

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

● The impact of logistical issues, including shortages of shipping containers, port of entry congestion and increased freight costs;

● We have extensive commercial arrangements with TCCC and, as a result, our future performance is substantially dependent on the success of our relationship with TCCC;

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

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● Our ability to produce our products in international markets in which they are sold, thereby reducing freight costs and/or product damages;

● Our ability to absorb, reduce or pass on to our bottlers/distributors increases in freight costs;

● Our ability to effectively manage our inventories and/or our accounts receivables;

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

● Uncertainties surrounding the long-term impact of the United Kingdom’s departure from the European Union (or “Brexit”);

● The long-term impact of the United Kingdom’s departure from the European Union (or “Brexit”);

● Changes in accounting standards may affect our reported profitability;

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● The impact on our business of trademark and trade dress infringement proceedings brought against us relating to our brands, including our Reign Total Body Fuel® high performance energy drinks, which could result in an injunction barring us from selling certain of our products and/or require changes to be made to our current trade dress;

● Our ability to introduce new products and the impact of the COVID-19 pandemic on our innovation activities;

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

● Our ability to implement and/or maintain price increases, including through reductions in promotional allowances;

● An inability to achieve volume growth through product and packaging initiatives;

● Our ability to sustain the current level of sales and/or achieve growth for our Monster Energy® brand energy drinks and/or our other products, including our Strategic Brands;

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

● Our ability to implement our growth strategy, including expanding our business in existing and new sectors, such as the alcoholic beverage sector;

● Our ability to successfully integrate CANarchy and other acquired businesses or assets;

● The impact of criticism of our energy drink products and/or the energy drink market generally and/or legislation enacted (whether as a result of such criticism or otherwise) that restricts the marketing or sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limits caffeine content in beverages, requires certain product labeling disclosures and/or warnings, imposes excise and/or sales taxes, limits product sizes and/or imposes age restrictions for the sale of energy drinks;

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

federal, state and local laws and regulations and/or proposed or existing laws and regulations in certain foreign jurisdictions and/or any changes therein, including changes in taxation requirements (including tax rate changes, new tax laws, new and/or increased excise, sales and/or other taxes on our products and revised tax law interpretations) and environmental laws, as well as the Federal Food, Drug, and Cosmetic Act and regulations or rules made thereunder or in connection therewith by the FDA, as well as changes in any other food, drug or similar laws in the United States and internationally, especially those changes that may restrict the sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limit caffeine content in beverages, require certain product labeling disclosures and/or warnings, impose excise taxes, impose sugar taxes, limit product sizes, or impose age restrictions for the sale of energy drinks, as well as laws and regulations or rules made or enforced by the Bureau of Alcohol, Tobacco, Firearms and Explosives and/or the FTC or their foreign counterparts;

● Disruptions in the timely import or export of our products and/or ingredients due to port strikes and related labor issues;

● Disruptions in the timely import or export of our products and/or ingredients including flavors, flavor ingredients and supplement ingredients due to port congestion, strikes and related labor issues or otherwise;

● Our ability to satisfy all criteria set forth in any model energy drink guidelines, including, without limitation, those adopted by the American Beverage Association, of which we are a member, and/or any international beverage associations and the impact of our failure to satisfy such guidelines may have on our business;

● The effect of unfavorable or adverse public relations, press, articles, comments and/or media attention;

● Changes in the cost, quality and availability of containers, packaging materials, aluminum cans, the Midwest and other premiums, raw materials and other ingredients and juice concentrates, and our ability to obtain and/or maintain favorable supply arrangements and relationships and procure timely and/or sufficient production of all or any of our products to meet customer demand;

● Any shortages that may be experienced in the procurement of containers and/or other raw materials including, without limitation, aluminum cans generally, PET containers used for our Monster Hydro® energy drinks, 24-ounce aluminum cap cans and 550ml BRE aluminum cans with resealable ends;

● Changes in the cost, quality and availability of containers, packaging materials, aluminum cans, the Midwest and other premiums, raw materials, including flavors and flavor ingredients, and other ingredients and juice concentrates, and our ability to obtain and/or maintain favorable supply arrangements and relationships and procure timely and/or sufficient production of all or any of our products to meet customer demand;

● Any shortages that may be experienced in the procurement of containers and/or other raw materials including, without limitation, flavors, flavor ingredients, supplement ingredients, aluminum cans generally, PET containers used for our Monster Hydro® energy drinks, 24-ounce aluminum cap cans and 550ml BRE aluminum cans with resealable ends;

● Limitations in securing the supply of sufficient quantities of aluminum cans may cause us to focus on producing higher volume products.

As a result, certain of our lower volume products may be temporarily discontinued by our bottlers/distributors and/or their retail customers, and we may not be able to reinstate all, or any, of such lower volume products in the future;

● In order to secure sufficient quantities of aluminum cans and sufficient co-packing availability in the future, we may be required to commit to minimum purchase volumes and/or minimum co-packing volumes.

In the event that we over-estimate future demand for our products and therefore may not purchase such minimum quantities in full, or utilize such minimum co-packing volumes in full, we may incur claims and/or costs or losses in respect of such shortfalls;

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

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● The success of our sports marketing, social media and other general marketing endeavors both domestically and internationally;

● Our ability to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic;

● Unforeseen economic and political changes and local or international catastrophic events;

● Possible recalls of our products and/or the consequence and costs of defective production;

● Possible product recalls and/or reformulations of certain of our products and/or market withdrawals of certain of our products due to defective and/or non-compliant formulas or production in one or more jurisdictions;

● Our ability to make suitable arrangements and/or procure sufficient capacity for the co-packing of any of our products both domestically and internationally, the timely replacement of discontinued co-packing arrangements and/or limitations on co-packing availability, including for retort production;

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

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

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

● Any disruption in and/or lack of effectiveness of our information technology systems, including a breach of cyber security, that disrupts our business or negatively impacts customer relationships, as well as cybersecurity incidents involving data shared with third parties;

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Forward-looking statements represent our estimates and assumptions only as of the date that they were made.

We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.

We expressly disclaim any duty

to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis