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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 March 31, 2022

Commission File Number 001-18761

MONSTER BEVERAGE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

47-1809393

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1 Monster Way

Corona, California 92879

(Address of principal executive offices) (Zip code)

(951) 739 - 6200

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock

MNST

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     No__

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  X    No __

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes __ No   X   

The registrant had 529,671,407 shares of common stock, par value $0.005 per share, outstanding as of April 29, 2022.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

MARCH 31, 2022

INDEX

Page No.

Part I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

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

3

Condensed Consolidated Statements of Income for the Three-Months Ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income for the Three-Months Ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three-Months Ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows for the Three-Months Ended March 31, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

48

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

49

Item 6.

Exhibits

50

Signatures

51

2

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2022 AND DECEMBER 31, 2021

(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

See accompanying notes to condensed consolidated financial statements.

3

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE-MONTHS ENDED MARCH 31, 2022 AND 2021

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

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 COMPREHENSIVE INCOME

FOR THE THREE-MONTHS ENDED MARCH 31, 2022 AND 2021

(In Thousands) (Unaudited)

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

 

17,949

17,949

Exercise of stock options

 

492

3

6,758

6,761

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

24

 

 

 

24

Repurchase of common stock

 

(150)

(13,419)

(13,419)

Foreign currency translation

 

(27,932)

(27,932)

Net income

 

315,194

315,194

Balance, March 31, 2021

 

639,154

 

$

3,196

 

$

4,562,689

 

$

6,747,268

 

$

(24,874)

(110,715)

 

$

(5,828,842)

 

$

5,459,437

See accompanying notes to condensed consolidated financial statements.

6

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTHS ENDED MARCH 31, 2022 AND 2021

(In Thousands) (Unaudited)

Three-Months Ended

March 31, 

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

294,203

$

315,194

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

Depreciation and amortization

14,599

12,825

Non-cash lease expense

1,481

952

Gain on disposal of property and equipment

(6)

(88)

Stock-based compensation

16,332

18,362

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

Accounts receivable

(134,433)

(147,452)

Inventories

(208,673)

(39,546)

Prepaid expenses and other assets

(29,621)

(18,487)

Prepaid income taxes

(5,885)

(7,076)

Accounts payable

18,329

36,859

Accrued liabilities

20,603

32,441

Accrued promotional allowances

61,171

13,965

Accrued compensation

(32,122)

(24,443)

Income taxes payable

(9,818)

(13,287)

Other liabilities

(596)

504

Deferred revenue

(5,915)

(5,250)

Net cash (used in) provided by operating activities

(351)

175,473

CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of available-for-sale investments

504,808

325,751

Purchases of available-for-sale investments

(441,925)

(440,570)

Acquisition of CANarchy, net of cash

(330,356)

Purchases of property and equipment

(21,511)

(8,400)

Proceeds from sale of property and equipment

14

231

Additions to intangibles

(8,419)

(7,239)

Increase in other assets

(6,241)

(18,856)

Net cash used in investing activities

(303,630)

(149,083)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings on debt

3,454

957

Issuance of common stock

4,510

6,761

Purchases of common stock held in treasury

(12,187)

(13,419)

Net cash used in financing activities

(4,223)

(5,701)

Effect of exchange rate changes on cash and cash equivalents

(3,472)

(22,223)

NET DECREASE IN CASH AND CASH EQUIVALENTS

(311,676)

(1,534)

CASH AND CASH EQUIVALENTS, beginning of period

1,326,462

1,180,413

CASH AND CASH EQUIVALENTS, end of period

$

1,014,786

$

1,178,879

SUPPLEMENTAL INFORMATION:

Cash paid during the period for:

Interest

$

91

$

13

Income taxes

$

112,863

$

121,866

See accompanying notes to condensed consolidated financial statements.

7

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTHS ENDED MARCH 31, 2022 AND 2021

(In Thousands) (Unaudited) (Continued)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS

Included in accrued liabilities as of March 31, 2022 and 2021 were $11.3 million and $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 March 31, 2021 were available-for-sale short-term investment purchases of $4.4 million.

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1.

BASIS OF PRESENTATION

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

The Company’s condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. They do not include all the information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP. The information set forth in these interim condensed consolidated financial statements for the three-months ended March 31, 2022 and 2021, respectively, is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed consolidated financial statements not misleading. Results of operations for periods covered by this report may not necessarily be indicative of results of operations for the full year.

The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

Recent Accounting Pronouncements

There have been no 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.

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

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

    

Identifiable

    

Assets

Acquired and

Liabilities

Consideration

Assumed

Transferred

Intangibles - trademarks (non-amortizing)

$

94,500

$

Intangibles - customer relationships (amortizing)

54,500

 

Intangibles - permits (non-amortizing)

6,500

 

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 fair value analysis has yet to progress to a stage where there is sufficient information for a definitive measurement of the respective fair values. Accordingly, the respective fair value allocations are preliminary and are based on valuations derived from estimated fair value assumptions used by management. The Company expects to complete its 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.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

3.

REVENUE RECOGNITION

The Company has four operating and reportable segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks