UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended | Commission File Number 001-18761 | |
MONSTER BEVERAGE CORPORATION
(Exact name of Registrantregistrant as specified in its charter)
| Delaware | 47-1809393 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
1 Monster Way
Corona, California 92879
(Address of principal executive offices) (Zip code)
(951) 739 –- 6200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | | MNST | | Nasdaq Global Select Market |
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No __ No__
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No __
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| |
| ☐ |
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act).
Yes _____ No X
The Registrantregistrant had 563,963,300529,671,407 shares of common stock, par value $0.005 per share, outstanding as of October 26, 2017.April 29, 2022.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2017MARCH 31, 2022
INDEX
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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49 | ||
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| 51 |
2
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2017MARCH 31, 2022 AND DECEMBER 31, 2016
|
|
| September 30, |
| December 31, |
| ||
ASSETS |
|
|
|
|
| ||
CURRENT ASSETS: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 465,559 |
| $ | 377,582 |
|
Short-term investments |
| 630,348 |
| 220,554 |
| ||
Accounts receivable, net |
| 535,336 |
| 448,051 |
| ||
TCCC Transaction receivable |
| - |
| 125,000 |
| ||
Inventories |
| 213,341 |
| 161,971 |
| ||
Prepaid expenses and other current assets |
| 46,095 |
| 32,562 |
| ||
Prepaid income taxes |
| 43,618 |
| 66,550 |
| ||
Total current assets |
| 1,934,297 |
| 1,432,270 |
| ||
|
|
|
|
|
| ||
INVESTMENTS |
| 7,003 |
| 2,394 |
| ||
PROPERTY AND EQUIPMENT, net |
| 225,421 |
| 173,343 |
| ||
DEFERRED INCOME TAXES |
| 158,739 |
| 159,556 |
| ||
GOODWILL |
| 1,331,643 |
| 1,331,643 |
| ||
OTHER INTANGIBLE ASSETS, net |
| 1,033,481 |
| 1,032,635 |
| ||
OTHER ASSETS |
| 18,322 |
| 21,630 |
| ||
Total Assets |
| $ | 4,708,906 |
| $ | 4,153,471 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
CURRENT LIABILITIES: |
|
|
|
|
| ||
Accounts payable |
| $ | 229,551 |
| $ | 193,270 |
|
Accrued liabilities |
| 112,732 |
| 79,526 |
| ||
Accrued promotional allowances |
| 158,824 |
| 110,237 |
| ||
Accrued distributor terminations |
| 15,656 |
| 8,184 |
| ||
Deferred revenue |
| 43,566 |
| 41,672 |
| ||
Accrued compensation |
| 27,199 |
| 30,043 |
| ||
Income taxes payable |
| 10,156 |
| 7,657 |
| ||
Total current liabilities |
| 597,684 |
| 470,589 |
| ||
|
|
|
|
|
| ||
DEFERRED REVENUE |
| 342,249 |
| 353,173 |
| ||
|
|
|
|
|
| ||
OTHER LIABILITIES |
| 819 |
| - |
| ||
|
|
|
|
|
| ||
COMMITMENTS AND CONTINGENCIES (Note 10) |
|
|
|
|
| ||
|
|
|
|
|
| ||
STOCKHOLDERS’ EQUITY: |
|
|
|
|
| ||
Common stock - $0.005 par value; 1,250,000 shares authorized; |
| 3,126 |
| 3,116 |
| ||
Additional paid-in capital |
| 4,111,781 |
| 4,051,245 |
| ||
Retained earnings |
| 2,726,904 |
| 2,107,548 |
| ||
Accumulated other comprehensive loss |
| (15,533) |
| (23,249) |
| ||
Common stock in treasury, at cost; 61,173 shares and 56,635 shares as of September 30, 2017 and December 31, 2016, respectively |
| (3,058,124) |
| (2,808,951) |
| ||
Total stockholders’ equity |
| 3,768,154 |
| 3,329,709 |
| ||
Total Liabilities and Stockholders’ Equity |
| $ | 4,708,906 |
| $ | 4,153,471 |
|
See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES2021
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(In Thousands, Except Par Value) (Unaudited)
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2022 |
| 2021 | ||
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 1,014,786 | | $ | 1,326,462 |
Short-term investments | |
| 1,717,648 |
|
| 1,749,727 |
Accounts receivable, net | |
| 1,039,780 |
|
| 896,658 |
Inventories | |
| 821,132 |
|
| 593,357 |
Prepaid expenses and other current assets | |
| 110,327 |
|
| 82,668 |
Prepaid income taxes | |
| 39,993 |
|
| 33,238 |
Total current assets | |
| 4,743,666 |
|
| 4,682,110 |
| | | | | | |
INVESTMENTS | |
| 65,652 |
|
| 99,419 |
PROPERTY AND EQUIPMENT, net | |
| 407,391 |
|
| 313,753 |
DEFERRED INCOME TAXES, net | |
| 225,221 |
|
| 225,221 |
GOODWILL | |
| 1,411,928 |
|
| 1,331,643 |
OTHER INTANGIBLE ASSETS, net | |
| 1,232,113 |
|
| 1,072,386 |
OTHER ASSETS | |
| 101,488 |
|
| 80,252 |
Total Assets | | $ | 8,187,459 |
| $ | 7,804,784 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES: | | | | | | |
Accounts payable | | $ | 438,256 |
| $ | 404,263 |
Accrued liabilities | |
| 234,111 |
|
| 210,964 |
Accrued promotional allowances | |
| 270,785 |
|
| 211,461 |
Deferred revenue | |
| 42,540 |
|
| 42,530 |
Accrued compensation | |
| 37,551 |
|
| 65,459 |
Income taxes payable | |
| 21,118 |
|
| 30,399 |
Total current liabilities | |
| 1,044,361 |
|
| 965,076 |
| | | | | | |
DEFERRED REVENUE | |
| 238,241 |
|
| 243,249 |
| | | | | | |
OTHER LIABILITIES | | | 38,185 | | | 29,508 |
| | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 12) | | | | | | |
| | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | |
Common stock - $0.005 par value; 1,250,000 shares authorized; 640,528 shares issued and 529,642 shares outstanding as of March 31, 2022; 640,043 shares issued and 529,323 shares outstanding as of December 31, 2021 | | | 3,203 | | | 3,200 |
Additional paid-in capital | |
| 4,673,302 |
|
| 4,652,620 |
Retained earnings | |
| 8,103,752 |
|
| 7,809,549 |
Accumulated other comprehensive loss | |
| (72,145) |
|
| (69,165) |
Common stock in treasury, at cost; 110,886 shares and 110,720 shares as of March 31, 2022 and December 31, 2021, respectively | |
| (5,841,440) |
|
| (5,829,253) |
Total stockholders’ equity | |
| 6,866,672 |
|
| 6,566,951 |
Total Liabilities and Stockholders’ Equity | | $ | 8,187,459 |
| $ | 7,804,784 |
FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
|
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NET SALES |
| $ | 909,476 |
| $ | 787,954 |
| $ | 2,558,690 |
| $ | 2,295,628 |
|
|
|
|
|
|
|
|
|
|
| ||||
COST OF SALES |
| 339,767 |
| 284,979 |
| 924,610 |
| 851,741 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
GROSS PROFIT |
| 569,709 |
| 502,975 |
| 1,634,080 |
| 1,443,887 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
OPERATING EXPENSES |
| 252,337 |
| 212,600 |
| 702,405 |
| 610,277 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
OPERATING INCOME |
| 317,372 |
| 290,375 |
| 931,675 |
| 833,610 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
INTEREST and OTHER INCOME (EXPENSE), net |
| 3,996 |
| (1,037) |
| 2,103 |
| (651) |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
INCOME BEFORE PROVISION FOR INCOME TAXES |
| 321,368 |
| 289,338 |
| 933,778 |
| 832,959 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
PROVISION FOR INCOME TAXES |
| 102,624 |
| 97,695 |
| 314,422 |
| 293,221 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NET INCOME |
| $ | 218,744 |
| $ | 191,643 |
| $ | 619,356 |
| $ | 539,738 |
|
|
|
|
|
|
|
|
|
|
| ||||
NET INCOME PER COMMON SHARE: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.39 |
| $ | 0.34 |
| $ | 1.09 |
| $ | 0.91 |
|
Diluted |
| $ | 0.38 |
| $ | 0.33 |
| $ | 1.07 |
| $ | 0.89 |
|
|
|
|
|
|
|
|
|
|
| ||||
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| 567,878 |
| 571,137 |
| 567,550 |
| 594,219 |
| ||||
Diluted |
| 578,368 |
| 583,293 |
| 577,964 |
| 606,279 |
|
See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE-THREE-MONTHS ENDED MARCH 31, 2022 AND NINE-MONTHS ENDED SEPTEMBER 30, 2017 AND 20162021
|
(In Thousands, Except Per Share Amounts) (Unaudited)
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Net income, as reported |
| $ | 218,744 |
| $ | 191,643 |
| $ | 619,356 |
| $ | 539,738 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
| ||||
Change in foreign currency translation adjustment |
| 1,329 |
| (57) |
| 7,641 |
| 7,344 |
| ||||
Available-for-sale investments: |
|
|
|
|
|
|
|
|
| ||||
Change in net unrealized (losses) gains |
| (29) |
| - |
| 75 |
| - |
| ||||
Reclassification adjustment for net gains included in net income |
| - |
| - |
| - |
| - |
| ||||
Net change in available-for-sale investments |
| (29) |
| - |
| 75 |
| - |
| ||||
Other comprehensive income |
| 1,300 |
| (57) |
| 7,716 |
| 7,344 |
| ||||
Comprehensive income |
| $ | 220,044 |
| $ | 191,586 |
| $ | 627,072 |
| $ | 547,082 |
|
| | | | | | |
| | Three-Months Ended | ||||
| | March 31, | ||||
|
| 2022 |
| 2021 | ||
| | | | | | |
NET SALES | | $ | 1,518,574 | | $ | 1,243,816 |
| | | | | | |
COST OF SALES | |
| 741,907 | |
| 528,881 |
| | | | | | |
GROSS PROFIT | |
| 776,667 | |
| 714,935 |
| | | | | | |
OPERATING EXPENSES | |
| 377,178 | |
| 300,789 |
| | | | | | |
OPERATING INCOME | |
| 399,489 | |
| 414,146 |
| | | | | | |
INTEREST and OTHER EXPENSE, net | |
| 7,300 | |
| 759 |
| | | | | | |
INCOME BEFORE PROVISION FOR INCOME TAXES | |
| 392,189 | |
| 413,387 |
| | | | | | |
PROVISION FOR INCOME TAXES | | | 97,986 | | | 98,193 |
| | | | | | |
NET INCOME | | $ | 294,203 | | $ | 315,194 |
| | | | | | |
NET INCOME PER COMMON SHARE: | | | | | | |
Basic | | $ | 0.56 | | $ | 0.60 |
Diluted | | $ | 0.55 | | $ | 0.59 |
| | | | | | |
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: | | | | | | |
Basic | |
| 529,405 | |
| 528,195 |
Diluted | |
| 535,554 | |
| 534,982 |
See accompanying notes to condensed consolidated financial statements.
4
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME
FOR THE NINE-MONTHSTHREE-MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022 AND 20162021
|
(In Thousands) (Unaudited)
|
| Nine-Months Ended |
| ||||
|
| September 30, 2017 |
| September 30, 2016 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net income |
| $ | 619,356 |
| $ | 539,738 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 35,104 |
| 29,874 |
| ||
Gain on disposal of property and equipment |
| (514) |
| (171) |
| ||
Stock-based compensation |
| 39,265 |
| 33,735 |
| ||
Deferred income taxes |
| 1,862 |
| (1,652) |
| ||
Effect on cash of changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (70,865 | ) | (100,233) |
| ||
TCCC Transaction receivable |
| 125,000 |
| - |
| ||
Distributor receivables |
| 1,605 |
| (21,034) |
| ||
Inventories |
| (46,700) |
| 18,355 |
| ||
Prepaid expenses and other current assets |
| (9,210) |
| (8,805) |
| ||
Prepaid income taxes |
| 24,168 |
| (136,899) |
| ||
Accounts payable |
| 24,653 |
| 21,795 |
| ||
Accrued liabilities |
| 15,867 |
| 8,303 |
| ||
Accrued promotional allowances |
| 42,064 |
| 23,411 |
| ||
Accrued distributor terminations |
| 7,416 |
| (5,466) |
| ||
Accrued compensation |
| (3,230) |
| (346) |
| ||
Income taxes payable |
| (4,142) |
| 3,340 |
| ||
Other liabilities |
| 819 |
| - |
| ||
Deferred revenue |
| (12,461) |
| 16,757 |
| ||
Net cash provided by operating activities |
| 790,057 |
| 420,702 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Maturities of held-to-maturity investments |
| - |
| 892,453 |
| ||
Sales of available-for-sale investments |
| 358,107 |
| 2,993 |
| ||
Purchases of held-to-maturity investments |
| - |
| (378,254) |
| ||
Purchases of available-for-sale investments |
| (768,276) |
| (24,405) |
| ||
Purchases of property and equipment |
| (67,738) |
| (67,527) |
| ||
Proceeds from sale of property and equipment |
| 855 |
| 705 |
| ||
Purchases of AFF Assets, net |
| - |
| (688,485) |
| ||
Increase in intangibles |
| (5,137) |
| (4,255) |
| ||
(Increase) decrease in other assets |
| (1,216) |
| 56 |
| ||
Net cash used in investing activities |
| (483,405) |
| (266,719) |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Principal payments on debt |
| (1,878) |
| (1,731) |
| ||
Issuance of common stock |
| 26,776 |
| 10,615 |
| ||
Purchases of common stock held in treasury |
| (249,173) |
| (2,002,441) |
| ||
Net cash used in financing activities |
| (224,275) |
| (1,993,557) |
| ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
| 5,600 |
| 5,683 |
| ||
|
|
|
|
|
| ||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 87,977 |
| (1,833,891) |
| ||
CASH AND CASH EQUIVALENTS, beginning of period |
| 377,582 |
| 2,175,417 |
| ||
CASH AND CASH EQUIVALENTS, end of period |
| $ | 465,559 |
| $ | 341,526 |
|
|
|
|
|
|
| ||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
| ||
Interest |
| $ | 55 |
| $ | 54 |
|
Income taxes |
| $ | 293,980 |
| $ | 429,371 |
|
| | | | | | |
| | Three-Months Ended | ||||
| | March 31, | ||||
|
| 2022 |
| 2021 | ||
Net income, as reported | | $ | 294,203 | | $ | 315,194 |
Other comprehensive income (loss): | | | | | | |
Change in foreign currency translation adjustment | |
| 1,079 | |
| (27,932) |
Available-for-sale investments: | | | | | | |
Change in net unrealized (losses) gains | |
| (4,059) | |
| 24 |
Reclassification adjustment for net gains included in net income | |
| — | |
| — |
Net change in available-for-sale investments | |
| (4,059) | |
| 24 |
Other comprehensive income (loss) | |
| (2,980) | |
| (27,908) |
Comprehensive income | | $ | 291,223 | | $ | 287,286 |
See accompanying notes to condensed consolidated financial statements.
5
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE-MONTHS ENDED MARCH 31, 2022 AND 2021
(In Thousands) (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | | | | | | | | | | | Other | | | | | | | Total | ||
| | Common stock | | Additional | | Retained | | Comprehensive | | Treasury stock | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| Earnings |
| (Loss) Income |
| Shares |
| Amount |
| Equity | ||||||
Balance, December 31, 2021 |
| 640,043 |
| $ | 3,200 |
| $ | 4,652,620 |
| $ | 7,809,549 |
| $ | (69,165) | | (110,720) |
| $ | (5,829,253) |
| $ | 6,566,951 |
Stock-based compensation |
| — | | | — | | | 16,175 | | | — | | | — | | — | | | — | | | 16,175 |
Exercise of stock options |
| 485 | | | 3 | | | 4,507 | | | — | | | — | | — | | | — | | | 4,510 |
Unrealized loss, net on available-for-sale securities |
| — | | | — | | | — | | | — | | | (4,059) | | — | | | — | | | (4,059) |
Repurchase of common stock |
| — | | | — | | | — | | | — | | | — | | (166) | | | (12,187) | | | (12,187) |
Foreign currency translation |
| — | | | — | | | — | | | — | | | 1,079 | | — | | | — | | | 1,079 |
Net income | | — | | | — | | | — | | | 294,203 | | | — | | — | | | — | | | 294,203 |
Balance, March 31, 2022 | | 640,528 | | $ | 3,203 | | $ | 4,673,302 | | $ | 8,103,752 | | $ | (72,145) | | (110,886) | | $ | (5,841,440) | | $ | 6,866,672 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | | | | | | | | | | | Other | | | | | | | Total | ||
| | Common stock | | Additional | | Retained | | Comprehensive | | Treasury stock | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Paid-in Capital |
| Earnings |
| (Loss) Income |
| Shares |
| Amount |
| Equity | ||||||
Balance, December 31, 2020 | | 638,662 | | $ | 3,193 | | $ | 4,537,982 | | $ | 6,432,074 | | $ | 3,034 | | (110,565) | | $ | (5,815,423) | | $ | 5,160,860 |
Stock-based compensation |
| 0 | | | 0 | | | 17,949 | | | 0 | | | 0 | | 0 | | | 0 | | | 17,949 |
Exercise of stock options |
| 492 | | | 3 | | | 6,758 | | | 0 | | | 0 | | 0 | | | 0 | | | 6,761 |
Unrealized gain, net on available-for-sale securities |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 24 |
| 0 | |
| 0 | |
| 24 |
Repurchase of common stock |
| 0 | | | 0 | | | 0 | | | 0 | | | 0 | | (150) | | | (13,419) | | | (13,419) |
Foreign currency translation |
| 0 | | | 0 | | | 0 | | | 0 | | | (27,932) | | 0 | | | 0 | | | (27,932) |
Net income |
| 0 | | | 0 | | | 0 | | | 315,194 | | | 0 | | 0 | | | 0 | | | 315,194 |
Balance, March 31, 2021 |
| 639,154 |
| $ | 3,196 |
| $ | 4,562,689 |
| $ | 6,747,268 |
| $ | (24,874) | | (110,715) |
| $ | (5,828,842) |
| $ | 5,459,437 |
See accompanying notes to condensed consolidated financial statements.
6
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHSTHREE-MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022 AND 20162021
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS
The Company entered into capital leases for the acquisition of promotional vehicles of $2.0 million and $2.2 million for the nine-months ended September 30, 2017 and 2016, respectively.
Included in accrued liabilities as of September 30, 2017March 31, 2022 and 20162021 were $6.0$11.3 million and $0.2 million, respectively, related to purchases of property and equipment.
Included in accrued liabilities as of September 30, 2017 and 2016 were $4.6 million and $2.3$7.8 million, respectively, related to additions to other intangible assets.
Included in accounts payable as of March 31, 2022 and 2021 were equipment purchases of $4.0 million and $0.4 million, respectively.
Included in accounts payable as of September 30, 2017March 31, 2021 were available-for-sale short-term investment purchases of $4.2$4.4 million.
See accompanying notes to condensed consolidated financial statements.
8
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
1. | BASIS OF PRESENTATION |
Reference is made to the Notes to Consolidated Financial Statements, in Monster Beverage Corporation and Subsidiaries (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2016 (“Form 10-K”)2021 for a summary of significant accounting policies utilized by the Company and its consolidated subsidiaries and other disclosures, which should be read in conjunction with this Quarterly Report on Form 10-Q (“Form 10-Q”).
The Company’s condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. They do not include all the information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP. The information set forth in these interim condensed consolidated financial statements for the three-three-months ended March 31, 2022 and nine-months ended September 30, 2017 and 2016,2021, respectively, is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed consolidated financial statements not misleading. Results of operations for periods covered by this report may not necessarily be indicative of results of operations for the full year.
The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Recent Accounting Pronouncements
2.RECENT ACCOUNTING PRONOUNCEMENTSThere have been no material changes in recently issued or adopted accounting pronouncements from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
2. | ACQUISITIONS AND DIVESTITURES |
On February 17, 2022, the Company completed its acquisition of CANarchy Craft Brewery Collective LLC (“CANarchy”), a craft beer and hard seltzer company, for $330.4 million in cash, subject to adjustments (the “CANarchy Transaction”). The CANarchy Transaction allows the Company 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, the Wasatch family of brands including Apricot Hefeweizen, as well as certain other brands (collectively the “CANarchy Brands”) to the Company’s beverage portfolio. The transaction does not include CANarchy’s stand-alone restaurants. The Company’s organizational structure for its existing energy beverage business will remain unchanged. CANarchy will function independently, retaining its own organizational structure and team.
In May 2017,The Company accounted for the CANarchy Transaction in accordance with Financial Accounting Standards Board (the “FASB”(“FASB”) issued Accounting Standards UpdateCodification (“ASU”ASC”) No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope805 “Business Combinations”.
9
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2017-01 on its financial position, results of operations and liquidity.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2017-04 on its financial position, results of operations and liquidity.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
In October 2016,The following table summarizes the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, in an effort to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. FASB ASU No. 2016-16 establishes the requirement that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Earlier application is permitted aspreliminary fair value allocations of the beginning of an interim or annual reporting period, with any adjustments reflected as of the beginning of the fiscal year of adoption. CANarchy Transaction:
| | | | | | |
|
| Identifiable |
| | | |
| | Assets | | | | |
| | Acquired and | | | | |
| | Liabilities | | Consideration | ||
| | Assumed | | Transferred | ||
Intangibles - trademarks (non-amortizing) | | $ | 94,500 | | $ | — |
Intangibles - customer relationships (amortizing) | | | 54,500 | |
| — |
Intangibles - permits (non-amortizing) | | | 6,500 | |
| — |
Property and equipment, net | | | 81,285 | |
| — |
Inventory | | | 18,900 | |
| — |
Right-of -use assets | | | 12,836 | |
| — |
Operating lease liabilities | | | (12,836) | |
| — |
Working capital (excluding inventory) | | | (4,844) | |
| — |
Other | | | (770) | |
| — |
Goodwill | | | 80,285 | |
| — |
Cash | |
| 3,248 | |
| 333,604 |
Total | | $ | 333,604 | | $ | 333,604 |
The Company is currently evaluating the impact of ASU No. 2016-16 on its financial position, results of operations and liquidity.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of ASU No. 2016-15 on its financial position, results of operations and liquidity.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of ASU No. 2016-13 on its financial position, results of operations and liquidity.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual and interim reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2016-02 on its financial position, results of operations and liquidity.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes previous revenue recognition guidance. ASU No. 2014-09 requires that a company recognize revenue at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. In applying the new guidance, a company will (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the contract’s performance obligations; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 was to be effective for reporting periods beginning after December 15, 2016. However, on July 9, 2015, the FASB voted to approve a one-year deferral of the effective date. This new guidance is effective for the Company beginning January 1, 2018 and can be adopted using either a full retrospective or modified approach. The Company has made significant progress in its evaluation of the amended revenue recognition guidance in Topic 606, however, such evaluationfair value analysis has yet to progress to a stage where there is sufficient information for a preliminary positiondefinitive measurement of the impactrespective fair values. Accordingly, the respective fair value allocations are preliminary and are based on the Company’s consolidated financial statements. Therefore, thevaluations derived from estimated fair value assumptions used by management. The Company is unable at this time to provide (i) qualitative financial statement disclosures of the potential impact that this standard will have on its financial statements when adopted, (ii) a description of the effects of the accounting policies it expects to apply, (iii) a comparison to its current revenue recognition policies and (iv) a method for adoption. The Company’s expects to complete its evaluation by December 15, 2017.fair value analysis at a level of detail necessary to finalize the underlying fair value allocations as soon as practicable, but no later than twelve months from the closing of the CANarchy Transaction.
The Company determined the preliminary estimated fair values as follows:
● | Trademarks – relief-from-royalty method of the income approach |
● | Customer relationships – distributor method of the income approach |
● | Permits – with-and-without method of the income approach |
● | Property and equipment – cost approach |
● | Inventory – comparative sales method and replacement cost method |
The preliminary book value of the working capital (excluding inventory) approximates fair value.
The Company has determined goodwill in accordance with ASC 805-30-30-1, “Business Combinations,” which requires the recognition of goodwill for the excess of the aggregate consideration over the net amounts of identifiable assets acquired and liabilities assumed as of the acquisition date.
For tax purposes, the CANarchy Transaction was recorded as an asset purchase. As such, the Company received a step-up in tax basis of the CANarchy assets, net, equal to the purchase price.
In accordance with Regulation S-X, pro forma unaudited condensed financial information for the CANarchy Transaction has not been provided as the impact of the transaction on the Company’s financial position, results of operations and liquidity was not material.
10
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
3. | REVENUE RECOGNITION |
The Company has 4 operating and reportable segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks, Reign Total Body Fuel® high performance energy drinks and True NorthTM Pure Energy Seltzers, (ii) Strategic Brands segment (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”) in 2015 as well as the Company’s affordable energy brands, (iii) Alcohol Brands segment ("Alcohol Brands"), which is primarily comprised of the various craft beers and hard seltzers purchased as part of the CANarchy Transaction on February 17, 2022 and (iv) Other segment (“Other”), which is comprised of certain products sold by American Fruits and Flavors, LLC, a wholly-owned subsidiary of the Company, to independent third-party customers (the “AFF Third-Party Products”).
The Company’s Monster Energy® Drinks segment generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage bottlers/distributors (“bottlers/distributors”). In some cases, the Company sells ready-to-drink packaged energy drinks directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military.
The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers/distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military. To a lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers/distributors.
The Company’s Alcohol Brands segment primarily generates operating revenues by selling kegged, and canned beer as well as hard seltzers primarily to distributors in the United States.
The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, control of the Company’s products passes to such bottlers/distributors when they notify the Company that they have taken possession or transferred the relevant portion of the Company’s finished goods. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as of March 31, 2022 and December 31, 2021.
The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.
Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.
Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s bottlers/distributors or retail customers including, but not limited to the following:
● | discounts granted off list prices to support price promotions to end-consumers by retailers; |
● | reimbursements given to the Company’s bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; |
● | the Company’s agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; |
● | the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers; |
11
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
● | incentives given to the Company’s bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; |
● | discounted or free products; |
● | contractual fees given to the Company’s bottlers/distributors related to sales made directly by the Company to certain customers that fall within the bottlers’/distributors’ sales territories; and |
● | commissions to TCCC based on the Company’s sales to wholly-owned subsidiaries of TCCC (the “TCCC Subsidiaries”) and/or to TCCC bottlers/distributors accounted for under the equity method by TCCC (the “TCCC Related Parties”). |
The Company’s promotional allowance programs with its bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, typically ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with bottlers/distributors and retail customers, and accruals are established at the time of initial product sale for the Company’s anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or bottler/distributor and retail customer performance levels. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.
3.INVESTMENTSAmounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors relating to the costs associated with terminating the Company’s prior distributors, are accounted for as deferred revenue and recognized as revenue ratably over the anticipated life of the respective distribution agreements, generally over 20 years.
The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing the Company’s trademarks including, but not limited to, clothing, hats, t-shirts, jackets, helmets and automotive wheels.
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
12
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Disaggregation of Revenue
The following tables disaggregate the Company’s revenue by geographical markets and reportable segments:
| | | �� | | | | | | | | | | | | | |
| | Three-Months Ended March 31, 2022 | | |||||||||||||
| | | |
| | |
| | |
| Latin |
| | | | |
| | | | | | | | | | | America | |
| | | |
| | U.S. and | | | | | | | | and | |
| | | ||
Net Sales |
| Canada | | EMEA1 | | Asia Pacific | | Caribbean | | Total | | |||||
Monster Energy® Drinks | | $ | 925,680 | | $ | 260,889 | | $ | 110,556 | | $ | 107,722 | | $ | 1,404,847 | |
Strategic Brands | |
| 53,051 | |
| 30,176 | |
| 6,662 | |
| 2,704 | |
| 92,593 | |
Alcohol Brands2 | | | 15,207 | | | — | | | — | | | — | | | 15,207 | |
Other | |
| 5,927 | |
| — | |
| — | |
| — | |
| 5,927 | |
Total Net Sales | | $ | 999,865 | | $ | 291,065 | | $ | 117,218 | | $ | 110,426 | | $ | 1,518,574 | |
| | | | | | | | | | | | | | | | |
| | Three-Months Ended March 31, 2021 | | |||||||||||||
| | | |
| | |
| | |
| Latin | |
| | | |
| | | | | | | | | | | America | | | | | |
| | U.S. and | | | | | | | and | | | | | |||
Net Sales |
| Canada | | EMEA1 | | Asia Pacific | | Caribbean | | Total | | |||||
Monster Energy® Drinks | | $ | 773,504 | | $ | 219,300 | | $ | 106,747 | | $ | 70,729 | | $ | 1,170,280 | |
Strategic Brands | | | 37,683 | |
| 19,909 | |
| 8,438 | |
| 1,779 | |
| 67,809 | |
Alcohol Brands2 | | | — | | | — | | | — | | | — | | | — | |
Other | | | 5,727 | |
| — | |
| — | |
| — | |
| 5,727 | |
Total Net Sales | | $ | 816,914 | | $ | 239,209 | | $ | 115,185 | | $ | 72,508 | | $ | 1,243,816 | |
1Europe, Middle East and Africa (“EMEA”)
2Effectively from February 17, 2022 to March 31, 2022
Contract Liabilities
Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as deferred revenue. As of March 31, 2022, the Company had $280.8 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. As of December 31, 2021, the Company had $285.8 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. During the three-months ended March 31, 2022 and 2021, $10.0 million and $10.4 million, respectively, of deferred revenue was recognized in net sales. See Note 11.
4. | LEASES |
The Company leases identified assets comprising real estate and equipment. Real estate leases consist primarily of office and warehouse space and equipment leases consist of vehicles and warehouse equipment. At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. At inception of a lease, the Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.
Leases are classified as either finance leases or operating leases based on criteria in ASC 842. The Company’s operating leases are comprised of real estate and warehouse equipment, and the Company’s finance leases are comprised of vehicles.
13
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Right-of-use (“ROU”) assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases generally do not provide an implicit rate, the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. ROU assets also include any lease payments made and exclude lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Certain of the Company’s real estate leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at the lease commencement date. Additional payments based on the change in an index or rate, or payments based on a change in the Company’s portion of real estate taxes and insurance, are recorded as a period expense when incurred.
Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term and is included in operating expenses in the condensed consolidated statement of income. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and is included in operating expenses in the condensed consolidated statement of income. Interest expense on finance leases is calculated using the amortized cost basis and is included in interest and other expense, net in the condensed consolidated statement of income.
The Company’s leases have remaining lease terms of less than one year to 12 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of 12 months or less.
The components of lease cost were comprised of the following:
| | | | | | |
| | Three-Months | | Three-Months | ||
| | Ended March 31, | | Ended March 31, | ||
|
| 2022 |
| 2021 | ||
Operating lease cost | | $ | 1,694 | | $ | 1,131 |
| | | | | | |
Short-term lease cost | |
| 929 | |
| 953 |
| | | | | | |
Variable lease cost | |
| 183 | |
| 162 |
| | | | | | |
Finance leases: | | | | | | |
Amortization of ROU assets | |
| 127 | |
| 134 |
Interest on lease liabilities | |
| 3 | |
| 4 |
Finance lease cost | |
| 130 | |
| 138 |
| | | | | | |
Total lease cost | | $ | 2,936 | | $ | 2,384 |
14
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Supplemental cash flow information for the following periods:
| | | | | | | |
| | Three-Months | | Three-Months | | ||
| | Ended March 31, | | Ended March 31, | | ||
|
| 2022 |
| 2021 | | ||
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash outflows from operating leases | | $ | 1,652 | | $ | 991 | |
Operating cash outflows from finance leases | | | 3 | | | 4 | |
Financing cash outflows from finance leases | | | 592 | | | 689 | |
| | | | | | | |
ROU assets obtained in exchange for lease obligations: | | | | | | | |
Finance leases | | | 832 | | | 1,495 | |
Operating leases | | | 13,197 | | | 36 | |
ROU assets for operating and finance leases recognized in the Company’s condensed consolidated balance sheets were comprised of the following at:
| | | | | | | | | | | |
| | March 31, 2022 | | | |||||||
|
| Real Estate |
| Equipment |
| Total |
| Balance Sheet Location | |||
Operating leases | | $ | 33,644 | | $ | 558 | | $ | 34,202 | | Other Assets |
Finance leases | |
| — | |
| 2,035 | |
| 2,035 | | Property and Equipment, net |
| | | | | | | | | | | |
| | December 31, 2021 | | | |||||||
|
| Real Estate |
| Equipment |
| Total |
| Balance Sheet Location | |||
Operating leases | | $ | 22,518 | | $ | 639 | | $ | 23,157 | | Other Assets |
Finance leases | |
| — | |
| 2,646 | |
| 2,646 | | Property and Equipment, net |
Operating and finance lease liabilities recognized in the Company’s condensed consolidated balance sheets were as follows at:
| | | | | | |
| | March 31, 2022 | ||||
|
| Operating Leases |
| Finance Leases | ||
Accrued liabilities |
| $ | 6,398 | | $ | 1,205 |
Other liabilities | |
| 26,713 | |
| 36 |
Total | | $ | 33,111 | | $ | 1,241 |
| | | | | | |
| | December 31, 2021 | ||||
|
| Operating Leases |
| Finance Leases | ||
Accrued liabilities |
| $ | 3,990 |
| $ | 960 |
Other liabilities | |
| 17,389 | |
| 41 |
Total | | $ | 21,379 | | $ | 1,001 |
15
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases at March 31, 2022 and December 31, 2021 were as follows:
| | | | | |
| | March 31, 2022 | | ||
|
| Operating Leases |
| Finance Leases |
|
Weighted-average remaining lease term (years) | | 7.1 |
| 0.9 | |
Weighted-average discount rate | | 3.2 | % | 1.6 | % |
| | | | | |
| | December 31, 2021 | | ||
|
| Operating Leases |
| Finance Leases | |
Weighted-average remaining lease term (years) |
| 8.1 | | 0.7 | |
Weighted-average discount rate |
| 3.5 | % | 1.3 | % |
The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance leases recorded in the Company’s condensed consolidated balance sheet at March 31, 2022:
| | | | | | |
|
| Undiscounted Future Lease Payments | ||||
| | Operating Leases |
| Finance Leases | ||
2022 (excluding the three-months ended March 31, 2022) | | $ | 5,527 | | $ | 1,030 |
2023 | |
| 6,531 | |
| 200 |
2024 | |
| 5,323 | |
| 13 |
2025 | |
| 4,034 | |
| 8 |
2026 | | | 3,179 | | | — |
2027 and thereafter | |
| 12,674 | |
| — |
Total lease payments | |
| 37,268 | |
| 1,251 |
Less imputed interest | |
| (4,157) | |
| (10) |
Total | | $ | 33,111 | | $ | 1,241 |
| | | | | | |
As of March 31, 2022, the Company did not have any significant additional operating or finance leases that have not yet commenced.
16
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
5. | INVESTMENTS |
The following table summarizes the Company’s investments at:
September 30, 2017 |
| Amortized |
| Gross |
| Gross |
| Fair |
| Continuous |
| Continuous |
| ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | Continuous | | Continuous | |||||||||||||||||||||
| | | | | Gross | | Gross | | | | | Unrealized | | Unrealized | |||||||||||||||||||||||
| | | | | Unrealized | | Unrealized | | | | | Loss Position | | Loss Position | |||||||||||||||||||||||
| | Amortized | | Holding | | Holding | | Fair | | less than 12 | | greater than 12 | |||||||||||||||||||||||||
March 31, 2022 |
| Cost |
| Gains |
| Losses |
| Value |
| Months |
| Months | |||||||||||||||||||||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | ||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | ||||||
Commercial paper |
| $ | 66,344 |
| $ | - |
| $ | - |
| $ | 66,344 |
| $ | - |
| $ | - |
| | $ | 276,413 | | $ | — | | $ | — | | $ | 276,413 | | $ | — | | $ | — |
Certificates of deposit |
| 50,677 |
| - |
| - |
| 50,677 |
| - |
| - |
| | | 37,010 | | | — | | | — | | | 37,010 | | | — | | | — | ||||||
Municipal securities |
| 402,062 |
| 41 |
| 126 |
| 401,977 |
| 126 |
| - |
| |
| 168,958 | | | 2 | | | 482 | | | 168,478 | | | 482 | | | | ||||||
U.S. government agency securities |
| 53,342 |
| 1 |
| 28 |
| 53,315 |
| 28 |
| - |
| |
| 78,831 | |
| — | |
| 342 | |
| 78,489 | |
| 342 | |
| — | ||||||
U.S. Treasuries |
| 11,982 |
| - |
| 1 |
| 11,981 |
| 1 |
| - |
| ||||||||||||||||||||||||
Variable rate demand notes |
| 46,054 |
| - |
| - |
| 46,054 |
| - |
| - |
| ||||||||||||||||||||||||
U.S. treasuries | | | 1,161,042 | |
| — | |
| 3,784 | |
| 1,157,258 | |
| 3,784 | |
| — | |||||||||||||||||||
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | ||||||
U.S. government agency securities | | | 21,455 | | | — | | | 158 | | | 21,297 | | | 158 | | | — | |||||||||||||||||||
Municipal securities |
| 2,010 |
| - |
| 3 |
| 2,007 |
| 3 |
| - |
| | | 5,284 | | | | | | 18 | | | 5,266 | | | 18 | | | | ||||||
U.S. government agency securities |
| 5,001 |
| - |
| 5 |
| 4,996 |
| 5 |
| - |
| ||||||||||||||||||||||||
U.S. treasuries | | | 39,313 | | | — | | | 224 | | | 39,089 | | | 224 | | | — | |||||||||||||||||||
Total |
| $ | 637,472 |
| $ | 42 |
| $ | 163 |
| $ | 637,351 |
| $ | 163 |
| $ | - |
| | $ | 1,788,306 | | $ | 2 | | $ | 5,008 | | $ | 1,783,300 | | $ | 5,008 | | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
December 31, 2016 |
| Amortized |
| Gross |
| Gross |
| Fair |
| Continuous |
| Continuous |
| ||||||||||||||||||||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Commercial paper |
| $ | 40,382 |
| $ | - |
| $ | - |
| $ | 40,382 |
| $ | - |
| $ | - |
| ||||||||||||||||||
Municipal securities |
| 140,379 |
| - |
| 181 |
| 140,198 |
| 181 |
| - |
| ||||||||||||||||||||||||
U.S. government agency securities |
| 26,057 |
| - |
| 6 |
| 26,051 |
| 6 |
| - |
| ||||||||||||||||||||||||
Variable rate demand notes |
| 13,923 |
| - |
| - |
| 13,923 |
| - |
| - |
| ||||||||||||||||||||||||
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Municipal securities |
| 2,403 |
| - |
| 9 |
| 2,394 |
| 9 |
| - |
| ||||||||||||||||||||||||
Total |
| $ | 223,144 |
| $ | - |
| $ | 196 |
| $ | 222,948 |
| $ | 196 |
| $ | - |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Continuous | | Continuous | ||
| | | | | Gross | | Gross | | | | | Unrealized | | Unrealized | ||||
| | | | | Unrealized | | Unrealized | | | | | Loss Position | | Loss Position | ||||
| | Amortized | | Holding | | Holding | | Fair | | less than 12 | | greater than 12 | ||||||
December 31, 2021 |
| Cost |
| Gains |
| Losses |
| Value |
| Months |
| Months | ||||||
Available-for-sale | | | | | | | | | | | | | | | | | | |
Short-term: | | | | | | | | | | | | | | | | | | |
Commercial paper | | $ | 334,077 | | $ | — | | $ | — | | $ | 334,077 | | $ | — | | $ | — |
Certificates of deposit | | | 44,502 | | | — | | | — | | | 44,502 | | | — | | | — |
Municipal securities | |
| 666 | |
| — | |
| — | |
| 666 | |
| — | |
| — |
U.S. government agency securities | |
| 62,687 | |
| — | |
| 26 | |
| 62,661 | |
| 26 | |
| — |
U.S. treasuries | | | 1,308,536 | | | 2 | | | 717 | | | 1,307,821 | | | 717 | | | — |
Long-term: | | | | | | | | | | | | | | | | | | |
U.S. government agency securities | | | 12,500 | | | — | | | 24 | | | 12,476 | | | 24 | | | — |
U.S. treasuries | | | 87,133 | | | — | | | 190 | | | 86,943 | | | 190 | | | — |
Total | | $ | 1,850,101 | | $ | 2 | | $ | 957 | | $ | 1,849,146 | | $ | 957 | | $ | — |
During the three-three-months ended March 31, 2022 and nine-months ended September 30, 2017 and 2016,2021, realized gains or losses recognized on the sale of investments were not significant.
The Company’s investments at September 30, 2017March 31, 2022 and December 31, 2016 in commercial paper, certificates of deposit, municipal securities, U.S. Treasuries, U.S. government agency securities and/or variable rate demand notes (“VRDNs”)2021 carried investment grade credit ratings. VRDNs are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All
17
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The following table summarizes the underlying contractual maturities of the Company’s investments at:
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||
|
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value |
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | March 31, 2022 | | December 31, 2021 | |||||||||||||||||||||
|
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | |||||||||||||||||
Less than 1 year: |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||
Commercial paper |
| $ | 66,344 |
| $ | 66,344 |
| $ | 40,382 |
| $ | 40,382 |
| | $ | 276,413 | | $ | 276,413 |
| $ | 334,077 | | $ | 334,077 |
Certificates of deposit |
| 50,677 |
| 50,677 |
| - |
| - |
| ||||||||||||||||
Municipal securities |
| 402,062 |
| 401,977 |
| 140,379 |
| 140,198 |
| ||||||||||||||||
U. S. Treasuries |
| 11,982 |
| 11,981 |
| - |
| - |
| ||||||||||||||||
U.S. government agency securities |
| 53,342 |
| 53,315 |
| 26,057 |
| 26,051 |
| ||||||||||||||||
Due 1 -10 years: |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Municipal securities |
| 2,010 |
| 2,007 |
| 2,403 |
| 2,394 |
| |
| 168,958 | |
| 168,478 |
|
| 666 | |
| 666 | ||||
U.S. government agency securities |
| 5,001 |
| 4,996 |
| - |
| - |
| |
| 78,831 | |
| 78,489 |
|
| 62,687 | |
| 62,661 | ||||
Variable rate demand notes |
| 6,664 |
| 6,664 |
| 3,917 |
| 3,917 |
| ||||||||||||||||
Due 11 - 20 years: |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Variable rate demand notes |
| 26,016 |
| 26,016 |
| 6,003 |
| 6,003 |
| ||||||||||||||||
Due 21 - 30 years: |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Variable rate demand notes |
| 13,374 |
| 13,374 |
| 4,003 |
| 4,003 |
| ||||||||||||||||
Certificates of deposit | |
| 37,010 | |
| 37,010 |
|
| 44,502 | |
| 44,502 | |||||||||||||
U.S. treasuries | | | 1,161,042 | | | 1,157,258 | | | 1,308,536 | | | 1,307,821 | |||||||||||||
Due 1 - 10 years: | | | | | | | | | | | | | |||||||||||||
U.S. treasuries | |
| 39,313 | |
| 39,089 |
|
| 87,133 | |
| 86,943 | |||||||||||||
Municipal securities | | | 5,284 | | | 5,266 | | | — | | | — | |||||||||||||
U.S. government agency securities | |
| 21,455 | |
| 21,297 |
|
| 12,500 | |
| 12,476 | |||||||||||||
Total |
| $ | 637,472 |
| $ | 637,351 |
| $ | 223,144 |
| $ | 222,948 |
| | $ | 1,788,306 | | $ | 1,783,300 |
| $ | 1,850,101 | | $ | 1,849,146 |
4.FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES
6. | FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES |
Accounting Standards Codification (“ASC”)ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy whichthat requires an entity to maximize the use of observable inputs, where available. The three levels of inputs required by the standard that the Company uses to measure fair value are summarized below.
● | Level 1: Quoted prices in active markets for identical assets or liabilities. |
● | Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. |
● | Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
18
·Level 1: MONSTER BEVERAGE CORPORATION AND SUBSIDIARIESQuoted prices
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in active markets for identical assets or liabilities.Thousands, Except Per Share Amounts) (Unaudited)
·Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
·Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
ASC 820 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The following tables present the fair value of the Company’s financial assets and liabilities that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:
September 30, 2017 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
March 31, 2022 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||||||||||||||
Cash |
| $ | 330,758 |
| $ | - |
| $ | - |
| $ | 330,758 |
| | $ | 748,324 | | $ | — | | $ | — | | $ | 748,324 |
Money market funds |
| 69,273 |
| - |
| - |
| 69,273 |
| |
| 138,161 | |
| — | |
| — | |
| 138,161 | ||||
Certificates of deposit |
| - |
| 56,698 |
| - |
| 56,698 |
| | | — | | | 38,411 | | | — | | | 38,411 | ||||
Commercial paper |
| - |
| 81,708 |
| - |
| 81,708 |
| |
| — | |
| 290,410 | |
| — | |
| 290,410 | ||||
Variable rate demand notes |
| - |
| 46,054 |
| - |
| 46,054 |
| ||||||||||||||||
Municipal securities |
| - |
| 423,159 |
| - |
| 423,159 |
| |
| — | |
| 202,667 | |
| — | |
| 202,667 | ||||
U.S. government agency securities |
| - |
| 83,279 |
| - |
| 83,279 |
| |
| — | |
| 99,786 | |
| — | |
| 99,786 | ||||
U.S. Treasuries |
| - |
| 11,981 |
| - |
| 11,981 |
| ||||||||||||||||
U.S. treasuries | | | — | | | 1,280,327 | | | — | | | 1,280,327 | |||||||||||||
Foreign currency derivatives |
| - |
| (339 | ) | - |
| (339 | ) | |
| — | |
| (4,483) | |
| — | |
| (4,483) | ||||
Total |
| $ | 400,031 |
| $ | 702,540 |
| $ | - |
| $ | 1,102,571 |
| | $ | 886,485 | | $ | 1,907,118 | | $ | — | | $ | 2,793,603 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
Amounts included in: |
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | ||||
Cash and cash equivalents |
| $ | 400,031 |
| $ | 65,528 |
| $ | - |
| $ | 465,559 |
| | $ | 886,485 | | $ | 128,301 | | $ | — | | $ | 1,014,786 |
Short-term investments |
| - |
| 630,348 |
| - |
| 630,348 |
| |
| — | |
| 1,717,648 | |
| — | |
| 1,717,648 | ||||
Accounts receivable, net |
| - |
| 174 |
| - |
| 174 |
| |
| — | |
| 239 | |
| — | |
| 239 | ||||
Investments |
| - |
| 7,003 |
| - |
| 7,003 |
| |
| — | |
| 65,652 | |
| — | |
| 65,652 | ||||
Accrued liabilities |
| - |
| (513 | ) | - |
| (513 | ) | |
| — | |
| (4,722) | |
| — | |
| (4,722) | ||||
Total |
| $ | 400,031 |
| $ | 702,540 |
| $ | - |
| $ | 1,102,571 |
| | $ | 886,485 | | $ | 1,907,118 | | $ | — | | $ | 2,793,603 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
December 31, 2016 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||||||||||||||
Cash |
| $ | 278,972 |
| $ | - |
| $ | - |
| $ | 278,972 |
| ||||||||||||
Money market funds |
| 76,112 |
| - |
| - |
| 76,112 |
| ||||||||||||||||
Commercial paper |
| - |
| 47,855 |
| - |
| 47,855 |
| ||||||||||||||||
Variable rate demand notes |
| - |
| 13,923 |
| - |
| 13,923 |
| ||||||||||||||||
Municipal securities |
| - |
| 157,617 |
| - |
| 157,617 |
| ||||||||||||||||
U.S. government agency securities |
| - |
| 26,051 |
| - |
| 26,051 |
| ||||||||||||||||
Foreign currency derivatives |
| - |
| (528 | ) | - |
| (528 | ) | ||||||||||||||||
Total |
| $ | 355,084 |
| $ | 244,918 |
| $ | - |
| $ | 600,002 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Amounts included in: |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and cash equivalents |
| $ | 355,084 |
| $ | 22,498 |
| $ | - |
| $ | 377,582 |
| ||||||||||||
Short-term investments |
| - |
| 220,554 |
| - |
| 220,554 |
| ||||||||||||||||
Accounts receivable, net |
| - |
| 236 |
| - |
| 236 |
| ||||||||||||||||
Investments |
| - |
| 2,394 |
| - |
| 2,394 |
| ||||||||||||||||
Accrued liabilities |
| - |
| (764 | ) | - |
| (764 | ) | ||||||||||||||||
Total |
| $ | 355,084 |
| $ | 244,918 |
| $ | - |
| $ | 600,002 |
|
| | | | | | | | | | | | |
December 31, 2021 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Cash | | $ | 749,089 | | $ | — | | $ | — | | $ | 749,089 |
Money market funds | |
| 440,826 | |
| — | |
| — | |
| 440,826 |
Certificates of deposit | | | — | | | 44,502 | | | — | | | 44,502 |
Commercial paper | |
| — | |
| 335,477 | |
| — | |
| 335,477 |
Municipal securities | |
| — | |
| 2,428 | |
| — | |
| 2,428 |
U.S. government agency securities | |
| — | |
| 75,137 | |
| — | |
| 75,137 |
U.S. treasuries | | | — | | | 1,528,149 | | | — | | | 1,528,149 |
Foreign currency derivatives | |
| — | |
| (278) | |
| — | |
| (278) |
Total | | $ | 1,189,915 | | $ | 1,985,415 | | $ | — | | $ | 3,175,330 |
| | | | | | | | | | | | |
Amounts included in: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,189,915 | | $ | 136,547 | | $ | — | | $ | 1,326,462 |
Short-term investments | |
| — | |
| 1,749,727 | |
| — | |
| 1,749,727 |
Accounts receivable, net | |
| — | |
| 654 | |
| — | |
| 654 |
Investments | |
| — | |
| 99,419 | |
| — | |
| 99,419 |
Accrued liabilities | |
| — | |
| (932) | |
| — | |
| (932) |
Total | | $ | 1,189,915 | | $ | 1,985,415 | | $ | — | | $ | 3,175,330 |
All of the Company’s short-term and long-term investments are classified within Level 1 or Level 2 of the fair value hierarchy. The Company’s valuation of its Level 1 investments which include money market funds, is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments which include municipal securities, commercial paper, certificates of deposit, VRDNs, U.S. Treasuries and U.S. government agency securities, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical tools and other relevant information for the same or similar securities. The Company’s valuation of its Level 2 foreign currency exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk. There were no0 transfers between Level 1 and Level 2 measurements during the nine-monthsthree-months ended September 30, 2017March 31, 2022, or during the year endedyear-ended December 31, 2016,2021, and there were no changes in the Company’s valuation techniques.
19
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
5.DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
7. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
The Company is exposed to foreign currency exchange rate risks related primarily to its foreign business operations. During the nine-monthsthree-months ended September 30, 2017March 31, 2022 and the year endedyear-ended December 31, 2016,2021, the Company entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries’ non-functional currency denominated assets and liabilities. All foreign currency exchange contracts of the Company that were outstanding as of September 30, 2017March 31, 2022 have terms of one month or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.
The Company has not designated its foreign currency exchange contracts as hedge transactions under ASC 815. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in interest and other (expense) income, (expense), net, in the condensed consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item.
The notional amount and fair value of all outstanding foreign currency derivative instruments in the Company’s condensed consolidated balance sheets consist of the following at:
September 30, 2017 |
| ||||||||||||||||
Derivatives not designated as |
| Notional |
| Fair |
| Balance Sheet Location |
| ||||||||||
|
|
|
|
|
|
|
| ||||||||||
| | | | | | | | | |||||||||
March 31, 2022 | March 31, 2022 | ||||||||||||||||
Derivatives not designated as | | | | | | | | | |||||||||
hedging instruments under | | Notional | | Fair | | | |||||||||||
ASC 815-20 |
| Amount |
| Value |
| Balance Sheet Location | |||||||||||
Assets: |
|
|
|
|
|
|
| | | | | | | | | ||
Foreign currency exchange contracts: |
|
|
|
|
|
|
| | | | | | | | | ||
Receive USD/pay GBP |
| $ | 31,067 |
| $ | 74 |
| Accounts receivable, net |
| ||||||||
Receive USD/pay ZAR |
| 20,121 |
| 27 |
| Accounts receivable, net |
| ||||||||||
Receive USD/pay MXN |
| 12,673 |
| 52 |
| Accounts receivable, net |
| ||||||||||
Receive USD/pay NZD |
| 1,665 |
| 5 |
| Accounts receivable, net |
| ||||||||||
Receive USD/pay SEK |
| 1,405 |
| 4 |
| Accounts receivable, net |
| ||||||||||
Receive USD/pay CLP |
| 4,316 |
| 12 |
| Accounts receivable, net |
| ||||||||||
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
| ||||||||||
Receive RSD/pay USD | | $ | 9,913 | | $ | 138 |
| Accounts receivable, net | |||||||||
Receive SGD/pay USD | | | 16,662 | | | 88 |
| Accounts receivable, net | |||||||||
Receive USD/pay CNY | | | 12,353 | | | 13 |
| Accounts receivable, net | |||||||||
| | | | | | | | | |||||||||
Liabilities: |
|
|
|
|
|
|
| | | | | | | | | ||
Foreign currency exchange contracts: |
|
|
|
|
|
|
| | | | | | | | | ||
Receive USD/pay RUB | | $ | 5,382 | | $ | (3,888) | | Accrued liabilities | |||||||||
Receive USD/pay EUR |
| $ | 112,406 |
| $ | (434) |
| Accrued liabilities |
| | | 19,061 | | | (317) | | Accrued liabilities |
Receive USD/pay ZAR | | | 5,398 | | | (281) |
| Accrued liabilities | |||||||||
Receive USD/pay NZD | | | 4,095 | |
| (64) |
| Accrued liabilities | |||||||||
Receive USD/pay DKK | | | 3,335 | |
| (59) |
| Accrued liabilities | |||||||||
Receive USD/pay COP | | | 10,097 | |
| (51) |
| Accrued liabilities | |||||||||
Receive USD/pay GBP | | | 19,410 | |
| (34) |
| Accrued liabilities | |||||||||
Receive USD/pay AUD |
| 21,644 |
| (1) |
| Accrued liabilities |
| | | 871 | | | (28) | | Accrued liabilities | ||
Receive CAD/pay USD |
| 11,269 |
| (38) |
| Accrued liabilities |
| ||||||||||
Receive SGD/pay USD |
| 3,770 |
| (8) |
| Accrued liabilities |
| ||||||||||
Receive USD/pay TRY |
| 5,394 |
| (7) |
| Accrued liabilities |
| ||||||||||
Receive USD/pay BRL |
| 3,722 |
| (19) |
| Accrued liabilities |
| ||||||||||
Receive USD/pay COP |
| 2,327 |
| (6) |
| Accrued liabilities |
|
20
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
| | | | | | | | |
December 31, 2021 | ||||||||
Derivatives not designated as | | | | | | | | |
hedging instruments under | | Notional | | Fair | | | ||
FASB ASC 815-20 |
| Amount |
| Value |
| Balance Sheet Location | ||
Assets: | | | | | | | | |
Foreign currency exchange contracts: | | | | | | | | |
Receive SGD/pay USD | | $ | 16,544 | | $ | 297 |
| Accounts receivable, net |
Receive USD/pay COP | | | 9,754 | | | 296 | | Accounts receivable, net |
Receive RSD/pay USD | |
| 9,837 | |
| 46 |
| Accounts receivable, net |
Receive USD/pay RUB | | | 7,175 | | | 15 | | Accounts receivable, net |
| | | | | | | | |
Liabilities: | | | | | | | | |
Foreign currency exchange contracts: | | | | | | | | |
Receive USD/pay GBP | | $ | 29,929 | | $ | (666) |
| Accrued liabilities |
Receive USD/pay AUD | | | 2,602 | |
| (88) | | Accrued liabilities |
Receive USD/pay CNY | | | 12,230 | |
| (74) |
| Accrued liabilities |
Receive USD/pay NZD | | | 2,693 | | | (45) | | Accrued liabilities |
Receive USD/pay EUR | | | 3,045 | |
| (29) |
| Accrued liabilities |
Receive USD/pay ZAR | | | 4,140 | |
| (21) |
| Accrued liabilities |
Receive USD/pay DKK | | | 1,461 | |
| (9) |
| Accrued liabilities |
December 31, 2016 |
| ||||||||
Derivatives not designated as |
| Notional |
| Fair |
| Balance Sheet Location |
| ||
|
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
|
|
| ||
Foreign currency exchange contracts: |
|
|
|
|
|
|
| ||
Receive CAD/pay USD |
| $ | 22,314 |
| $ | 173 |
| Accounts receivable, net |
|
Receive SGD/pay USD |
| 7,915 |
| 24 |
| Accounts receivable, net |
| ||
Receive NOK/pay USD |
| 2,138 |
| 28 |
| Accounts receivable, net |
| ||
Receive USD/pay CLP |
| 4,094 |
| 9 |
| Accounts receivable, net |
| ||
Receive USD/pay COP |
| 2,330 |
| 2 |
| Accounts receivable, net |
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
|
| ||
Foreign currency exchange contracts: |
|
|
|
|
|
|
| ||
Receive USD/pay GBP |
| $ | 7,718 |
| $ | (57) |
| Accrued liabilities |
|
Receive USD/pay EUR |
| 29,621 |
| (325) |
| Accrued liabilities |
| ||
Receive USD/pay AUD |
| 15,135 |
| (74) |
| Accrued liabilities |
| ||
Receive USD/pay ZAR |
| 20,405 |
| (296) |
| Accrued liabilities |
| ||
Receive USD/pay MXN |
| 25,864 |
| (4) |
| Accrued liabilities |
| ||
Receive USD/pay BRL |
| 3,138 |
| (3) |
| Accrued liabilities |
| ||
Receive USD/pay NZD |
| 2,076 |
| (5) |
| Accrued liabilities |
|
The net (losses) gainslosses on derivative instruments in the condensed consolidated statements of income were as follows:
| | | | | | | | |
| | | | Amount of loss | ||||
| | | | recognized in income on | ||||
| | | | derivatives | ||||
Derivatives not designated as | | Location of loss | | Three-months ended | ||||
hedging instruments under | | recognized in income on | | March 31, | | March 31, | ||
ASC 815-20 |
| derivatives |
| 2022 |
| 2021 | ||
Foreign currency exchange contracts |
| Interest and other expense, net | | $ | 4,019 | | $ | 3,870 |
|
|
|
| Amount of (loss) gain | ||||
|
|
|
| Three-months ended | ||||
Derivatives not designated as |
| Location of (loss) gain |
| September 30, |
| September 30, | ||
|
|
|
|
|
|
| ||
Foreign currency exchange contracts |
| Interest and other income (expense), net |
| $ | (2,172) |
| $ | (882) |
|
|
|
| Amount of (loss) gain | ||||
|
|
|
| Nine-months ended | ||||
Derivatives not designated as |
| Location of (loss) gain |
| September 30, |
| September 30, | ||
|
|
|
|
|
|
| ||
Foreign currency exchange contracts |
| Interest and other income (expense), net |
| $ | (11,639) |
| $ | (424) |
8. | INVENTORIES |
Inventories consist of the following at:
| | | | | | |
|
| March 31, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
Raw materials | | $ | 455,318 | | $ | 349,865 |
Work in process | | | 1,471 | | | — |
Finished goods | |
| 364,343 | |
| 243,492 |
| | $ | 821,132 | | $ | 593,357 |
21
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
6.INVENTORIES
Inventories consist of the following at:
|
| September 30, |
| December 31, |
| ||
Raw materials |
| $ | 83,190 |
| $ | 58,658 |
|
Finished goods |
| 130,151 |
| 103,313 |
| ||
|
| $ | 213,341 |
| $ | 161,971 |
|
7.PROPERTY AND EQUIPMENT, NET
9. | PROPERTY AND EQUIPMENT, NET |
Property and equipment consist of the following at:
|
| September 30, |
| December 31, |
| ||||||||
| | | | | | | |||||||
|
| March 31, |
| December 31, | |||||||||
|
| 2022 |
| 2021 | |||||||||
Land |
| $ | 47,373 |
| $ | 46,596 |
| | $ | 86,522 | | $ | 85,455 |
Leasehold improvements |
| 4,121 |
| 2,687 |
| |
| 31,272 | |
| 11,845 | ||
Furniture and fixtures |
| 4,490 |
| 3,635 |
| |
| 9,185 | |
| 8,274 | ||
Office and computer equipment |
| 13,702 |
| 11,701 |
| |
| 23,026 | |
| 21,601 | ||
Computer software |
| 3,238 |
| 3,274 |
| |
| 8,085 | |
| 8,383 | ||
Equipment |
| 143,435 |
| 114,230 |
| |
| 251,184 | |
| 190,333 | ||
Buildings |
| 104,720 |
| 69,547 |
| |
| 186,371 | |
| 167,243 | ||
Vehicles |
| 36,876 |
| 31,582 |
| |
| 47,603 | |
| 45,404 | ||
|
| 357,955 |
| 283,252 |
| ||||||||
| |
| 643,248 | |
| 538,538 | |||||||
Less: accumulated depreciation and amortization |
| (132,534) |
| (109,909) |
| |
| (235,857) | |
| (224,785) | ||
|
| $ | 225,421 |
| $ | 173,343 |
| ||||||
| | $ | 407,391 | | $ | 313,753 |
Total depreciation and amortization expense recorded was $9.4$13.1 million and $7.5$11.7 million for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Total depreciation and amortization expense recorded was $26.2 million and $22.2 million for the nine-months ended September 30, 2017 and 2016, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
8.10. GOODWILL AND OTHER INTANGIBLE ASSETS
The following is a roll-forward of goodwill for the nine-monthsthree-months ended September 30, 2017March 31, 2022 and 2021 by reportable segment:
|
| Monster |
| Strategic |
| Other |
| Total |
| ||||
Balance at December 31, 2016 |
| $ | 693,644 |
| $ | 637,999 |
| $ | - |
| $ | 1,331,643 |
|
Acquisitions |
| - |
| - |
| - |
| - |
| ||||
Balance at September 30, 2017 |
| $ | 693,644 |
| $ | 637,999 |
| $ | - |
| $ | 1,331,643 |
|
| | | | | | | | | | | | | | | |
| | Monster | | | | | | | | | | | | | |
| | Energy® | | Strategic | | Alcohol | | | | | | | |||
|
| Drinks |
| Brands |
| Brands |
| Other |
| Total | |||||
Balance at December 31, 2021 | | $ | 693,644 | | $ | 637,999 | | $ | — | | $ | — | | $ | 1,331,643 |
Acquisitions | |
| — | |
| — | |
| 80,285 | |
| — | |
| 80,285 |
Balance at March 31, 2022 | | $ | 693,644 | | $ | 637,999 | | $ | 80,285 | | $ | — | | $ | 1,411,928 |
| | | | | | | | | | | | | | | |
| | Monster | | | | | | | | | | | | | |
| | Energy® | | Strategic | | Alcohol | | | | | | | |||
|
| Drinks |
| Brands |
| Brands |
| Other |
| Total | |||||
Balance at December 31, 2020 | | $ | 693,644 | | $ | 637,999 | | $ | — | | $ | — | | $ | 1,331,643 |
Acquisitions | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Balance at March 31, 2021 | | $ | 693,644 | | $ | 637,999 | | $ | — | | $ | — | | $ | 1,331,643 |
Intangible assets consist of the following at:
|
| September 30, |
| December 31, |
| ||||||||
| | | | | | | |||||||
|
| March 31, |
| December 31, | |||||||||
| | 2022 | | 2021 | |||||||||
Amortizing intangibles |
| $ | 71,396 |
| $ | 71,290 |
| | $ | 121,372 | | $ | 66,872 |
Accumulated amortization |
| (23,421) |
| (14,535) |
| |
| (62,761) | |
| (61,227) | ||
|
| 47,975 |
| 56,755 |
| ||||||||
| |
| 58,611 | |
| 5,645 | |||||||
Non-amortizing intangibles |
| 985,506 |
| 975,880 |
| |
| 1,173,502 | |
| 1,066,741 | ||
|
| $ | 1,033,481 |
| $ | 1,032,635 |
| ||||||
| | $ | 1,232,113 | | $ | 1,072,386 |
22
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Amortizing intangibles primarily consist of customer relationships. All amortizing intangibles have been assigned an estimated finite useful life and such intangibles are amortized on a straight-line basis over the number of years that approximate their respective useful lives, generally five to sevenfifteen years. Total amortization expense recorded was $3.0 million for both the three-months ended September 30, 2017 and 2016. Total amortization expense recorded was $8.9$1.5 million and $7.7 million for the nine-months ended September 30, 2017 and 2016, respectively.
9.DISTRIBUTION AGREEMENTS
In accordance with ASC No. 420 “Exit or Disposal Cost Obligations”, the Company expenses distributor termination costs in the period in which the written notification of termination occurs. The Company incurred termination costs of $15.9 million and $4.7$1.1 million for the three-months ended September 30, 2017March 31, 2022 and 2016,March 31, 2021, respectively.
The Company incurred termination costsfollowing is the future estimated amortization expense related to amortizing intangibles as of $35.9 million and $33.4 million for the nine-months ended September 30, 2017 and 2016, respectively. Such termination costs have been expensed in full and are included in operating expenses for the three- and nine-months ended September 30, 2017 and 2016.March 31, 2022:
| | | |
2022 (excluding the three-months ended March 31, 2022) |
| $ | 6,029 |
2023 | | | 4,745 |
2024 | | | 3,647 |
2025 | | | 3,647 |
2026 | | | 3,646 |
2027 and thereafter | | | 36,897 |
| | $ | 58,611 |
11. DISTRIBUTION AGREEMENTS
In the normal course of business, amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, 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 agreement, generally 20 years.years or program duration, as the case may be. Revenue recognized was $11.4$10.0 million and $8.4$10.4 million for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Revenue recognized was $31.6 million and $28.6 million for the nine-months ended September 30, 2017 and 2016, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
10.12. COMMITMENTS AND CONTINGENCIES
The Company had purchase commitments aggregating approximately $28.1$384.1 million at September 30, 2017,March 31, 2022, which represented commitments made by the Company and its subsidiaries to various suppliers of raw materials for the production of its products. These obligations vary in terms, but are generally satisfied within one year.
The Company had contractual obligations aggregating approximately $126.0$335.4 million at September 30, 2017,March 31, 2022, which related primarily to sponsorships and other marketing activities.
The Company had operating lease commitments aggregating approximately $17.4 million at September 30, 2017, which related primarily to warehouse and office space.
In September 2016, the Company completed its acquisition of approximately 49 acres of land, located in Rialto, CA, for a purchase price of approximately $39.1 million. The Company is constructing an approximately 1,000,000 square-foot building (the “Rialto Warehouse”), which it anticipates will be LEED certified, to replace its current leased warehouse and distribution facilities located in Corona, CA. The Company entered into an approximately $38.1 million guaranteed maximum price construction contract for the construction of the building, of which $6.2 million remained outstanding as of September 30, 2017. During the three-months ended September 30, 2017, the Company commenced its transition to the Rialto Warehouse and estimates that it will be fully operational by December 31, 2017.
In December 2016, the Company entered intohas a credit facility with HSBC Bank (China) Company Limited, Shanghai Branch, consisting of a working capital line of credit under which$15.0 million. At March 31, 2022, the Company may borrow up to $4.0 million of non-collateralized debt. In February 2017, the working capital line limit was increased from $4.0 million to $9.0 million. Interestinterest rate on borrowings under the line of credit is based on the People’s Bank of China benchmark lending rates multiplied by 1.05.was 5.5%. As of September 30, 2017, the Company had $1.1March 31, 2022, $9.9 million was outstanding on this line of credit, including interest, which is included in accounts payable in the condensed consolidated balance sheet.
Legal Proceedings
credit.
Litigation – The Company has been named a defendant in numerous personal injury lawsuits, claiming that the death or other serious injury of the plaintiffs was caused by consumption of Monster Energy® brand energy drinks. The plaintiffs in these lawsuits allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The Company believes that each complaint is without merit and plans a vigorous defense. The Company also believes that any damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.
State Attorney General Inquiry – In July 2012, the Company received a subpoena from the Attorney General for the State of New York in connection with its investigation concerning the Company’s advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand energy drinks. Production of documents pursuant to that subpoena was completed in approximately May 2014.
On August 6, 2014, the Attorney General for the State of New York issued a second subpoena seeking additional documents and the deposition of a Company employee. On September 8, 2014, the Company moved to quash the second subpoena in the Supreme Court, New York County. The motion was fully briefed and was argued on March 17, 2015. On January 13, 2017, the Court issued an opinion in which it agreed with certain Company arguments regarding the scope of the subpoena and the Attorney General’s investigation, but denied the motion to quash and granted the Attorney General’s cross-motion to compel compliance. It is unknown what, if any, action the state Attorney General may take against the Company, the relief which may be sought in the event of any such proceeding or whether such proceeding could have a material adverse effect on the Company’s business, financial condition or results of operations.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Furthermore, from — From time to time in the normal course of business, the Company is named in other litigation, including labor and employment matters, personal injury matters, consumer class actions, intellectual property litigationmatters and claims from prior distributors. Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to the Company, management believes that such litigation in the aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.
The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, or in the amount ofand any related insurance reimbursements recorded.reimbursements. As of September 30, 2017,March 31, 2022, 0 loss contingencies were included in the Company’s condensed consolidated balance sheet includes accrued loss contingenciessheet.
23
Table of approximately $4.7 million.Contents
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
11.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in accumulated other comprehensive loss by component, after tax, for the nine-monthsthree-months ended September 30, 2017March 31, 2022 and 2021 are as follows:
| | | | | | | | | |
| | | | | Unrealized | | | | |
|
| Currency |
| Losses on |
| | | ||
| | Translation | | Available-for- | | | | ||
| | Losses | | Sale Securities | | Total | |||
Balance at December 31, 2021 | | $ | (68,209) | | $ | (956) | | $ | (69,165) |
Other comprehensive (loss) income before reclassifications | |
| 1,079 | | | (4,059) | | | (2,980) |
Amounts reclassified from accumulated other comprehensive (loss) income | |
| 0 | | | 0 | | | 0 |
Net current-period other comprehensive (loss) income | |
| 1,079 | | | (4,059) | | | (2,980) |
Balance at March 31, 2022 | | $ | (67,130) | | $ | (5,015) | | $ | (72,145) |
| | | | | | | | | |
| | | | | Unrealized | | | | |
|
| Currency | | Gains on | | | | ||
|
| Translation |
| Available-for- |
| | | ||
| | Losses | | Sale Securities | | Total | |||
Balance at December 31, 2020 | | $ | 2,950 | | $ | 84 | | $ | 3,034 |
Other comprehensive (loss) income before reclassifications | |
| (27,932) | | | 24 | | | (27,908) |
Amounts reclassified from accumulated other comprehensive (loss) income | |
| — | | | — | | | — |
Net current-period other comprehensive (loss) income | |
| (27,932) | | | 24 | | | (27,908) |
Balance at March 31, 2021 | | $ | (24,982) | | $ | 108 | | $ | (24,874) |
|
| Currency |
| Unrealized |
| Total |
| |||
Balance at December 31, 2016 |
| $ | 23,056 |
| $ | 193 |
| $ | 23,249 |
|
Other comprehensive loss (gain) before reclassifications |
| - |
| - |
| - |
| |||
Amounts reclassified from accumulated other comprehensive loss (gain) |
| - |
| - |
| - |
| |||
Net current-period other comprehensive loss (gain) |
| (7,641) |
| (75) |
| (7,716) |
| |||
Balance at September 30, 2017 |
| $ | 15,415 |
| $ | 118 |
| $ | 15,533 |
|
12.14. TREASURY STOCK
On February 28, 2017,March 13, 2020, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “February 2017“March 2020 Repurchase Plan”). During the three-months ended September 30, 2017, the Company purchased 4.5 millionMarch 31, 2022, 0 shares of common stock at an average purchase price of $54.91 per share, for a total amount of $248.8 million (excluding broker commissions),were repurchased under the February 2017March 2020 Repurchase Plan.
As of May 6, 2022, $441.5 million remained available for repurchase under the March 2020 Repurchase Plan.
During the three-months ended September 30, 2017, 892March 31, 2022, 0.2 million shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $0.05$12.2 million. While such purchases are considered common stock repurchases, they are not counted as purchases against the Company’s authorized share repurchase programs. Such shares are included in common stock in treasury in the accompanying condensed consolidated balance sheet at September 30, 2017.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
13.15. STOCK-BASED COMPENSATION
The Company has two2 stock-based compensation plans under which shares were available for grant at September 30, 2017:March 31, 2022: (i) the Monster Beverage Corporation 20112020 Omnibus Incentive Plan, (the “2011 Omnibus Incentive Plan”) andincluding the Monster Beverage Corporation StockDeferred Compensation Plan as a sub-plan thereunder, and (ii) the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (the “2017as Amended and Restated on February 23, 2022, including the Monster Beverage Corporation Deferred Compensation Plan for Non-Employee Directors Plan”).
as a sub-plan thereunder.
The Company recorded $13.3$16.3 million and $12.1$18.4 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rightsunits, performance share units and restricted stock unitsother share-based awards during the three-months ended September 30, 2017March 31, 2022 and 2016, respectively. The Company recorded $39.3 million and $33.7 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units during the nine-months ended September 30, 2017 and 2016,2021, respectively.
The excess tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units and restricted stock awardsperformance share units for the three-months ended September 30, 2017March 31, 2022 and 20162021 was $2.5$0.4 million and $3.5$1.4 million, respectively. The excess tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions
24
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
In 2016, the Company adopted the Monster Beverage Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”) (a sub plan to the 2011 Omnibus Incentive Plan). Deferrals under the Deferred Compensation Plan are unfunded and unsecured. As of September 30, 2017, deferrals under the Deferred Compensation Plan are solely comprised of cash compensation and equity compensation coming due after September 30, 2018 and are not materialNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in the aggregate.Thousands, Except Per Share Amounts) (Unaudited)
During the quarter ending June 30, 2017, the Company adopted the Monster Beverage Corporation Deferred Compensation Plan for Non-Employee Directors (the “Non-Employee Director Deferral Plan”) (a sub-plan to the 2017 Directors Plan), pursuant to which non-employee directors may elect to defer cash and/or equity based compensation and to receive the deferred compensation, either at a pre-determined time in the future or upon departure from the Company’s Board of Directors, as provided for under the Non-Employee Director Deferral Plan. Deferrals under the Non-Employee Director Deferral Plan are unfunded and unsecured. As of September 30, 2017, there were no deferrals under the Non-Employee Director Deferral Plan.
Stock Options
Under the Company’s stock-based compensation plans, all stock options granted as of September 30, 2017March 31, 2022 were granted at prices based on the fair value of the Company’s common stock on the date of grant. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The following weighted-average assumptions were used to estimate the fair value of options granted during:
|
| Three-Months Ended September 30, |
| Nine-Months Ended September 30, |
| |||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||
| | | | | | |||||||||
| | Three-Months Ended March 31, | | |||||||||||
|
| 2022 |
| 2021 |
| |||||||||
Dividend yield |
| 0.0% |
| 0.0% |
| 0.0% |
| 0.0% |
| | 0.0 | % | 0.0 | % |
Expected volatility |
| 35.3% |
| 36.3% |
| 36.6% |
| 36.1% |
| | 27.7 | % | 28.9 | % |
Risk-free interest rate |
| 1.7% |
| 1.1% |
| 2.1% |
| 1.4% |
| | 2.1 | % | 0.8 | % |
Expected term |
| 5.9 years |
| 6.4 years |
| 6.1 years |
| 6.3 years |
| | 6.0 years | | 5.8 years | |
Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.
Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury zero coupontreasury zero-coupon yield curve in effect at the time of grant for the expected term of the option.
Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.
The following table summarizes the Company’s activities with respect to its stock option plans as follows:
Options |
| Number of |
| Weighted- |
| Weighted- |
| Aggregate |
| ||
Outstanding at January 1, 2017 |
| 22,643 |
| $ | 23.55 |
| 5.8 |
| $ | 474,739 |
|
Granted 01/01/17 - 03/31/17 |
| 1,319 |
| $ | 45.94 |
|
|
|
|
| |
Granted 04/01/17 - 06/30/17 |
| 26 |
| $ | 49.71 |
|
|
|
|
| |
Granted 07/01/17 - 09/30/17 |
| 12 |
| $ | 56.08 |
|
|
|
|
| |
Exercised |
| (1,643) |
| $ | 16.30 |
|
|
|
|
| |
Cancelled or forfeited |
| (391) |
| $ | 39.32 |
|
|
|
|
| |
Outstanding at September 30, 2017 |
| 21,966 |
| $ | 25.20 |
| 5.4 |
| $ | 659,989 |
|
Vested and expected to vest in the |
|
|
|
|
|
|
|
|
| ||
future at September 30, 2017 |
| 20,870 |
| $ | 24.26 |
| 5.2 |
| $ | 646,739 |
|
Exercisable at September 30, 2017 |
| 13,030 |
| $ | 14.29 |
| 3.4 |
| $ | 533,683 |
|
| | | | | | | | | | |
| | | | | | | Weighted- | | | |
| | | | Weighted- | | Average | | | | |
| | | | Average | | Remaining | | | | |
| | Number of | | Exercise | | Contractual | | Aggregate | ||
| | Shares | | Price Per | | Term (in | | Intrinsic | ||
Options |
| (in thousands) |
| Share |
| years) |
| Value | ||
Outstanding at January 1, 2022 |
| 13,860 | | $ | 48.19 |
| 5.1 | | $ | 663,148 |
Granted 01/01/22 - 03/31/22 |
| 2,489 | | $ | 73.96 | | | | | |
Exercised |
| (114) | | $ | 39.57 | | | | | |
Cancelled or forfeited |
| (17) | | $ | 65.92 | | | | | |
Outstanding at March 31, 2022 |
| 16,218 | | $ | 52.19 |
| 5.6 | | $ | 459,540 |
Vested and expected to vest in the future at March 31, 2022 | | 15,723 | | $ | 51.52 | | 5.5 | | $ | 455,553 |
Exercisable at March 31, 2022 |
| 10,862 | | $ | 42.96 |
| 4.1 | | $ | 402,706 |
The weighted-average grant-date fair value of options granted during the three-months ended September 30, 2017March 31, 2022 and 20162021 was $20.61$23.21 per share and $19.74$25.78 per share, respectively. The weighted-average grant-date fair value of options granted during the nine-months ended September 30, 2017 and 2016 was $18.04 per share and $16.94 per share, respectively.
The total intrinsic value of options exercised during the three-months ended September 30, 2017March 31, 2022 and 20162021 was $12.5$4.9 million and $9.1$7.2 million, respectively. The total intrinsic value
25
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Cash received from option exercises under all plans for the three-months ended September 30, 2017March 31, 2022 and 20162021 was approximately $7.7$4.5 million and $2.4 million, respectively. Cash received from option exercises under all plans for the nine-months ended September 30, 2017 and 2016 was approximately $26.8 million and $10.6$6.8 million, respectively.
At September 30, 2017,March 31, 2022, there was $91.8$95.4 million of total unrecognized compensation expense related to non-vested options granted to employees under the Company’s share-based paymentstock-based compensation plans. That cost is expected to be recognized over a weighted-average period of 2.83.4 years.
Restricted Stock Awards and Restricted Stock Units and Performance Share Units
The cost of stock-based compensation for restricted stock awardsunits and restricted stockperformance share units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit or performance share unit in cash, the award is classified as a liability and revalued at each balance sheet date.
The following table summarizes the Company’s activities with respect to non-vested restricted stock awardsunits and non-vested restricted stockperformance share units as follows:
|
| Number of |
| Weighted |
| |
Non-vested at January 1, 2017 |
| 556 |
| $ | 39.95 |
|
Granted 01/01/17- 03/31/17 |
| 252 |
| $ | 46.27 |
|
Granted 04/01/17- 06/30/17 |
| 23 |
| $ | 50.86 |
|
Granted 07/01/17- 09/30/17 |
| - |
| $ | - |
|
Vested |
| (289) |
| $ | 37.64 |
|
Forfeited/cancelled |
| (2) |
| $ | 20.69 |
|
Non-vested at September 30, 2017 |
| 540 |
| $ | 44.67 |
|
| | | | | |
| | | | Weighted | |
| | Number of | | Average | |
| | Shares (in | | Grant-Date | |
|
| thousands) |
| Fair Value | |
Non-vested at January 1, 2022 | | 910 | | $ | 69.02 |
Granted 01/01/22 - 03/31/221 | | 484 | | $ | 71.88 |
Vested | | (371) | | $ | 64.15 |
Forfeited/cancelled | | (2) | | $ | 59.67 |
Non-vested at March 31, 2022 | | 1,021 | | $ | 72.17 |
No restricted stock1The grant activity for performance share units or restricted stock awards were granted duringis recorded based on the three-months ended September 30, 2017 and September 30, 2016. target performance level earning 100% of target performance share units. The actual number of performance share units earned could range from 0% to 200% of target depending on the achievement of pre-established performance goals.
The weighted-average grant-date fair value of restricted stock units and restricted stock awardsand/or performance share units granted during the nine-monthsthree-months ended September 30, 2017March 31, 2022 and 20162021 was $46.65$73.45 and $88.96 per share, and $44.71 per share, respectively.
As of September 30, 2017, 0.5March 31, 2022, 0.9 million of restricted stock units and restricted stock awardsperformance share units are expected to vest over their respective terms.
At September 30, 2017,March 31, 2022, total unrecognized compensation expense relating to non-vested restricted stock awardsunits and non-vested restricted stockperformance share units was $17.3$56.7 million, which is expected to be recognized over a weighted-average period of 1.72.4 years.
Other Share-Based Awards
The Company has granted other share-based awards to certain employees that are payable in cash. These awards are classified as liabilities and are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement, with compensation expense being recognized in proportion to the completed requisite service period up until date of settlement. At March 31, 2022, other share-based awards outstanding included grants that vest over three years payable in the first quarters of 2023, 2024 and 2025.
At March 31, 2022, there was $0.5 million of total unrecognized compensation expense related to nonvested other share-based awards granted to employees under the Company’s stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of 0.8 years.
26
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
14.16. INCOME TAXES
The following is a roll-forwardAs of March 31, 2022, the Company does not have unrecognized tax benefits. In addition, the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the nine-months ended September 30, 2017:
| ||||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
|
|
The Company recognizespolicy is to recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s condensed consolidated financial statements. As of September 30, 2017, the Company had approximately $1.2 million in accrued interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions, the resultant impact on the Company’s effective tax rate would not be significant. It is expected that any change in the amount of unrecognized tax benefits within the next 12 months will not be significant.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.
On August 7, 2015, the Internal Revenue Service (the “IRS”) began its examination of the Company’s U.S. federal income tax returns for the years ended December 31, 2012 and 2013. On October 18, 2016, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2014. On March 27, 2017, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2015.
The Company is in various stages of examination with certain states and certain foreign jurisdictions.jurisdictions, including the United Kingdom and Ireland. The Company’s 20122018 through 20162021 U.S. federal income tax returns are subject to examination by the IRS. The Company’s state income tax returns are subject to examination for the 20122017 through 20162021 tax years.
15.17. EARNINGS PER SHARE
A reconciliation of the weighted-average shares used in the basic and diluted earnings per common share computations is presented below (in thousands):
| | | | |
| | Three-Months Ended | ||
| | March 31, | ||
|
| 2022 |
| 2021 |
Weighted-average shares outstanding: | | | | |
Basic | | 529,405 |
| 528,195 |
Dilutive | | 6,149 |
| 6,787 |
Diluted | | 535,554 |
| 534,982 |
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||
|
| September 30, |
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
| 567,878 |
| 571,137 |
| 567,550 |
| 594,219 |
|
Dilutive |
| 10,490 |
| 12,156 |
| 10,414 |
| 12,060 |
|
Diluted |
| 578,368 |
| 583,293 |
| 577,964 |
| 606,279 |
|
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
For the three-months ended September 30, 2017March 31, 2022 and 2016,2021, options and awards outstanding totaling 5.91.6 million shares and 1.9 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive. For the nine-months ended September 30, 2017 and 2016, options and awards outstanding totaling 8.4 million shares and 1.70.2 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive.
16.18. SEGMENT INFORMATION
The Company has three 4 operating and reportable segments,segments: (i) Monster Energy® Drinks segment, (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks, Monster HydroTMReign Total Body Fuel® high performance energy drinks and Mutant® Super Soda drinks,True North® Pure Energy Seltzers, (ii) Strategic Brands segment, (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”)TCCC in 2015 as well as the Company’s affordable energy brands, (iii) Alcohol Brands segment, which is primarily comprised of the various craft beers and (iii)hard seltzers purchased as part of the CANarchy Transaction on February 17, 2022 and (iv) Other segment, (“Other”), which is comprised of certain products sold by American Fruits & Flavors LLC, a wholly-owned subsidiary of the Company, to independent third-party customers.
AFF Third-Party Products.
The Company’s Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged drinks primarily to bottlers and full service beverage bottlers/distributors. In some cases, the Company sells ready-to-drink packaged drinks directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food servicedrug stores, foodservice customers, value stores, e-commerce retailers and the military.
The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers, full service bottlers/distributors or retailers, including,and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food servicefoodservice customers, drug stores, value stores, e-commerce retailers and the military. To a lesser extent, the Company’s Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage bottlers/distributors.
27
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Generally, the Monster Energy® Drinks segment generates higher per case net operating revenues, but lower per case gross profit marginsmargin percentages than the Strategic Brands segment.
The Company’s Alcohol Brands segment primarily generates operating revenues by selling kegged and canned beer as well as hard seltzers primarily to distributors in the United States.
Generally, the Alcohol Brands segment will have lower gross profit margin percentages than the Monster Energy® Drinks segment.
Corporate and unallocated amounts that do not relate to a reportable segment have been allocated to “Corporate & Unallocated.” No asset information, other than goodwill and other intangible assets, has been provided for in the Company’s reportable segments, as management does not measure or allocate such assets on a segment basis.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The net revenues derived from the Company’s reportable segments and other financial information related thereto for the three-three-months ended March 31, 2022 and nine-months ended September 30, 2017 and 20162021 are as follows:
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||||||||||||
|
| September 30, |
| September 30, |
| ||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||
| | | | | | | |||||||||||||
| | Three-Months Ended | |||||||||||||||||
| | March 31, | |||||||||||||||||
|
| 2022 |
| 2021 | |||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
| | | | | | | ||||
Monster Energy® Drinks(1) |
| $ | 827,690 |
| $ | 710,130 |
| $ | 2,311,521 |
| $ | 2,075,511 |
| ||||||
Monster Energy® Drinks1 | | $ | 1,404,847 | | $ | 1,170,280 | |||||||||||||
Strategic Brands |
| 76,586 |
| 72,138 |
| 230,255 |
| 207,990 |
| |
| 92,593 | |
| 67,809 | ||||
Alcohol Brands2 | | | 15,207 | | | — | |||||||||||||
Other |
| 5,200 |
| 5,686 |
| 16,914 |
| 12,127 |
| |
| 5,927 | |
| 5,727 | ||||
Corporate and unallocated |
| - |
| - |
| - |
| - |
| |
| — | |
| — | ||||
|
| $ | 909,476 |
| $ | 787,954 |
| $ | 2,558,690 |
| $ | 2,295,628 |
| ||||||
| | $ | 1,518,574 | | $ | 1,243,816 |
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||||||||||||
|
| September 30, |
| September 30, |
| ||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||
| | | | | | | |||||||||||||
| | Three-Months Ended | |||||||||||||||||
| | March 31, | |||||||||||||||||
|
| 2022 |
| 2021 | |||||||||||||||
Operating Income: |
|
|
|
|
|
|
|
|
| | | | | | | ||||
Monster Energy® Drinks(1) (2) |
| $ | 333,210 |
| $ | 308,493 |
| $ | 968,864 |
| $ | 874,822 |
| ||||||
Monster Energy® Drinks¹ | | $ | 454,563 | | $ | 464,819 | |||||||||||||
Strategic Brands |
| 42,663 |
| 40,075 |
| 137,945 |
| 127,169 |
| |
| 57,195 | |
| 45,140 | ||||
Alcohol Brands2 | | | (4,953) | | | — | |||||||||||||
Other |
| 1,451 |
| 1,186 |
| 4,585 |
| 1,528 |
| |
| 1,127 | |
| 1,793 | ||||
Corporate and unallocated |
| (59,952) |
| (59,379) |
| (179,719) |
| (169,909) |
| |
| (108,443) | |
| (97,606) | ||||
|
| $ | 317,372 |
| $ | 290,375 |
| $ | 931,675 |
| $ | 833,610 |
| ||||||
| | $ | 399,489 | | $ | 414,146 |
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||||||||||||
|
| September 30, |
| September 30, |
| ||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||
| | | | | | | |||||||||||||
| | Three-Months Ended | |||||||||||||||||
| | March 31, | |||||||||||||||||
|
| 2022 |
| 2021 | |||||||||||||||
Income before tax: |
|
|
|
|
|
|
|
|
| | | | | | | ||||
Monster Energy® Drinks(1) (2) |
| $ | 333,065 |
| $ | 308,612 |
| $ | 968,716 |
| $ | 875,024 |
| ||||||
Monster Energy® Drinks¹ | | $ | 455,134 | | $ | 464,968 | |||||||||||||
Strategic Brands |
| 42,663 |
| 40,073 |
| 137,931 |
| 127,141 |
| |
| 57,254 | |
| 45,140 | ||||
Alcohol Brands2 | | | (5,606) | | | — | |||||||||||||
Other |
| 1,451 |
| 1,186 |
| 4,585 |
| 1,528 |
| |
| 1,137 | |
| 1,793 | ||||
Corporate and unallocated |
| (55,811) |
| (60,533) |
| (177,454) |
| (170,734) |
| |
| (115,730) | |
| (98,514) | ||||
|
| $ | 321,368 |
| $ | 289,338 |
| $ | 933,778 |
| $ | 832,959 |
| ||||||
| | $ | 392,189 | | $ | 413,387 |
(1) | Includes $10.0 million and $10.4 million for the three-months ended March 31, 2022 and 2021, respectively, related to the recognition of deferred revenue. |
(2) | Effectively from February 17, 2022 to March 31, 2022. |
28
(1)Includes $11.4 million and $8.4 million for the three-months ended September 30, 2017 and 2016, respectively, related to the recognition of deferred revenue. Includes $31.6 million and $28.6 million for the nine-months ended September 30, 2017 and 2016, respectively, related to the recognition of deferred revenue.
(2)Includes $15.9 million and $4.7 million for the three-months ended September 30, 2017 and 2016, respectively, related to distributor termination costs. Includes $35.9 million and $33.4 million for the nine-months ended September 30, 2017 and 2016, respectively, related to distributor termination costs.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
| | | | | | |
| | Three-Months Ended | ||||
| | March 31, | ||||
|
| 2022 |
| 2021 | ||
Depreciation and amortization: | | | | | | |
Monster Energy® Drinks | | $ | 8,159 | | $ | 9,022 |
Strategic Brands | |
| 233 | |
| 264 |
Alcohol Brands | | | 2,283 | | | — |
Other | |
| 1,110 | |
| 1,126 |
Corporate and unallocated | |
| 2,814 | |
| 2,413 |
| | $ | 14,599 | | $ | 12,825 |
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
| ||||
Monster Energy® Drinks |
| $ | 7,546 |
| $ | 5,974 |
| $ | 20,959 |
| $ | 17,651 |
|
Strategic Brands |
| 1,836 |
| 1,777 |
| 5,474 |
| 5,325 |
| ||||
Other |
| 1,152 |
| 1,151 |
| 3,458 |
| 2,305 |
| ||||
Corporate and unallocated |
| 1,795 |
| 1,522 |
| 5,213 |
| 4,593 |
| ||||
|
| $ | 12,329 |
| $ | 10,424 |
| $ | 35,104 |
| $ | 29,874 |
|
|
| September 30, |
| December 31, |
| ||
Goodwill and other intangible assets: |
|
|
|
|
| ||
Monster Energy® Drinks |
| $ | 1,343,437 |
| $ | 1,334,494 |
|
Strategic Brands |
| 997,054 |
| 1,001,749 |
| ||
Other |
| 24,633 |
| 28,035 |
| ||
Corporate and unallocated |
| - |
| - |
| ||
|
| $ | 2,365,124 |
| $ | 2,364,278 |
|
Corporate and unallocated expenses for the three-months ended September 30, 2017March 31, 2022 include $37.9$68.1 million of payroll costs, of which $13.3$16.2 million was attributable to stock-based compensation expenses (see Note 13,15 “Stock-Based Compensation”), as well as $11.9$26.4 million attributable to professional service expenses, including accounting and legal costs, and $10.1$13.9 million of other operating expenses.
Corporate and unallocated expenses for the three-months ended September 30, 2016March 31, 2021 include $33.2$65.1 million of payroll costs, of which $12.1$18.3 million was attributable to stock-based compensation expenses (see Note 13,15 “Stock-Based Compensation”), as well as $16.9$20.4 million attributable to professional service expenses, including accounting and legal costs, and $9.3$12.1 million of other operating expenses.
Corporate and unallocated expenses for the nine-months ended September 30, 2017 include $114.0 million of payroll costs, of which $39.3 million was attributable to stock-based compensation expenses (see Note 13, “Stock-Based Compensation”), as well as $38.3 million attributable to professional service expenses, including accounting and legal costs, and $27.5 million of other operating expenses. Corporate and unallocated expenses for the nine-months ended September 30, 2016 include $92.7 million of payroll costs, of which $33.7 million was attributable to stock-based compensation expenses (see Note 13, “Stock-Based Compensation”), as well as $52.4 million attributable to professional service expenses, including accounting and legal costs, and $24.8 million of other operating expenses.
TCCC, through certain wholly-owned subsidiaries (the “TCCC Subsidiaries”),Coca-Cola Europacific Partners (formerly Coca-Cola European Partners) accounted for approximately 14%12% and 41%11% of the Company’s net sales for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. The TCCC Subsidiaries
Coca-Cola Consolidated, Inc. accounted for approximately 21%9% and 43%12% of the Company’s net sales for the nine-monthsthree-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company’s percentage of net sales classified as sales to the TCCC Subsidiaries decreased for three- and nine-months ended September 30, 2017. CCBCC Operations,
Reyes Coca-Cola Bottling, LLC accounted for approximately 14%10% and 9% of the Company’s net sales for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. CCBCC Operations, LLC accounted for approximately 13% and 8% of the Company’s net sales for the nine-months ended September 30, 2017 and 2016, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Net sales to customers outside the United States amounted to $260.1$553.4 million and $190.8$459.4 million for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. NetSuch sales to customers outside the United States amounted to $698.9 millionwere approximately 36% and $540.2 million37% of net sales for three-months ended March 31, 2022 and 2021, respectively.
Goodwill and other intangible assets for the nine-months ended September 30, 2017Company’s reportable segments as of March 31, 2022 and 2016, respectively.December 31, 2021 are as follows:
| | | | | | |
|
| March 31, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
Goodwill and other intangible assets: | | | | | | |
Monster Energy® Drinks | | $ | 1,425,023 | | $ | 1,420,503 |
Strategic Brands | |
| 979,268 | |
| 978,032 |
Alcohol Brands | | | 235,353 | | | — |
Other | |
| 4,397 | |
| 5,494 |
Corporate and unallocated | |
| — | |
| — |
| | $ | 2,644,041 | | $ | 2,404,029 |
17.
29
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
19. RELATED PARTY TRANSACTIONS
TCCC controls approximately 18%19.3% of the voting interests of the Company. The TCCC throughSubsidiaries, the TCCC SubsidiariesRelated Parties and through certain TCCC affiliated companies (the “TCCC Affiliates”) purchasesindependent bottlers/distributors purchase and distributes certain ofdistribute the Company’s products both domesticallyin domestic and in certain international territories.markets. The Company also pays TCCC a commission based on certain sales within the TCCC distribution network.
TCCC commissions, based on sales to the TCCC Affiliates for the three-months ended September 30, 2017 and 2016, were $12.7 million and $8.1 million, respectively. TCCC commissions, based on sales to the TCCC Affiliates for the nine-months ended September 30, 2017 and 2016, were $33.5 million and $19.0 million, respectively.
TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, were $18.4 million and $16.1 million for the three-months ended March 31, 2022 and 2021, respectively, and are accounted forincluded as a reduction to revenuenet sales.
TCCC commissions, based on sales to TCCC independent bottlers/distributors, were $11.0 million and $5.5 million for the three-months ended March 31, 2022 and 2021, respectively, and are reportedincluded in net sales to the TCCC Subsidiaries.
operating expenses.
Net sales to the TCCC Subsidiaries for the three-months ended September 30, 2017March 31, 2022 and 20162021 were $130.7$31.8 million and $321.9$27.1 million, respectively. Net sales to the TCCC Subsidiaries for the nine-months ended September 30, 2017 and 2016 were $540.4 million and $981.0 million, respectively. As part of the North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company’s net sales classified as sales to the TCCC Subsidiaries decreased for three- and nine-months ended September 30, 2017.
The Company also purchases concentrates from TCCC which are then sold to bothcertain of the TCCC Affiliates and the TCCC Subsidiaries.Company’s bottlers/distributors. Concentrate purchases from TCCC were $7.6$8.5 million and $6.2$6.4 million for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Concentrate purchases from TCCC were $20.2 million and $20.9 million for the nine-months ended September 30, 2017 and 2016, respectively.
Certain TCCC Subsidiaries also contract manufacture certain of the Company’s Monster Energy® brand energy drinks as well as Mutant® Super Soda drinks. ContractSuch contract manufacturing expenses were $3.6$9.2 million and $2.2$7.4 million for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Contract manufacturing expenses were $8.7 million and $6.0 million for the nine-months ended September 30, 2017 and 2016, respectively.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Accounts receivable, accounts payable, and accrued promotional allowances and accrued liabilities related to the TCCC Subsidiaries are as follows at:
|
| September |
| December 31, |
| ||||||||
|
|
|
|
|
| ||||||||
| | | | | | | |||||||
| | March 31, | | December 31, | |||||||||
|
| 2022 |
| 2021 | |||||||||
Accounts receivable, net |
| $ | 85,896 |
| $ | 151,756 |
| | $ | 115,497 | | $ | 94,647 |
TCCC transaction receivable |
| $ | - |
| $ | 125,000 |
| ||||||
Accounts payable |
| $ | (60,350) |
| $ | (41,210) |
| | $ | (37,629) | | $ | (35,248) |
Accrued promotional allowances |
| $ | (22,641) |
| $ | (27,056) |
| | $ | (7,254) | | $ | (4,536) |
Accrued liabilities | | $ | (35,849) | | $ | (26,616) |
Two directorsIn 2021, TCCC exercised its contract rights for a third-party public accounting firm (the "Accounting Firm") to conduct an examination relating to commissions and officersfees payable to TCCC and marketing contributions payable to the Company, for the years ended December 31, 2015 through December 31, 2020. The Company understands that the Accounting Firm has advised TCCC that it may be entitled to additional commissions and fees and/or reduced amounts of marketing contributions due to the Company in an aggregate amount of up to approximately $65.0 million. No portion of such amounts have been recognized in the Company’s condensed consolidated financial statements at March 31, 2022. The Company disputes any liability for additional commissions or fees payable to TCCC or reduced amounts of marketing contributions due to the Company for these periods.
NaN director of the Company through certain trusts, and their familiesa family member of one director are the principal owners of a company that provides promotional materials to the Company. Expenses incurred with such company in connection with promotional materials purchased during each of the three-months ended September 30, 2017March 31, 2022 and 20162021 were $0.6 million. Expenses incurred with such company in connection with promotional materials purchased during the nine-months ended September 30, 2017 and 2016 were $2.0$1.1 million and $0.9$0.4 million, respectively.
During the three-months ended March 31, 2022, the Company occasionally chartered a private aircraft that is indirectly owned by Mr. Rodney C. Sacks, Co-Chief Executive Officer and Chairman of the Board of Directors. On certain occasions, Mr. Sacks was accompanied by guests and other Company personnel when using such aircraft for business travel. During the three-months ended March 31, 2022, the Company incurred costs of $0.08 million, an amount the Company believes is commensurate with market rates for comparable travel.
30
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
In December 2018, the Company and a director of the Company entered into a 50-50 partnership that purchased land, and real property thereon, in Kona, Hawaii for the purpose of producing coffee products. The Company’s initial 50% contribution of $1.9 million was accounted for as an equity investment. During the three-months ended March 31, 2022, the Company recorded an equity loss of $0.03 million As of March 31, 2022, the Company’s equity investment is $1.3 million and is included in other assets (non-current) in the accompanying condensed consolidated balance sheet. At March 31, 2022 and December 31, 2021, the Company had $6.1 million and $3.4 million, respectively, in loans receivable from the partnership.
20.SUBSEQUENT EVENTS
In April 2022, Monster Energy Company (“MEC”) and Orange Bang, Inc. (“Orange Bang”) filed a joint motion in the United States District Court for the Central District of California to confirm a final arbitration award against Vital Pharmaceuticals, Inc. (“VPX”) that awarded MEC and Orange Bang $175.0 million and a 5% royalty on all future sales of VPX’s Bang Energy drink and other Bang-branded products as well as certain fees and costs. The arbitration arose from a settlement agreement that VPX entered into in 2010 with Orange Bang, a family-owned beverage business. Pursuant to the terms of that agreement, VPX is only permitted to use the Bang mark on “creatine-based” products or on Bang products that are marketed and sold only in the vitamin and dietary supplement sections of stores. MEC agreed to help Orange Bang defend its rights in exchange for half of any recovery. Upon examining evidence presented at the arbitration, the arbitrator found that Super Creatine is not creatine and that VPX’s Bang products are not creatine based and, therefore, don’t comply with the agreement between Orange Bang and VPX. The motion is scheduled for hearing in the 2022 second quarter. Per ASC No. 450 “Contingencies”, the Company will not recognize the award or royalties until such time as they are realized or realizable. The award and royalties will be realized or realizable when VPX has no remaining potential for appeal or reversal of the decision and all contingencies have been resolved. As of May 6, 2022, the proceedings have yet to progress to a stage where there is sufficient information for an accurate timeline of when the awards will be realized or realizable, if at all.
On May 5, 2022, the Company acquired certain real property, leases and equipment in Norwalk, California for a purchase price of $62.5 million. The Company intends to utilize the property as a manufacturing facility for certain of its products.
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Business
When this report uses the words “the Company”, “we”, “us”, and “our”, these words refer to Monster Beverage Corporation and its subsidiaries, unless the context otherwise requires. Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business except through its consolidated subsidiaries. The Company’s subsidiaries primarily develop and market energy drinks, as well as Mutant® Super Sodas.and to a lesser extent, craft beers and hard seltzers.
Acquisitions and Divestitures
CANarchy Acquisition
On April 1, 2016,February 17, 2022, we completed our acquisition of flavor supplierCANarchy Craft Brewery Collective LLC (“CANarchy”), a craft beer and long-timehard seltzer company, for $330.4 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 partner American Fruits & Flavors (“AFF”),will remain unchanged. CANarchy will function independently, retaining its own organizational structure and team.
Russia-Ukraine Conflict
During the first quarter of fiscal 2022, the Russia-Ukraine conflict did not have a material impact on our financial position, results of operations and liquidity. Net sales in an asset acquisition that brought our primary flavor supplier in-house, secured the intellectual propertyRussia and Ukraine combined were approximately 1.1% of our most important flavors in perpetuity and further enhanced our flavor development and global flavor footprint capabilities (the “AFF Transaction”). Pursuant to the terms of the AFF Transaction, we purchased AFF for $688.5 million in cash.
We accountedtotal net sales for the AFF Transaction in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. Inventory purchased undertwelve months ended December 31, 2021.We will continue to monitor future developments relative to this conflict and its potential impacts.
The COVID – 19 Pandemic
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 AFF Transaction was recorded at fair value. Raw material cost savings from the AFF Transaction were approximately $27.7 million and $23.3 million in the three-months ended September 30, 2017 and 2016, respectively. Raw material cost savings from the AFF Transaction were approximately $79.7 million and $24.4 million in the nine-months ended September 30, 2017 and 2016, respectively. Raw material costs savings from the AFF Transaction were minimally realized in the six-months ended June 30, 2016 as the Company’s inventory on hand prior to the AFF Transaction,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” in our Form 10-K.
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 first quarter net sales in 2022.
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.
32
Distribution and Supply Chain
In the first quarter of 2022, we experienced a significant increase in cost of sales relative to the comparative 2021 first quarter, primarily due to increased freight rates and fuel costs, including cost relating to the importation of aluminum cans, as well as aluminum can costs attributable to higher aluminum commodity pricing. We also experienced a significant increase in ingredient and other input costs, including secondary packaging materials, co-packing fees and production inefficiencies, which adversely impacted costs of sales. Furthermore, we experienced significant increases in distribution expenses including increased fuel, freight and warehousing costs which adversely impacted operating costs.
We continue to address the controllable challenges in our supply chain and are focused on increasing our finished product inventory acquiredlevels in proximity to our customers, where possible, to reduce the excessive cost of freight to satisfy consumer demand.
We continue to implement measures to mitigate our increased product and distribution costs through pricing actions and reductions in promotions.
Liquidity and Capital Resources
As of the date of this filing, we expect to maintain substantial liquidity as we manage through the current environment as described in the AFF Transaction which was recorded at fair value, were not recognized through cost of goods sold until the end of the second quarter of 2016.
“Liquidity and Capital Resources” section below.
Distributor TerminationsOverview
In accordance with ASC No. 420 “Exit or Disposal Cost Obligations”, we expense distributor termination costs in the period in which the written notification of termination occurs. We incurred termination costs of $15.9 million and $4.7 million for the three-months ended September 30, 2017 and 2016, respectively, related to the distribution rights transferred to The Coca-Cola Company’s (“TCCC”) distribution network. We incurred termination costs of $35.9 million and $33.4 million for the nine-months ended September 30, 2017 and 2016, respectively, related to the distribution rights transferred to TCCC’s distribution network. Such termination costs have been expensed in full and are included in operating expenses for the three- and nine-months ended September 30, 2017 and 2016.
Overview
We develop, market, sell and distribute energy drink beverages super sodas and/orand concentrates for energy drink beverages, primarily under the following brand names:
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| ● Live+® |
● Monster Dragon Tea® | ● Predator® |
● Reign Total Body Fuel® | ● Fury® |
● Reign Inferno® Thermogenic Fuel | ● True North® |
Our Monster Energy® brand energy drinks, which represented 90.5%
We also develop, market, sell and 89.8%distribute craft beers and hard seltzers under a number of our net sales for the three-months ended September 30, 2017brands, including, Jai Alai IPA, Florida Man IPA, Dale’s Pale Ale, Wild Basin Hard Seltzers, Dallas Blonde, Deep Ellum IPA, Black Ale, Hop Rising Double IPA, Juicy IPA, Apricot Hefeweizen and 2016, respectively, primarily include the following:a host of other brands.
|
|
We have threefour operating and reportable segments,segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks, Monster HydroTMReign Total Body Fuel® high performance energy drinks and Mutant® Super Soda drinks,True North® Pure Energy Seltzers, (ii) Strategic Brands segment (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from TCCCThe Coca-Cola Company (“TCCC”) in 2015 as well as the Company’s affordable energy brands, (iii) Alcohol Brands segment ("Alcohol Brands"), which is primarily comprised of the various craft beers and (iii)hard seltzers purchased as part of the CANarchy Transaction on February 17, 2022 and (iv) Other segment (“Other”), which is comprised of certain products sold by AFFAmerican Fruits and Flavors, LLC, a wholly-owned subsidiary, to independent third-party customers (the “AFF Third-Party Products”).
33
During the three-months ended September 30, 2017,March 31, 2022, we continued to expand our existing energy drink portfolio by adding additional products to our portfolio in a number of countries and further developdeveloped our distribution markets. During the three-months ended September 30, 2017,March 31, 2022, we introducedsold the following product:
·Monster Energy® Fury (September 2017)
Subsequentnew products to September 30, 2017, we introduced Espresso MonsterTM espresso + energy and NOS Nitro Mango.our customers:
● | Java Monster® Cold Brew Latte |
● | Java Monster® Cold Brew Sweet Black |
● | Juice Monster® Aussie Style LemonadeTM |
● | Monster Energy® Ultra Peachy Keen® |
● | Rehab® Monster® Watermelon |
● | Reign Total Body Fuel® Reignbow Sherbet |
● | Live+® Watermelon |
● | Mother® Kiwi Sublime |
● | Play® Peach |
● | Predator® Peach |
● | Predator® Red Apple |
● | Relentless® Peach |
● | Relentless® Raspberry |
In the normal course of business, we discontinue certain products and/or product lines. Those products or product lines discontinued in the three-months ended September 30, 2017,March 31, 2022, either individually or in aggregate, did not have a material adverse impact on our financial position, results of operations or liquidity.
Our net sales of $909.5 million$1.52 billion for the three-months ended September 30, 2017March 31, 2022 represented record sales for our thirdfirst fiscal quarter. The vast majority of our net sales are derived from our Monster Energy® brand energy drinks. Net sales of our Monster Energy® brand energy drinks were $823.4 million for the three-months ended September 30, 2017. Net sales of our Strategic Brands were $76.6 million for the three-months ended September 30, 2017.
Our Monster Energy® Drinks segment represented 91.0% and 90.1% of our consolidated net sales for the three-months ended September 30, 2017 and 2016, respectively. Our Strategic Brands segment represented 8.4% and 9.2% of our consolidated net sales for the three-months ended September 30, 2017 and 2016, respectively. Our Other segment represented 0.6% and 0.7% of our consolidated net sales for the three-months ended September 30, 2017 and 2016, respectively.
Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Monster Energy® Drinks segment of approximately $0.4$32.9 million for the three-months ended September 30, 2017. Net changes in foreign currency exchange rates had a favorable impact onMarch 31, 2022.
The vast majority of our net sales inare derived from our Monster Energy® Drinks segment. Net sales of our Monster Energy® Drinks segment were $1.40 billion for the three-months ended March 31, 2022. Net sales of our Strategic Brands segment of approximately $1.1were $92.6 million for the three-months ended September 30, 2017.
OurMarch 31, 2022. Net sales and marketing strategy for all our beverages is to focus our efforts on developing brand awareness through image-enhancing programs and product sampling. We use our branded vehicles and other promotional vehicles at events where we offer samples of our products to consumers. We utilize “push-pull” methods to enhance shelf and display space exposure inAlcohol Brands segment were $15.2 million for the three-months ended March 31, 2022. Net sales outlets (including racks, coolers and barrel coolers), advertising, in-store promotions and in-store placement of point-of-sale materials to encourage demand from consumers for our products. We also support our brands with prize promotions, price promotions, competitions, endorsements from selected public and sports figures, sports personality endorsements, sampling and sponsorship of selected athletes, teams, series, bands, esports, causes and events. In-store posters, outdoor posters, print, radio and television advertising (directly and through our sponsorships and endorsements) and coupons may also be used to promote our brands.
We believe that one of the keys to success in the beverage industry is differentiation, making our brands and products visually appealing and distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different and unique. The labels and graphics for many of our products are redesignedOther segment were $5.9 million for the three-months ended March 31, 2022. Our Monster Energy® Drinks segment represented 92.5% and 94.1% of our net sales for the three-months ended March 31, 2022 and 2021, respectively. Our Strategic Brands segment represented 6.1% and 5.5% of our net sales for the three-months ended March 31, 2022 and 2021, respectively. Our Alcohol Segment represented 1.0% of our net sales for the three-months ended March 31, 2022 (effectively from timeFebruary 17 to time to maximize their visibilityMarch 31, 2022). Our Other segment represented 0.4% of our net sales for both the three-months ended March 31, 2022 and identification, wherever they may be placed in stores, which we continue to reevaluate from time to time.
2021.
Our growth strategy includes expanding our international business.business and expanding our business in new sectors, such as the alcohol beverage sector. Net sales to customers outside the United States amounted to $260.1 million and $190.8were $553.4 million for the three-months ended September 30, 2017 and 2016, respectively.March 31, 2022, an increase of approximately $94.0 million, or 20.4% higher than net sales to customers outside of the United States of $459.4 million for the three-months ended March 31, 2021. Such sales were approximately 29%36% and 24%37% of net sales for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Net changes in foreign currency exchange rates had a favorable impact on net salesOn February 17, 2022, the Company completed the CANarchy Transaction which allowed the Company to customers outsideenter the United Statesalcohol beverage sector.
34
Our customers are primarily full service beverage bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food servicefoodservice customers, value stores, e-commerce retailers and the military. Percentages of our gross salesbillings to our various customer types for the three-three-months ended March 31, 2022 and nine-months ended September 30, 2017 and 20162021 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our full service beverage bottlers/distributors in the United States. Such full service beverage bottlers/distributors in turn sell certain of our products to some of the same customer types listed below. We limit our description of our customer types to include only our sales to our full service bottlers/distributors without reference to such bottlers/distributors’ sales to their own customers.
|
| Three-Months Ended |
| Nine-Months Ended |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
U.S. full service bottlers/distributors |
| 62% |
| 65% |
| 62% |
| 65% |
|
International full service bottlers/distributors |
| 30% |
| 26% |
| 29% |
| 25% |
|
Club stores and mass merchandisers |
| 7% |
| 7% |
| 7% |
| 8% |
|
Retail grocery, specialty chains and wholesalers |
| 1% |
| 1% |
| 1% |
| 1% |
|
Other |
| 0% |
| 1% |
| 1% |
| 1% |
|
| | | | | |
| | Three-Months Ended | | ||
| | March 31, | | ||
|
| 2022 |
| 2021 |
|
U.S. full service bottlers/distributors |
| 49 | % | 50 | % |
International full service bottlers/distributors |
| 39 | % | 38 | % |
Club stores and e-commerce retailers |
| 9 | % | 10 | % |
Retail grocery, direct convenience, specialty chains and wholesalers |
| 2 | % | 1 | % |
Direct value stores and other |
| 1 | % | 1 | % |
Our customers include Coca-Cola Refreshments USA,Canada Bottling Limited, Coca-Cola Consolidated, Inc., Coca-Cola Bottling Company CCBCC Operations, LLC, United, Bottling Contracts Company, LLC,Inc., Reyes Coca-Cola Bottling, Great Lakes Coca-Cola Bottling,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 Europacific Partners (formerly Coca-Cola European Partners and Coca-Cola Amatil), Coca-Cola Hellenic, Coca-Cola FEMSA, Swire Coca-Cola (China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola İçecek and certain other TCCC independentnetwork bottlers, Coca-Cola European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola group in China, COFCO Coca-Cola group in China, Coca-Cola Beverages Africa, Asahi Soft Drinks, Co., Ltd., Kalil Bottling Group, Wal-Mart, Inc. (including Sam’s Club), Costco Wholesale Corporation and select Anheuser-Busch distributors (the “AB Distributors”). TCCC, through certain wholly-owned subsidiaries (the “TCCC Subsidiaries”), accounted for approximately 14% and 41% of our net sales for the three-months ended September 30, 2017 and 2016, respectively. The TCCC Subsidiaries, accounted for approximately 21% and 43% of our net sales for the nine-months ended September 30, 2017 and 2016, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottler/distributors. Accordingly, our percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the three- and nine-months ended September 30, 2017. CCBCC Operations, LLC accounted for approximately 14% and 9% of our net sales for the three-months ended September 30, 2017 and 2016, respectively. CCBCC Operations, LLC accounted for approximately 13% and 8% of our net sales for the nine-months ended September 30, 2017 and 2016, respectively.Amazon.com, Inc. A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material negativeadverse effect on our financial condition and consolidated results of operations.
Coca-Cola Europacific Partners accounted for approximately 12% and 11% of our net sales for the three-months ended March 31, 2022 and 2021, respectively.
Coca-Cola Consolidated, Inc. accounted for approximately 9% and 12% of our net sales for the three-months ended March 31, 2022 and 2021, respectively.
Reyes Coca-Cola Bottling, LLC accounted for approximately 10% and 9% of our net sales for the three-months ended March 31, 2022 and 2021, respectively.
35
Results of Operations
The following table sets forth key statistics for the three-three-months ended March 31, 2022 and nine-months ended September 30, 2017 and 2016.2021.
| | | | | | | | | |
|
| Three-Months Ended |
| Percentage | | ||||
(In thousands, except per share amounts) | | March 31, | | Change | | ||||
|
| 2022 |
| 2021 |
| 22 vs. 21 |
| ||
Net sales1 | | $ | 1,518,574 | | $ | 1,243,816 | | 22.1 | % |
Cost of sales | |
| 741,907 | |
| 528,881 | | 40.3 | % |
Gross profit*1 | |
| 776,667 | |
| 714,935 | | 8.6 | % |
Gross profit as a percentage of net sales | |
| 51.1 | % |
| 57.5 | % |
| |
| | | | | | | | | |
Operating expenses | |
| 377,178 | |
| 300,789 | | 25.4 | % |
Operating expenses as a percentage of net sales | |
| 24.8 | % |
| 24.2 | % |
| |
| | | | | | | | | |
Operating income1 | |
| 399,489 | |
| 414,146 | | (3.5) | % |
Operating income as a percentage of net sales | |
| 26.3 | % |
| 33.3 | % | | |
| | | | | | | | | |
Interest and other expense, net | |
| 7,300 | |
| 759 | | 861.8 | % |
| | | | | | | | | |
Income before provision for income taxes1 | |
| 392,189 | |
| 413,387 | | (5.1) | % |
| | | | | | | | | |
Provision for income taxes | |
| 97,986 | |
| 98,193 | | (0.2) | % |
| | | | | | | | | |
Income taxes as a percentage of income before taxes | |
| 25.0 | % |
| 23.8 | % |
| |
| | | | | | | | | |
Net income | | $ | 294,203 | | $ | 315,194 | | (6.7) | % |
Net income as a percentage of net sales | |
| 19.4 | % |
| 25.3 | % |
| |
| | | | | | | | | |
Net income per common share: | |
|
| |
|
| |
| |
Basic | | $ | 0.56 | | $ | 0.60 | | (6.9) | % |
Diluted | | $ | 0.55 | | $ | 0.59 | | (6.8) | % |
| | | | | | | | | |
Case sales (in thousands) (in 192‑ounce case equivalents) | |
| 168,793 | |
| 138,566 | | 21.8 | % |
(In thousands, except per share amounts) |
| Three-Months Ended |
| Percentage |
| Nine-Months Ended |
| Percentage | ||||||||
|
| 2017 |
| 2016 |
| 17 vs. 16 |
| 2017 |
| 2016 |
| 17 vs. 16 | ||||
Net sales1 |
| $ | 909,476 |
| $ | 787,954 |
| 15.4% |
| $ | 2,558,690 |
| $ | 2,295,628 |
| 11.5% |
Cost of sales |
| 339,767 |
| 284,979 |
| 19.2% |
| 924,610 |
| 851,741 |
| 8.6% | ||||
Gross profit*1 |
| 569,709 |
| 502,975 |
| 13.3% |
| 1,634,080 |
| 1,443,887 |
| 13.2% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross profit as a percentage of net sales1 |
| 62.6% |
| 63.8% |
|
|
| 63.9% |
| 62.9% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses2 |
| 252,337 |
| 212,600 |
| 18.7% |
| 702,405 |
| 610,277 |
| 15.1% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses as a percentage of net sales |
| 27.7% |
| 27.0% |
|
|
| 27.5% |
| 26.6% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income1,2 |
| 317,372 |
| 290,375 |
| 9.3% |
| 931,675 |
| 833,610 |
| 11.8% | ||||
Operating income as a percentage of net sales |
| 34.9% |
| 36.9% |
|
|
| 36.4% |
| 36.3% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and other income (expense), net |
| 3,996 |
| (1,037) |
| (485.3%) |
| 2,103 |
| (651) |
| (423.0%) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before provision for income taxes1,2 |
| 321,368 |
| 289,338 |
| 11.1% |
| 933,778 |
| 832,959 |
| 12.1% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
| 102,624 |
| 97,695 |
| 5.0% |
| 314,422 |
| 293,221 |
| 7.2% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income taxes as a percentage of income before taxes |
| 31.9% |
| 33.8% |
|
|
| 33.7% |
| 35.2% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income1,2 |
| $ | 218,744 |
| $ | 191,643 |
| 14.1% |
| $ | 619,356 |
| $ | 539,738 |
| 14.8% |
Net income as a percentage of net sales |
| 24.1% |
| 24.3% |
|
|
| 24.2% |
| 23.5% |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.39 |
| $ | 0.34 |
| 14.8% |
| $ | 1.09 |
| $ | 0.91 |
| 20.1% |
Diluted |
| $ | 0.38 |
| $ | 0.33 |
| 15.1% |
| $ | 1.07 |
| $ | 0.89 |
| 20.4% |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Case sales (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
(in 192-ounce case equivalents) |
| 96,184 |
| 82,767 |
| 16.2% |
| 273,409 |
| 242,994 |
| 12.5% |
1¹Includes $11.4$10.0 million and $8.4$10.4 million for the three-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively, related to the recognition of deferred revenue. Includes $31.6 million and $28.6 million for the nine-months ended September 30, 2017 and 2016, respectively, related to the recognition of deferred revenue.
²Includes $15.9 million and $4.7 million for the three-months ended September 30, 2017 and 2016, respectively, of distributor termination costs. Includes $35.9 million and $33.4 million for the nine-months ended September 30, 2017 and 2016, respectively, of 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 Three-Months Ended September 30, 2017 Compared to the Three-Months Ended September 30, 2016.Net Sales
Net Sales. Net sales were $909.5 million$1.52 billion for the three-months ended September 30, 2017,March 31, 2022, an increase of approximately $121.5$274.8 million, or 15.4%22.1% higher than net sales of $788.0 million$1.24 billion for the three-months ended September 30, 2016. The increase in net sales of our Monster Energy® brand energy drinks represented approximately $116.0 million of the overall increase in net sales. Net sales of our Monster Energy® brand energy drinks increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Net sales of our Strategic Brands were $76.6 million for the three-months ended September 30, 2017, an increase of $4.4 million, or 6.2% higher than net sales of $72.1 million for the three-months ended September 30, 2016. Net sales of our AFF Third-Party Products were $5.2 million for the three-months ended September 30, 2017, a decrease of $0.5 million, or 8.5% lower than net sales of $5.7 million for the three-months ended September 30, 2016. No other individual product line contributed either a material increase or decrease to net sales for the three-months ended September 30, 2017.
March 31, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Monster Energy® Drinks segment of approximately $0.4$32.9 million for the three-months ended September 30, 2017. Net changes in foreign currency exchange rates had a favorable impact on net sales in the Strategic Brands segment of approximately $1.1 million for the three-months ended September 30, 2017.
Case sales, in 192-ounce case equivalents, were 96.2 million cases for the three-months ended September 30, 2017, an increase of approximately 13.4 million cases, or 16.2% higher than case sales of 82.8 million cases for the three-months ended September 30, 2016. The overall average net sales per case (excluding net sales of AFF Third-Party Products of $5.2 million and $5.7 million for the three-months ended September 30, 2017 and 2016, respectively, as these sales do not have unit case equivalents) decreased to $9.40 for the three-months ended September 30, 2017, which was 0.5% lower than the average net sales per case of $9.45 for the three-months ended September 30, 2016. The lower average net sales price per case was primarily attributable to the changes in geographic sales mix.
March 31, 2022.
Net sales for the Monster Energy® Drinks segment were $827.7 million$1.40 billion for the three-months ended September 30, 2017,March 31, 2022, an increase of approximately $117.6$234.6 million, or 16.6%20.0% higher than net sales of $710.1 million$1.17 billion for the three-months ended September 30, 2016.
March 31, 2021. Net sales for the Strategic Brands segment were $76.6 million for the three-months ended September 30, 2017, an increase of approximately $4.4 million, or 6.2% higher than net sales of $72.1 million for the three-months ended September 30, 2016.
Net sales for the Other segment were $5.2 million for the three-months ended September 30, 2017, a decrease of approximately $0.5 million, or 8.5% lower than net sales of $5.7 million for the three-months ended September 30, 2016.
Gross Profit. Gross profit was $569.7 million for the three-months ended September 30, 2017, an increase of approximately $66.7 million, or 13.3% higher than the gross profit of $503.0 million for the three-months ended September 30, 2016. Gross profit as a percentage of net sales decreased to 62.6% for the three-months ended September 30, 2017 from 63.8% for the three-months ended September 30, 2016. The increase in gross profit dollars was primarily the result of the $116.0 million increase in net sales of our Monster Energy® brand energy drinks. The decrease in gross profit as a percentage of net sales was primarily attributable to geographical sales mix (our foreign operations generally have lower gross profit margins), as well as to product sales mix and increases in other costs.
Operating Expenses. Total operating expenses were $252.3 million for the three-months ended September 30, 2017, an increase of approximately $39.7 million, or 18.7% higher than total operating expenses of $212.6 million for the three-months ended September 30, 2016. The increase in operating expenses was primarily due to increased expenditures of $11.2 million associated with distributor terminations, increased expenditures of $9.0 million for sponsorships and endorsements, increased payroll expenses of $6.5 million (of which $1.1 million was related to an increase in stock-based compensation), increased out-bound freight and warehouse costs of $4.7 million, increased expenditures of $4.4 million for commissions, increased expenditures of $4.3 million for merchandise displays and increased expenditures of $4.2 million for allocated trade development. The increase in operating expenses was partially offset by decreased expenditures of $5.1 million for professional service fees, including legal and accounting costs.
Contribution Margin. Contribution margin for the Monster Energy® Drinks segment was $333.2 million for the three-months ended September 30, 2017, an increase of approximately $24.7 million, or 8.0% higher than contribution margin of $308.5 million for the three-months ended September 30, 2016. The increase in contribution margin for the Monster Energy® Drinks segment wasincreased primarily the result of the $116.0 million increase in netdue to increased worldwide sales by volume of our Monster Energy® brand energy drinks partially offset by increased expenditures of $11.2 million associated with distributor terminations.
Contribution margin for the Strategic Brands segment was $42.7 million for the three-months ended September 30, 2017, an increase of approximately $2.6 million, or 6.5% higher than contribution margin of $40.1 million for the three-months ended September 30, 2016. The increase in contribution margin for the Strategic Brands segment was primarily due to an increase in net sales.
Contribution margin for the Other segment was $1.5 million for the three-months ended September 30, 2017, an increase of approximately $0.3 million, or 22.3% higher than contribution margin of $1.2 million for the three-months ended September 30, 2016.
Operating Income. Operating income was $317.4 million for the three-months ended September 30, 2017, an increase of approximately $27.0 million, or 9.3% higher than operating income of $290.4 million for the three-months ended September 30, 2016. Operating income as a percentage of net sales decreased to 34.9% for the three-months ended September 30, 2017 from 36.9% for the three-months ended September 30, 2016. The decrease in operating income as a percentage of net sales was primarily due to decrease in gross profit as a percentage of nets sales as well as increased expenditures of $11.2 million associated with distributor terminations. Operating income was $41.9 million and $22.0 million for the three-months ended September 30, 2017 and 2016, respectively, in connection with our operations in Africa, Asia, Australia, Europe, the Middle East and South America.
Interest and Other Income (Expense), net. Interest and other non-operating income (expense), net, was $4.0 million for the three-months ended September 30, 2017, as compared to interest and other non-operating income (expense), net of ($1.0) million for the three-months ended September 30, 2016. Foreign currency transaction gains (losses) were $1.8 million and ($1.5) million for the three-months ended September 30, 2017 and 2016, respectively. Interest income was $2.3 million and $0.4 million for the three-months ended September 30, 2017 and 2016, respectively.
Provision for Income Taxes. Provision for income taxes was $102.6 million for the three-months ended September 30, 2017, an increase of $4.9 million, or 5.0% higher than the provision for income taxes of $97.7 million for the three-months ended September 30, 2016. The effective combined federal, state and foreign tax rate decreased to 31.9% from 33.8% for the three-months ended September 30, 2017 and 2016, respectively. The decrease in the effective tax rate was primarily due to the increase in profits earned by foreign subsidiaries in lower tax jurisdictions relative to the United States.
Net Income. Net income was $218.7 million for the three-months ended September 30, 2017, an increase of $27.1 million, or 14.1% higher than net income of $191.6 million for the three-months ended September 30, 2016. The increase in net income was primarily due to the $66.7 million increase in gross profit. The increase in net income was partially offset by the $39.7 million increase in operating expenses, of which $11.2 million was attributable to an increase in distributor termination expenses.
Results of Operations for the Nine-Months Ended September 30, 2017 Compared to the Nine-Months Ended September 30, 2016.
Net Sales. Net sales were $2,558.7 million for the nine-months ended September 30, 2017, an increase of approximately $263.1 million, or 11.5% higher than net sales of $2,295.6 million for the nine-months ended September 30, 2016. The increase in net sales of our Monster Energy® brand energy drinks represented approximately $229.5 million of the overall increase in net sales. Net sales of our Monster Energy® brand energy drinks increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Netdemand, as well as sales of our Strategic Brands were $230.3 million for the nine-months ended September 30, 2017, an increase of $22.3 million, or 10.7% higher than net sales of $208.0 million for the nine-months ended September 30, 2016. Net sales of our AFF Third-Party Products were $16.9 million for the nine-months ended September 30, 2017, an increase of $4.8 million, or 39.5% higher than net sales of $12.1 million (effectively from April 1, 2016 to September 30, 2016) for the nine-months ended September 30, 2016. No other individual product line contributed either a material increase or decrease to net sales for the nine-months ended September 30, 2017.
True North® Pure Energy Seltzers (introduced in August 2021). Net changes in foreign currency exchange rates had an unfavorable impact on net sales infor the Monster Energy® Drinks segment of approximately $13.4$29.6 million for the nine-monthsthree-months ended September 30, 2017.March 31, 2022.
36
Net sales for the Strategic Brands segment were $92.6 million for the three-months ended March 31, 2022, an increase of approximately $24.8 million, or 36.6% higher than net sales of $67.8 million for the three-months ended March 31, 2021. Net sales for the Strategic Brands segment increased primarily due to increased worldwide sales by volume of our NOS® and Predator® brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had a favorablean unfavorable impact on net sales inof approximately $3.3 million for the Strategic Brands segment of approximately $2.2for the three-months ended March 31, 2022.
Net sales for the Alcohol Brands segment were $15.2 million for the nine-monthsthree-months ended September 30, 2017.March 31, 2022 (effectively from February 17 to March 31, 2022).
Net sales for the Other segment were $5.9 million for the three-months ended March 31, 2022, an increase of approximately $0.2 million, or 3.5% higher than net sales of $5.7 million for the three-months ended March 31, 2021.
Case sales for our energy drink products, in 192-ounce case equivalents, were 273.4168.8 million cases for the nine-monthsthree-months ended September 30, 2017,March 31, 2022, an increase of approximately 30.430.2 million cases or 12.5%21.8% higher than case sales of 243.0138.6 million cases for the nine-monthsthree-months ended September 30, 2016.March 31, 2021. The overall average net sales per case (excluding net sales of AFF Third-Party Products of $16.9 million and $12.1 milliondecreased to $8.87 for the nine-monthsthree-months ended September 30, 2017 and 2016, respectively, as these sales do not have unit case equivalents) decreased to $9.30 for the nine-months ended September 30, 2017,March 31, 2022, which was 1.1%0.7% lower than the average net sales per case of $9.40$8.94 for the nine-monthsthree-months ended September 30, 2016. The lower average net sales price per case was primarily attributable to the changes in geographic sales mix.March 31, 2021.
NetBarrel sales for our craft beers and hard seltzers, in 31 US gallon equivalents, were 0.05 million barrels for the Monster Energy® Drinks segment were $2,311.5three-months ended March 31, 2022.
Gross Profit
Gross profit was $776.7 million for the nine-monthsthree-months ended September 30, 2017,March 31, 2022, an increase of approximately $236.0$61.7 million, or 11.4% higher than net sales of $2,075.5 million for the nine-months ended September 30, 2016.
Net sales for the Strategic Brands segment were $230.3 million for the nine-months ended September 30, 2017, an increase of approximately $22.3 million, or 10.7% higher than net sales of $208.0 million for the nine-months ended September 30, 2016.
Net sales for the Other segment were $16.9 million for the nine-months ended September 30, 2017, an increase of approximately $4.8 million, or 39.5% higher than net sales of $12.1 million (effectively from April 1, 2016 to September 30, 2016) for the nine-months ended September 30, 2016.
Gross Profit. Gross profit was $1,634.1 million for the nine-months ended September 30, 2017, an increase of approximately $190.2 million, or 13.2%8.6% higher than the gross profit of $1,443.9$714.9 million for the nine-monthsthree-months ended September 30, 2016. Gross profit as a percentage of net sales increased to 63.9% for the nine-months ended September 30, 2017 from 62.9% for the nine-months ended September 30, 2016.March 31, 2021. The increase in gross profit dollars was primarily the result of the $229.5$274.8 million increase in net sales of our Monster Energy® brand energy drinks as well as an approximately $55.2 million increase in raw material cost savings for the nine-monthsthree-months ended September 30, 2017March 31, 2022.
Gross profit as a percentage of net sales decreased to 51.1% for the three-months ended March 31, 2022 from 57.5% for the AFF Transaction.three-months ended March 31, 2021. The increase indecrease for the three-months ended March 31, 2022 was primarily the result of increased freight rates and fuel costs, including costs relating to the importation of aluminum cans, increased aluminum can costs attributable to higher aluminum commodity pricing, increased ingredient and other input costs, including secondary packaging materials, increased co-packing fees, production inefficiencies and geographical sales mix.
In addition, gross profit as a percentage of net sales for the three-months ended March 31, 2022 was primarily attributable to raw materialadversely impacted by the CANarchy Transaction. Inventory purchased as part of the CANarchy Transaction was recorded at fair value. The purchased inventory was subsequently sold in the three-months ended March 31, 2022 and was recognized through cost savings fromof goods sold at fair value (purchased cost), resulting in no recognized gross profits on the AFF Transaction and changes in domestic product sales mix, which were partially offsetassociated sales. Gross profit was negatively impacted by geographical sales mix (our foreign operations generally have lower gross profit margins) and increases in other costs.approximately $3.8 million during the three-months ended March 31, 2022 as a result.
Operating Expenses.
Total operating expenses were $702.4$377.2 million for the nine-monthsthree-months ended September 30, 2017,March 31, 2022, an increase of approximately $92.1$76.4 million, or 15.1%25.4% higher than total operating expenses of $610.3$300.8 million for the nine-monthsthree-months ended September 30, 2016. March 31, 2021.
The increase in operating expenses was primarily due to increased payroll expenses of $29.6 million (of which $5.5 million was related to an increase in stock-based compensation), increased expenditures of $22.9 million for sponsorships and endorsements, increased expenditures of $13.7 million for commissions, increased expenditures of $7.8 million for allocated trade development, increased expenditures of $6.0 million for merchandise displays and increased out-bound freight and warehouse costs of $5.5 million. The increase in operating expenses was partially offset by decreased$27.0 million, increased expenditures of $13.8$12.6 million for travel and entertainment, increased payroll expenses of $10.0 million, increased expenditures of $6.3 million for professional service fees,expenses, including accounting and legal costs ($3.6 million related to the CANarchy Transaction), increased expenditures of $5.6 million for commissions and accounting costs.increased expenditures of $5.3 million for sponsorships and endorsements. Operating expenses as a percentage of net sales for the three-months ended March 31, 2022 were 24.8% as compared to 24.2% for the three-months ended March 31, 2021. Operating expenses as a percentage of net sales for the three-months ended March 31, 2019 (pre COVID-19) were 27.7%.
37
Operating Income
Operating income was $399.5 million for the three-months ended March 31, 2022, a decrease of approximately $14.7 million, or 3.5% lower than operating income of $414.1 million for the three-months ended March 31, 2021. Operating income as a percentage of net sales decreased to 26.3% for the three-months ended March 31, 2022 from 33.3% for the three-months ended March 31, 2021. Operating income for the three-months ended March 31, 2022 decreased primarily as a result of the decrease in the gross profit as a percentage of net sales as well as the increase in operating expenses. Operating income was $71.5 million and $96.8 million for the three-months ended March 31, 2022 and 2021, respectively, for our operations in EMEA, Asia Pacific, Latin America and the Caribbean.
Contribution Margin. Contribution marginOperating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $968.9$454.6 million for the nine-monthsthree-months ended September 30, 2017, an increaseMarch 31, 2022, a decrease of approximately $94.0$10.3 million, or 10.7% higher2.2% lower than contribution marginoperating income of $874.8$464.8 million for the nine-monthsthree-months ended September 30, 2016.March 31, 2021. The increasedecrease in contribution marginoperating income for the Monster Energy® Drinks segment was primarily the result of the $229.5 milliona decrease in gross profit as a percentage of net sales as well as an increase in net sales of our Monster Energy® brand energy drinks as well an approximately $55.2 million increase in raw material cost savings for the nine-months ended September 30, 2017 from the AFF Transaction.operating expenses.
Contribution marginOperating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $137.9$57.2 million for the nine-monthsthree-months ended September 30, 2017,March 31, 2022, an increase of approximately $10.8$12.1 million, or 8.5%26.7% higher than contribution marginoperating income of $127.2$45.1 million for the nine-monthsthree-months ended September 30, 2016.March 31, 2021. The increase in contribution marginoperating income for the Strategic Brands segment was primarily due tothe result of an increase in net sales.
Operating loss for the Alcohol Brands segment, exclusive of corporate and unallocated expenses, was $5.0 million for the three-months ended March 31, 2022. Inventory purchased as part of the CANarchy Transaction was recorded at fair value.The inventory acquired was subsequently sold in the three-months ended March 31, 2022 and was recognized through cost of goods sold at fair value (purchased cost), resulting in no recognized profits on the associated sales. Operating income was negatively impacted by approximately $3.8 million during the three-months ended March 31, 2022 as a result. As of March 31, 2022, all purchased inventory recorded at fair value had been sold.
Contribution marginOperating income for the Other segment, exclusive of corporate and unallocated expenses, was $4.6$1.1 million for the nine-monthsthree-months ended September 30, 2017, an increaseMarch 31, 2022, a decrease of approximately $3.1$0.7 million, or 200.1% higher than contribution margin of $1.5 million for the nine-months ended September 30, 2016.
Operating Income. Operating income was $931.7 million for the nine-months ended September 30, 2017, an increase of approximately $98.1 million, or 11.8% higher37.5% lower than operating income of $833.6$1.8 million for the nine-monthsthree-months ended September 30, 2016. Operating income as a percentage of net sales increased to 36.4% for the nine-months ended September 30, 2017 from 36.3% for the nine-months ended September 30, 2016. Operating income was $119.3 million and $76.9 million for the nine-months ended September 30, 2017 and 2016, respectively, in connection with our operations in Africa, Asia, Australia, Europe, the Middle East and South America.March 31, 2021.
Interest and Other Income (Expense),Expense, net.
Interest and other non-operating income (expense),expense, net, was $2.1$7.3 million for the nine-monthsthree-months ended September 30, 2017,March 31, 2022, as compared to interest and other non-operating income (expense),expense, net, of ($0.7)$0.8 million for the nine-monthsthree-months ended September 30, 2016.March 31, 2021. Foreign currency transaction losses were $2.0$8.4 million and $4.3$0.8 million for the nine-monthsthree-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Interest income was $4.5$1.5 million and $3.5$1.1 million for the nine-monthsthree-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively.
Provision for Income Taxes.
Provision for income taxes was $314.4$98.0 million for the nine-monthsthree-months ended September 30, 2017, an increaseMarch 31, 2022, a decrease of $21.2$0.2 million, or 7.2% higher0.2% lower than the provision for income taxes of $293.2$98.2 million for the nine-monthsthree-months ended September 30, 2016.March 31, 2021. The effective combined federal, state and foreign tax rate decreasedincreased to 33.7%25.0% from 35.2%23.8% for the nine-monthsthree-months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. The decreaseincrease in the effective tax rate was primarily dueattributable to the increase in profits earned bythe net losses in certain foreign subsidiaries that have no related income tax benefits as a result of the prior establishment of valuation allowances on their deferred tax assets.
Net Income
Net income was $294.2 million for the three-months ended March 31, 2022, a decrease of $21.0 million, or 6.7% lower than net income of $315.2 million for the three-months ended March 31, 2021. The decrease in lower tax jurisdictions relativenet income for the three-months ended March 31, 2022 was primarily due to the United Statesdecrease in the gross profit percentage of net sales as well as the increase in equity compensation deductions.operating expenses.
38
Net Income. Net income was $619.4 million for the nine-months ended September 30, 2017, an increaseTable of $79.6 million, or 14.8% higher than net incomeContents
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 $539.7 million for the nine-months ended September 30, 2016. The increase in net income was primarily due to the $190.2 million increase in gross profit. The increase in net income was partially offset by the increase in operating expenses of $92.1 million.
how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures and Other Key Metrics”.
Non-GAAP Financial Measures and Other Key Metrics
Gross Billings**
Gross Sales**. Gross salesbillings were $1,042.0 million$1.74 billion for the three-months ended September 30, 2017,March 31, 2022, an increase of approximately $128.8$293.9 million, or 14.1%20.3% higher than gross salesbillings of $913.3 million$1.45 billion for the three-months ended September 30, 2016. The increase in gross sales of our Monster Energy® brand energy drinks represented approximately $120.9 million of the overall increase in gross sales. Gross sales of our Monster Energy® brand energy drinks increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Gross sales of our Strategic Brands were $80.7 million for the three-months ended September 30, 2017, an increase of $3.6 million, or 4.7% higher than gross sales of $77.1 million for the three-months ended September 30, 2016. Gross sales of our AFF Third-Party Products were $5.2 million for the three-months ended September 30, 2017, a decrease of $0.5 million, or 8.5% lower than gross sales of $5.7 million for the three-months ended September 30, 2016. No other individual product line contributed either a material increase or decrease to net sales for the three-months ended September 30, 2017. Promotional and other allowances, as described in the footnote below, were $132.6 million for the three-months ended September 30, 2017, an increase of $7.2 million, or 5.8% higher than promotional and other allowances of $125.3 million for the three-months ended September 30, 2016. Promotional and other allowances as a percentage of gross sales decreased to 12.7% from 13.7% for the three-months ended September 30, 2017 and 2016, respectively.
March 31, 2021. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales inbillings of approximately $38.3 million for the three-months ended March 31, 2022.
Gross billings for the Monster Energy® Drinks segment of approximately $0.8 millionwere $1.62 billion for the three-months ended September 30, 2017. Net changes in foreign currency exchange rates had a favorable impact on gross sales in the Strategic Brands segmentMarch 31, 2022, an increase of approximately $1.1$252.4 million, or 18.5% higher than gross billings of $1.37 billion for the three-months ended September 30, 2017.
March 31, 2021. Gross Sales**. Gross sales were $2,926.6 millionbillings for the nine-months ended September 30, 2017, an increase of approximately $289.9 million, or 11.0% higher than grossMonster Energy® Drinks segment increased primarily due to increased worldwide sales of $2,636.6 million for the nine-months ended September 30, 2016. The increase in gross salesby volume of our Monster Energy® brand energy drinks represented approximately $256.4 million of the overall increase in gross sales. Gross sales of our Monster Energy® brand energy drinks increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Gross sales of our Strategic Brands were $244.0 million for the nine-months ended September 30, 2017, an increase of $18.5 million, or 8.2% higher than gross sales of $225.5 million for the nine-months ended September 30, 2016. Gross sales of our AFF Third-Party Products were $16.9 million for the nine-months ended September 30, 2017, an increase of $4.6 million, or 37.5% higher than gross sales of $12.3 million for the nine-months ended September 30, 2016. No other individual product line contributed either a material increase or decrease to net sales for the nine-months ended September 30, 2017. Promotional and other allowances, as described in the footnote below, were $367.9 million for the nine-months ended September 30, 2017, an increase of $26.9 million, or 7.9% higher than promotional and other allowances of $341.0 million for the nine-months ended September 30, 2016. Promotional and other allowances as a percentage of gross sales decreased to 12.6% from 12.9% for the nine-months ended September 30, 2017 and 2016, respectively.
Net changes in foreign currency exchange rates had an unfavorable impact on gross sales inbillings for the Monster Energy® Drinks segment of approximately $19.7$35.1 million for the nine-monthsthree-months ended September 30, 2017.March 31, 2022.
Gross billings for the Strategic Brands segment were $104.3 million for the three-months ended March 31, 2022, an increase of $25.9 million, or 33.1% higher than gross billings of $78.4 million for the three-months ended March 31, 2021. Net changes in foreign currency exchange rates had a favorablean unfavorable impact on gross salesbillings in the Strategic Brands segment of approximately $2.2$3.3 million for the nine-monthsthree-months ended September 30, 2017.March 31, 2022.
Gross billings for the Alcohol Brands segment were $15.4 million for the three-months ended March 31, 2022.
Gross billings for the Other segment were $5.9 million for the three-months ended March 31, 2022, an increase of $0.2 million, or 3.5% higher than gross billings of $5.7 million for the three-months ended March 31, 2021.
Promotional allowances, commissions and other expenses, as described in the footnote below, were $235.4 million for the three-months ended March 31, 2022, an increase of $18.7 million, or 8.6% higher than promotional allowances, commissions and other expenses of $216.7 million for the three-months ended March 31, 2021. Promotional allowances, commissions and other expenses as a percentage of gross billings decreased to 13.5% from 14.9% for the three-months ended March 31, 2022 and 2021, respectively.
**Gross salesBillings represent amounts invoiced to customers net of cash discounts and returns. Gross billings are used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and is useful to investors in evaluating overall Company performance. The use of gross salesbillings allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross salesbillings provides a useful measure of our operating performance. The use of gross salesbillings is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross salesbillings may not be comparable to similarly titled measures used by other companies, as gross salesbillings has been defined by our internal reporting practices. In addition, gross salesbillings may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers.customers.
39
The following table reconciles the non-GAAP financial measure of gross salesbillings with the most directly comparable GAAP financial measure of net sales:
| | | | | | | | | |
|
| Three-Months Ended |
| Percentage |
| ||||
| | March 31, | | Change | | ||||
(In thousands) |
| 2022 |
| 2021 |
| 22 vs. 21 | | ||
Gross Billings | | $ | 1,743,927 | | $ | 1,450,036 | | 20.3 | % |
Deferred Revenue | | | 10,020 | | | 10,440 | | (4.0) | % |
Less: Promotional allowances, commissions and other expenses*** | |
| 235,373 | |
| 216,660 | | 8.6 | % |
Net Sales | | $ | 1,518,574 | | $ | 1,243,816 | | 22.1 | % |
(In thousands) |
| Three-Months Ended |
| Percentage |
| Nine-Months Ended |
| Percentage | ||||||||
|
| 2017 |
| 2016 |
| 17 vs. 16 |
| 2017 |
| 2016 |
| 17 vs. 16 | ||||
Gross sales, net of discounts and returns |
| $ | 1,042,046 |
| $ | 913,277 |
| 14.1% |
| $ | 2,926,564 |
| $ | 2,636,631 |
| 11.0% |
Less: Promotional and other allowances*** |
| 132,570 |
| 125,323 |
| 5.8% |
| 367,874 |
| 341,003 |
| 7.9% | ||||
Net Sales |
| $ | 909,476 |
| $ | 787,954 |
| 15.4% |
| $ | 2,558,690 |
| $ | 2,295,628 |
| 11.5% |
***Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the presentation thereof does not conform withto GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances for our energy drink products primarily include consideration given to the Company’sour bottlers/distributors or retail customers including, but not limited to the following: (i) discounts granted off list prices to support price promotions to end-consumers by retailers; (ii) reimbursements given to the Company’sour bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (iii) the Company’sour agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; (iv) the Company’sour agreed share of slotting, shelf space allowances and other fees given directly to retailers;retailers, club stores and/or wholesalers; (v) incentives given to the Company’sour bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; (vi) discounted or free products; (vii) contractual fees given to the Company’sour bottlers/distributors related to sales made by the Companyus direct to certain customers that fall within the bottler’s/bottlers’/distributors’ sales territories; and (viii) certain commissions paidbased on sales to our customers.bottlers/distributors. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances for our energy drink products. constitute a material portion of our marketing activities. The Company’sOur promotional allowance programs for our energy drink products with itsour numerous bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The primary drivers of our promotional and other allowance activities for our energy drink products for the three-three-months ended March 31, 2022 and nine-months ended September 30, 2017 and 20162021 were (i) to increase sales volume and trial, (ii) to address market conditions, and (iii) to secure shelf and display space at retail.
Liquidity and Capital ResourcesSales
Cash flows provided by operating activities. Cash provided by operating activities was $790.1 million for the nine-months ended September 30, 2017, as compared with cash provided by operating activities of $420.7 million for the nine-months ended September 30, 2016.
For the nine-months ended September 30, 2017, cash provided by operating activities was primarily attributable to net income earned of $619.4 million and adjustments for certain non-cash expenses, consisting of $39.3 million of stock-based compensation and $35.1 million of depreciation and other amortization. For the nine-months ended September 30, 2017, cash provided by operating activities also increased due to a $125.0 million decrease in the TCCC Transaction receivables, a $42.1 million increase in accrued promotional allowances, a $24.7 million increase in accounts payable, a $24.2 million decrease in prepaid income taxes, a $15.9 million increase in accrued liabilities and a $7.4 million increase in accrued distributor terminations. For the nine-months ended September 30, 2017, cash used in operating activities was primarily attributable to a $70.9 million increase in accounts receivable, a $46.7 million increase in inventories, a $12.5 million decrease in deferred revenue, a $9.2 million increase in prepaid expenses and other current assets, a $4.1 million decrease in income taxes payable and a $3.2 million decrease in accrued compensation.
For the nine-months ended September 30, 2016, cash provided by operating activities was primarily attributable to net income earned of $539.7 million and adjustments for certain non-cash expenses, consisting of $33.7 million of stock-based compensation and $29.9 million of depreciation and other amortization. For the nine-months ended September 30, 2016, cash provided by operating activities also increased due to a $23.4 million increase in accrued promotional allowances, a $21.8 million increase in accounts payable, an $18.4 million decrease in inventories, a $16.8 million increase in deferred revenue, an $8.3 million increase in accrued liabilities and a $3.3 million increase in income taxes payable. For the nine-months ended September 30, 2016, cash used in operating activities was the result of a $136.9 million increase in prepaid income taxes, a $100.2 million increase in accounts receivable, a $21.0 million increase in distributor receivables, an $8.8 million increase in prepaid expenses and other current assets, a $5.5 million decrease in accrued distributor terminations and a $0.3 million decrease in accrued compensation.
Cash flows used in investing activities. Cash used in investing activities was $483.4 million for the nine-months ended September 30, 2017 as compared to cash used in investing activities of $266.7 million for the nine-months ended September 30, 2016.
For the nine-months ended September 30, 2017, cash used in investing activities was primarily attributable to purchases of available-for-sale investments. For the nine-months ended September 30, 2016,cash used in investing activities was primarily attributable to the purchase of AFF as well as purchases of held-to-maturity investments. For the nine-months ended September 30, 2017, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For the nine-months ended September 30, 2016, cash provided by investing activities was primarily attributable to maturities of held-to-maturity investments. For both the nine-months ended September 30, 2017 and 2016, cash used in investing activities also included the acquisitions of fixed assets consisting of vans and promotional vehicles, coolers and other equipment to support our marketing and promotional activities, production equipment, furniture and fixtures, office and computer equipment, real property, computer software, equipment used for sales and administrative activities, certain leasehold improvements and improvements to real property. 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), the completion of the construction of our new warehouse 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 $224.3 million for the nine-months ended September 30, 2017 as compared to cash used in financing activities of $1,993.6 million for the nine-months ended September 30, 2016. The cash flows used in financing activities for both the nine-months ended September 30, 2017 and 2016 was primarily the result of the repurchases of our common stock. The cash flows provided by financing activities for both the nine-months ended September 30, 2017, and 2016 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. At September 30, 2017, we had $465.6 million in cash and cash equivalents and $637.4 million in short and long-term investments. We have historically invested these amounts in U.S. Treasury bills, U.S. government agency securities and municipal securities, commercial paper, certificates of deposit, variable rate demand notes and money market funds meeting certain criteria. We maintain our investments for cash management purposes and not for purposes of speculation. Our risk management policies emphasize credit quality (primarily based on short-term ratings by nationally recognized statistical organizations) in selecting and maintaining our investments. We regularly assess market risk of our investments and believe our current policies and investment practices adequately limit those risks. However, certain of these investments are subject to general credit, liquidity, market and interest rate risks. These market risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition.
Of our $465.6 million of cash and cash equivalents held at September 30, 2017, $268.8 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries at September 30, 2017. We do not intend, nor do we foresee a need, to repatriate undistributed earnings of our foreign subsidiaries other than to repay certain intercompany debt owed to our U.S. operations. Under current tax laws, if funds in excess of intercompany amounts owed were repatriated to our U.S. operations we would be required to accrue and pay additional income taxes on such excess funds at the tax rates then in effect.
We believe that cash available from operations, including our cash resources and access to credit, will be sufficient for our working capital needs, including purchase commitments for raw materials and inventory, increases in accounts receivable, payments of tax liabilities, expansion and development needs, purchases of capital assets, purchases of equipment and properties, purchases of shares of our common stock and the completion of the construction of our new warehouse, through at least the next 12 months. Based on our current plans, at this time we estimate that capital expenditures, including the purchases of real property, are likely to be less than $100.0 million through September 30, 2018. However, future business opportunities may cause a change in this estimate.
The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of September 30, 2017:
|
| Payments due by period (in thousands) |
| |||||||||||||
Obligations |
| Total |
| Less than |
| 1-3 |
| 3-5 |
| More than |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Contractual Obligations1 |
| $ | 126,008 |
| $ | 75,522 |
| $ | 41,512 |
| $ | 8,974 |
| $ | - |
|
Capital Leases |
| 1,231 |
| 1,231 |
| - |
| - |
| - |
| |||||
Operating Leases |
| 17,428 |
| 3,147 |
| 3,528 |
| 3,279 |
| 7,474 |
| |||||
Purchase Commitments2 |
| 28,118 |
| 28,118 |
| - |
| - |
| - |
| |||||
Construction Contract3 |
| 6,150 |
| 6,150 |
| - |
| - |
| - |
| |||||
|
| $ | 178,935 |
| $ | 114,168 |
| $ | 45,040 |
| $ | 12,253 |
| $ | 7,474 |
|
1Contractual obligations include our obligations related to sponsorships and other commitments.
2Purchase 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.
3In September 2016, the Company completed its acquisition of approximately 49 acres of land, located in Rialto, CA, for a purchase price of approximately $39.1 million. The Company is constructing an approximately 1,000,000 square-foot building (the “Rialto Warehouse”), which it anticipates will be LEED certified, to replace its current leased warehouse and distribution facilities located in Corona, CA. The Company entered into an approximately $38.1 million guaranteed maximum price construction contract for the construction of the building, of which $6.2 million remained outstanding as of September 30, 2017. During the three-months ended September 30, 2017, the Company commenced its transition to the Rialto Warehouse and estimates that it will be fully operational by December 31, 2017.
In addition, approximately $6.5 million of unrecognized tax benefits have been recorded as liabilities as of September 30, 2017. It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months. As of September 30, 2017, we had $1.2 million of accrued interest and penalties related to unrecognized tax benefits.
Sales
The table below discloses selected quarterly data regarding sales for the three-three-months ended March 31, 2022 and nine-months ended September 30, 2017 and 2016,2021, respectively. Data from any one or more quarters or periods is not necessarily indicative of annual results or continuing trends.
Sales of beveragesour energy drinks are expressed in unit case volume. A “unit case” means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings). Unit case volume means the number of unit cases (or unit case equivalents) of finished products or concentrates as if converted into finished products sold by us.
40
Our quarterly results of operations reflect seasonal trends that are primarily the result of increased demand in the warmer months of the year. It has been our experience that beverage sales tend to be lower during the first and fourth quarters of each calendar year. However, our experience with our energy drink products suggests they may be less seasonal than the seasonality of traditional beverages. In addition, our continued growth internationally may further reduce the impact of seasonality on our business. Quarterly fluctuations may also be affected by other factors including the introduction of new products, the opening of new markets where temperature fluctuations are more pronounced, the addition of new bottlers, customers and bottlers/distributors, changes in the sales mix of our products and changes in advertising and promotional expenses. The COVID-19 pandemic including new variants may also have an impact on consumer behavior and change the seasonal fluctuation of our business.
| | | | | | |
| | Three-Months Ended | ||||
| | March 31, | ||||
(In thousands, except average net sales per case) |
| 2022 |
| 2021 | ||
Net sales | | $ | 1,518,574 | | $ | 1,243,816 |
Less: Alcohol Brands segment sales | | | (15,207) | | | — |
Less: Other segment sales | |
| (5,927) | |
| (5,727) |
Adjusted net sales1 | | $ | 1,497,440 | | $ | 1,238,089 |
| | | | | | |
Case sales by segment:1 | |
| | |
| |
Monster Energy® Drinks | |
| 140,126 | |
| 117,936 |
Strategic Brands | |
| 28,667 | |
| 20,630 |
Total case sales | |
| 168,793 | |
| 138,566 |
Average net sales per case - Energy Drinks | | $ | 8.87 | | $ | 8.94 |
(In thousands, except average |
| Three-Months Ended |
| Nine-Months Ended | ||||||||
net sales per case) |
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net sales1 |
| $ | 909,476 |
| $ | 787,954 |
| $ | 2,558,690 |
| $ | 2,295,628 |
Less: AFF third-party sales |
| (5,200) |
| (5,686) |
| (16,914) |
| (12,127) | ||||
Adjusted net sales2 |
| $ | 904,276 |
| $ | 782,268 |
| $ | 2,541,776 |
| $ | 2,283,501 |
Case sales by segment: |
|
|
|
|
|
|
|
| ||||
Monster Energy® Drinks |
| 78,330 |
| 66,870 |
| 220,433 |
| 192,887 | ||||
Strategic Brands |
| 17,854 |
| 15,897 |
| 52,976 |
| 50,107 | ||||
Other2 |
| - |
| - |
| - |
| - | ||||
Total case sales |
| 96,184 |
| 82,767 |
| 273,409 |
| 242,994 | ||||
Average net sales per case |
| $ | 9.40 |
| $ | 9.45 |
| $ | 9.30 |
| $ | 9.40 |
|
|
|
|
|
|
|
|
|
11Includes $11.4 million and $8.4 million for the three-months ended September 30, 2017 and 2016, respectively, relatedExcludes Alcohol Brands segment (effectively from February 17, 2022 to the recognition of deferred revenue. Includes $31.6 millionMarch 31, 2022) and $28.6 million for the nine-months ended September 30, 2017 and 2016, respectively, related to the recognition of deferred revenue.
2Excludes Other segment net sales, of $5.2 million and $5.7 million for the three-months ended September 30, 2017 and 2016, respectively, comprised of net sales of AFF Third-Party Products to independent third-party customers as these sales do not have unit case equivalents. Excludes Other segment net
Sales of our Alcohol products are expressed in barrel volume. A “Barrel” means a unit of measurement equal to 31 US gallons. Barrel sales of $16.9 million and $12.1were 0.05 million for the nine-monthsthree-months ended September 30, 2017 and 2016, respectively, comprised of sales of AFF Third-Party Products to independent third-party customers as these sales do not have unit case equivalents.
March 31, 2022.
See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Our Business”– Results of Operations” for additional information related to the increase in sales.
Liquidity and Capital Resources
Cash and cash equivalents, short-term and long-term investments. At March 31, 2022, we had $1.01 billion in cash and cash equivalents, $1.72 billion in short-term investments and $65.7 million in long-term investments, including certificates of deposit, commercial paper, U.S. government agency securities, municipal securities and U.S. treasuries. We maintain our investments for cash management purposes and not for purposes of speculation. Our risk management policies emphasize credit quality (primarily based on short-term ratings by nationally recognized statistical organizations) in selecting and maintaining our investments. We regularly assess market risk of our investments and believe our current policies and investment practices adequately limit those risks. However, certain of these investments are subject to general credit, liquidity, market and interest rate risks. These market risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition.
Of our $1.01 billion of cash and cash equivalents held at March 31, 2022, $489.8 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries at March 31, 2022.
We believe that cash available from operations, including our cash resources and access to credit, will be sufficient for our working capital needs, including purchase commitments for raw materials and inventory, increases in accounts receivable, payments of tax liabilities, expansion and development needs, purchases of capital assets, purchases of equipment, purchases of real property and purchases of shares of our common stock, through at least the next 12 months. Based on our current plans, at this time we estimate that capital expenditures (exclusive of common stock repurchases) are likely to be less than $200.0 million through March 31, 2023. However, future business opportunities may cause a change in this estimate.
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Purchases of inventories, increases in accounts receivable and other assets, acquisition of property and equipment (including real property, personal property and coolers), leasehold improvements, advances for or the purchase of equipment for our bottlers, acquisition and maintenance of trademarks, payments of accounts payable, income taxes payable and purchases of our common stock are expected to remain our principal recurring use of cash.
The following summarizes our cash flows for the three-months ended March 31, 2022 and 2021 (in thousands):
| | | | | | |
Net cash (used in) provided by: |
| | |
| | |
|
| 2022 |
| 2021 | ||
Operating activities | | $ | (351) | | $ | 175,473 |
Investing activities | | $ | (303,630) | | $ | (149,083) |
Financing activities | | $ | (4,223) | | $ | (5,701) |
Cash flows (used in) provided by operating activities. Cash used in operating activities was ($0.4) million for the three-months ended March 31, 2022, as compared with cash provided by operating activities of $175.5 million for the three-months ended March 31, 2021.
For the three-months ended March 31, 2022, cash provided by operating activities was primarily attributable to net income earned of $294.2 million and adjustments for certain non-cash expenses, consisting of $16.3 million of stock-based compensation and $14.6 million of depreciation and amortization. For the three-months ended March 31, 2022, cash provided by operating activities also increased due to a $61.2 million increase in accrued promotional allowances, a $20.6 million increase in accrued liabilities and an $18.3 million increase in accounts payable. For the three-months ended March 31, 2022, cash used in operating activities was primarily attributable to a $208.7 million increase in inventories, a $134.4 million increase in accounts receivable, a $32.1 million decrease in accrued compensation, a $29.6 million increase in prepaid expenses and other assets, a $9.8 million decrease in income taxes payable, a $5.9 million increase in prepaid income taxes and a $5.9 million decrease in deferred revenue.
For the three-months ended March 31, 2021, cash provided by operating activities was primarily attributable to net income earned of $315.2 million and adjustments for certain non-cash expenses, consisting of $18.4 million of stock-based compensation and $12.8 million of depreciation and amortization. For the three-months ended March 31, 2021, cash provided by operating activities also increased due to a $36.9 million increase in accounts payable, a $32.4 million increase in accrued liabilities and a $14.0 million increase in accrued promotional allowances. For the three-months ended March 31, 2021, cash used in operating activities was primarily attributable to a $147.5 million increase in accounts receivable, a $39.5 million increase in inventories, a $24.4 million decrease in accrued compensation, an $18.5 million increase in prepaid expenses and other assets, a $13.3 million decrease in income taxes payable, a $7.1 million increase in prepaid income taxes and a $5.3 million decrease in deferred revenue.
Cash flows used in investing activities. Cash used in investing activities was $306.6 million for the three-months ended March 31, 2022 as compared to cash used in investing activities of $149.1 million for the three-months ended March 31, 2021.
For both the three-months ended March 31, 2022 and 2021, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For the three-months ended March 31, 2022, cash used in investing activities included $330.4 million related to the CANarchy Transaction. For both the three-months ended March 31, 2022 and 2021, cash used in investing activities was attributable to purchases of available-for-sale investments. To a lesser extent, for both the three-months ended March 31, 2022 and 2021, cash used in investing activities also included the acquisitions 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, computer software, equipment used for sales and administrative activities, certain leasehold improvements, as well as acquisitions of and/or improvements to real property. 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) 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.
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Cash flow used in financing activities. Cash used in financing activities was $4.2 million for the three-months ended March 31, 2022 as compared to cash used in financing activities of $5.7 million for the three-months ended March 31, 2021. The cash used in financing activities for both the three-months ended March 31, 2022 and 2021 was primarily the result of the repurchases of our common stock. The cash provided by financing activities for both the three-months ended March 31, 2022, and 2021 was primarily attributable to the issuance of our common stock under our stock-based compensation plans and borrowings on debt.
The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of March 31, 2022:
| | | | | | | | | | | | | | | |
| | Payments due by period (in thousands) | |||||||||||||
|
| | |
| Less than |
| 1‑3 |
| 3‑5 |
| More than | ||||
Obligations | | Total | | 1 year |
| years |
| years |
| 5 years | |||||
| | | | | | | | | | | | | | | |
Contractual Obligations1 | | $ | 335,356 | | $ | 255,348 | | $ | 79,935 | | $ | 73 | | $ | — |
Finance Leases | |
| 1,251 | |
| 1,214 | |
| 31 | |
| 6 | |
| — |
Operating Leases | |
| 37,268 | |
| 7,277 | |
| 11,160 | |
| 6,924 | |
| 11,907 |
Purchase Commitments2 | |
| 384,111 | |
| 377,290 | |
| 6,537 | |
| 284 | |
| — |
| | $ | 757,986 | | $ | 641,129 | | $ | 97,663 | | $ | 7,287 | | $ | 11,907 |
1Contractual obligations include our obligations related to sponsorships and other commitments.
2Purchase 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.
No unrecognized tax benefits have been recorded as liabilities as of March 31, 2022. It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months.
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. 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. There have been no material changes to our critical accounting policies or estimates from the information provided in “Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 – Organization and Summary of Significant Accounting Policies”, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162021 (“Form 10-K”).
Recent Accounting Pronouncements
In May 2017, the FASBThere have been no material changes in recently issued Accounting Standards Update (“ASU”) No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” clarifying when a change to the terms or conditions of a share-based payment award must be accountedadopted accounting pronouncements from those disclosed in our Annual Report on Form 10-K for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018, with early adoption permitted. The Company is currently evaluating the impact of ASU No. 2017-09 on its financial position, results of operations and liquidity.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2017-01 on its financial position, results of operations and liquidity.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2017-04 on its financial position, results of operations and liquidity.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, in an effort to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. FASB ASU No. 2016-16 establishes the requirement that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 is effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Earlier application is permitted as of the beginning of an interim or annual reporting period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of ASU No. 2016-16 on its financial position, results of operations and liquidity.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those years, beginning afterended December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of ASU No. 2016-15 on its financial position, results of operations and liquidity.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of ASU No. 2016-13 on its financial position, results of operations and liquidity.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual and interim reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2016-02 on its financial position, results of operations and liquidity.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes previous revenue recognition guidance. ASU No. 2014-09 requires that a company recognize revenue at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. In applying the new guidance, a company will (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the contract’s performance obligations; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 was to be effective for reporting periods beginning after December 15, 2016. However, on July 9, 2015, the FASB voted to approve a one-year deferral of the effective date. This new guidance is effective for the Company beginning January 1, 2018 and can be adopted using either a full retrospective or modified approach. The Company has made significant progress in its evaluation of the amended revenue recognition guidance in Topic 606, however, such evaluation has yet to progress to a stage where there is sufficient information for a preliminary position of the impact on the Company’s consolidated financial statements. Therefore, the Company is unable at this time to provide (i) qualitative financial statement disclosures of the potential impact that this standard will have on its financial statements when adopted, (ii) a description of the effects of the accounting policies it expects to apply, (iii) a comparison to its current revenue recognition policies and (iv) a method for adoption. The Company’s expects to complete its evaluation by December 15, 2017.
31, 2021.
Inflation
We believe inflation did not haveInflation had a significantnegative impact on our results of operations for the periods presented.three-months ended March 31, 2022.
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Forward-Looking Statements
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. 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 Exchange Act. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects,” 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:
| ● | Our ability to |
● | The impact of rising costs and inflation on the discretionary income of our consumers, particularly the rising cost of gasoline; |
● | The impact of the |
● | The human and economic consequences of the |
| ● | Fluctuations in growth and/or growth rates and/or declining sales in the domestic and international energy drink and alcohol beverage categories generally, including in the convenience and gas channel (which is our largest channel) and the impact on demand for our products resulting from deteriorating economic conditions and/or financial uncertainties due to the COVID-19 pandemic; |
● | The |
● | The impact of potential 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; |
● | 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; |
● | The limitation or reduction by our suppliers, bottlers/distributors and/or co-packers of their activities and/or operations during the COVID-19 pandemic; |
● | The impact of the COVID-19 pandemic on our product sampling programs; |
● | 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 |
| ● | 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; |
44
● | The effect of TCCC |
|
| Our ability to maintain relationships with |
|
|
|
|
| Disruption in distribution |
| ● | Lack of anticipated demand for our products in domestic and/or international markets; |
| ● | Fluctuations in the inventory levels of our bottlers/distributors, planned or otherwise, and the resultant impact on our revenues; |
| ● | Unfavorable regulations, including taxation requirements, age restrictions imposed on the sale, purchase, or consumption of our products, marketing restrictions, product registration requirements, tariffs, trade restrictions, container size limitations and/or ingredient restrictions; |
| ● | The effect of inquiries from, and/or actions by, state attorneys general, the Federal Trade Commission (the “FTC”), the Food and Drug Administration (the “FDA”), municipalities, city attorneys, other government agencies, quasi-government agencies, |
| ● | Our ability to comply with laws, regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the General Data Protection Regulation and the California Consumer Privacy Act of 2018; |
● | Our ability to achieve profitability and/or repatriate cash from certain of our operations outside the United States; |
| ● | Our ability to manage legal and regulatory requirements in foreign jurisdictions, potential difficulties in staffing and managing foreign operations and potentially higher incidence of fraud or corruption and credit risk of foreign customers and/or bottlers/distributors; |
| ● | Changes in U.S. tax laws as a result of any legislation proposed by the new U.S. Presidential Administration or U.S. Congress, which may include efforts to change or repeal the 2017 Tax Cuts and Jobs Act and the federal corporate income tax rate reduction; |
● | Our ability to produce our products in international markets in which they are sold, thereby reducing freight costs and/or product damages; |
| ● | Our ability to effectively manage our inventories and/or our accounts receivables; |
| ● | Our foreign currency exchange rate risk with respect to our sales, expenses, profits, assets and liabilities denominated in currencies other than the U.S. dollar, which will continue to increase as foreign sales increase; |
| ● | The long-term impact of the United Kingdom’s departure from the European Union (or “Brexit”); |
● | Changes in accounting standards may affect our reported profitability; |
| ● | Implications of the Organization for Economic Cooperation and Development’s base erosion and profit shifting project; |
● | Any proceedings which may be brought against us by the Securities and Exchange Commission (the “SEC”), the FDA, the FTC or other governmental agencies or bodies; |
| ● | The outcome and/or possibility of future shareholder derivative actions or shareholder securities litigation that may be filed against us and/or against certain of our officers and directors, and the possibility of other private shareholder litigation; |
| ● | The outcome of product liability or consumer fraud litigation and/or class action litigation (or its analog in foreign jurisdictions) regarding the safety of our products and/or the ingredients in and/or claims made in connection with our products and/or alleging false advertising, marketing and/or promotion, and the possibility of future product liability and/or class action lawsuits; |
|
| Exposure to significant liabilities due to litigation, legal or regulatory proceedings; |
| ● | Intellectual property injunctions; |
● | Unfavorable resolution of tax matters; |
| ● | Uncertainty and volatility in the domestic and global |
| ● | Our ability to address any significant deficiencies or material weakness in our internal controls over financial reporting; |
| ● | Our ability to continue to generate sufficient cash flows to support our expansion plans and general operating activities; |
| ● | Decreased demand for our products resulting from changes in consumer preferences, including changes in demand for different packages, sizes and configurations, obesity and other perceived health concerns, including concerns relating to certain ingredients in our products or packaging, product safety concerns and/or from decreased consumer discretionary spending power; |
| ● | Adverse publicity surrounding obesity and health concerns related to our products, product safety and quality, water usage, environmental impact and sustainability, human rights, our culture, workforce and labor and workplace laws; |
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● | Changes in demand that are weather related and/or for other reasons, including changes in product category |
| ● | The impact of unstable political conditions, civil unrest, large scale terrorist acts, the outbreak or escalation of armed hostilities, major natural disasters and extreme weather conditions, or widespread outbreaks of infectious diseases (such as the COVID-19 pandemic); |
● | The impact on our business of competitive products and pricing pressures and our ability to gain or maintain our share of sales in the marketplace as a result of actions by |
| ● | The impact on our business of trademark and trade dress infringement proceedings brought against us relating to our brands, including our Reign Total Body Fuel® high performance energy drinks, which could result in an injunction barring us from selling certain of our products and/or require changes to be made to our current trade dress; |
● | Our ability to |
| ● | 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 ability to implement our growth strategy, including expanding our business in existing and new sectors, such as the alcoholic beverage sector; |
● | The inherent operational risks presented by the alcoholic beverage industry that may not be adequately covered by insurance or lead to litigation relating to the abuse or misuse of our products; |
● | Our ability to successfully integrate CANarchy and other acquired |
| ● | 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), |
| ● | Our ability to comply with and/or resulting lower consumer demand and/or lower profit margins for energy drinks and/or alcohol beverages due to proposed and/or future U.S. federal, state and local laws and regulations and/or proposed or existing laws and regulations in certain foreign jurisdictions and/or any changes therein, including changes in taxation requirements (including tax rate changes, new tax laws, new and/or increased excise, sales and/or other taxes on our products and revised tax law interpretations) and environmental laws, as well as the Federal Food, Drug, |
| ● | Disruptions in the timely import or export of our products and/or ingredients 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 | |
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| ● | The effect of unfavorable or adverse public relations, press, articles, comments and/or media attention; |
| ● | Changes in the cost, quality and availability of containers, packaging materials, aluminum cans, the Midwest and other premiums, raw materials, 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, |
| ● | 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; |
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● | 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 |
| ● | Our ability to pass on to our customers all or a portion of any increases in the costs of raw materials, ingredients, commodities and/or other cost inputs affecting our business; |
| ● | Our ability to achieve both internal domestic and international forecasts, which may be based on projected volumes and sales of many product types and/or new products, certain of which are more profitable than others; there can be no assurance that we will achieve projected levels of sales as well as forecasted product and/or geographic mixes; |
| ● | Our ability to penetrate new domestic and/or international markets and/or gain approval or mitigate the delay in securing approval for the sale of our products in various countries; |
|
|
| The effectiveness of sales and/or marketing efforts by us and/or by the |
| ● | Unilateral decisions by |
| ● | The impact of certain activities by competitors and others to persuade regulators and/or retailers and/or customers in certain countries to reduce the permitted or maximum container sizes for our products from those currently being sold and marketed by us; |
● | The impact of possible trading disputes between our bottler/distributors and their customers and/or one or more buying groups which may result in the delisting of certain of the Company products, temporarily or otherwise; |
● | The effects of retailer consolidation on our |
| ● | Our ability to adapt to the changing retail landscape with the rapid growth in e-commerce retailers; |
● | The effects of bottler/distributor consolidation on our business; |
● | The costs and/or effectiveness, now or in the future, of our advertising, marketing and promotional strategies; |
| ● | The success of our sports marketing, social media and other general marketing endeavors both domestically and internationally; |
| ● | Unforeseen economic and political changes and local or international catastrophic events; |
| ● | Possible product recalls and/or reformulations of certain of our products and/or market withdrawals of certain of our products due to defective |
| ● | Our ability to make suitable arrangements and/or procure sufficient capacity for the co-packing of any of our products both domestically and internationally, the timely replacement of discontinued co-packing arrangements and/or limitations on co-packing availability, including for retort production; |
| ● | Our ability to make suitable arrangements for the timely procurement of non-defective raw materials; |
| ● | Our inability to protect and/or the loss of our intellectual property rights and/or our inability to use our trademarks, trade names or designs and/or trade dress in certain countries; |
| ● | Volatility of stock prices which may restrict stock sales, stock purchases or other |
| ● | Provisions in our organizational documents and/or control by insiders which may prevent changes in control even if such changes would be beneficial to other stockholders; |
| ● | The failure of our bottlers and/or |
|
|
| Any disruption in and/or lack of effectiveness of our information technology systems, including a breach of cyber security, that disrupts our business or negatively impacts customer |
| ● | Recruitment and retention of senior management, other key employees and our employee base in general. |
47
The foregoing list of important factors and other risks detailed from time to time in our reports filed with the SEC is not exhaustive. See the section entitled “Risk Factors” in our Form 10-K and in Item 1A of this Quarterly Report for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, our actual results could be materially different from the results described or anticipated by our forward-looking statements, due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market riskrisks during the three-months ended September 30, 2017March 31, 2022 compared with the disclosures in Part II, Item 7A of our Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures — – Under the supervision and with the participation of the Company’s management, including our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, the ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer have concluded that our disclosure controls and procedures are adequate and effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and (2) accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting — – There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2017,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
The information required by this Item is incorporated herein by reference to the Notes to Condensed Consolidated Financial Statements— - Note 10.12. Commitments and Contingencies: Legal ProceedingsLitigation in Part I, Item 1, of this Quarterly Report on Form 10-Q.
OurIn addition to the other information set forth in this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and the condensed consolidated financial statements and related notes, and the following additional risk factors arefactor, you should carefully consider the risks discussed in “Part I, Item 1A – Risk Factors” in our Form 10-K. There have been no material changes with respect to the risk factors disclosed in our Form 10-K. However, we note that the risks described in this report and in our Form 10-K are not the only risks facing our Company, and such additional risks or uncertainties that we currently deem to be immaterial or are unknown to us could negatively impact our business, operations, or financial results.
Regulations concerning our alcoholic beverages may adversely affect our business, financial condition or results of operations and inhibit the sales of such products.
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Governmental agencies heavily regulate the alcoholic beverage industry. In particular, they monitor and regulate licensing, warehousing, trade and pricing practices, permitted and required labeling, including warning labels and other such signage, advertising and relations with wholesalers and retailers. In addition, other countries in which we sell such beverages impose duties, excise taxes and/or other related taxes. If such agencies or jurisdictions, foreign or domestic, choose to implement new or revised laws, regulations, fees, taxes, or other such requirements, our business, financial condition or results of operations could be materially, adversely affected. Additionally, if such governmental bodies require increased additional product labeling, warning requirements, or limitations on the marketing or sale of our alcohol products due to their contents or allegations concerning their potential to cause adverse health effects, our sales of alcoholic beverages may be impeded.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On February 28, 2017, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “February 2017 Repurchase Plan”). During the three-months ended September 30, 2017, the Company purchased 4.5March 31, 2022, 0.2 million shares of common stock at an average purchase price of $54.91 per share, for a total amount of $248.8 million (excluding broker commissions), under the February 2017 Repurchase Plan.
The following tabular summary reflects the Company’s repurchase activity during the quarter ended September 30. 2017.
Period |
| Total Number |
| Average Price |
| Total Number of |
| Maximum Number (or | ||
Jul 1 - Jul 31 |
| - |
| $ | - |
| - |
| $ | 500,000 |
Aug 1 - Aug 31 |
| 902,683 |
| $ | 54.53 |
| 902,683 |
| $ | 450,760 |
Sept 1 - Sept 30 |
| 3,629,075 |
| $ | 55.00 |
| 4,531,758 |
| $ | 251,107 |
Total |
| 4,531,758 |
|
|
|
|
|
|
¹Excluding broker commissions paid.
²Net of broker commissions paid.
During the three-months ended September 30, 2017, 892 shares were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $0.05$12.2 million. While such purchases are considered
On March 13, 2020, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock repurchases, they are not counted as purchases against(the “March 2020 Repurchase Plan”). During the Company’s authorized sharethree-months ended March 31, 2022, no shares were purchased by the Company under the March 2020 Repurchase Plan. As of May 6, 2022, $441.5 million remained available for repurchase programs.under the March 2020 Repurchase Plan.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
None.
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10.1* |
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31.1* | | |
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31.2* | | |
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31.3* | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1* | | |
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32.2* | | |
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32.3* | | Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted |
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101* | | The following financial information from Monster Beverage Corporation’s Quarterly Report on Form 10-Q for the quarter ended |
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104* | | The cover page from Monster Beverage Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101. |
* Filed herewith
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MONSTER BEVERAGE CORPORATION |
| Registrant |
| |
| |
Date: | /s/ RODNEY C. SACKS |
| Rodney C. Sacks |
| Chairman of the Board of Directors |
| and |
| |
Date: May 6, 2022 | /s/ HILTON H. SCHLOSBERG |
| Hilton H. Schlosberg |
| Vice Chairman of the Board of Directors |
| and Co-Chief Executive Officer |
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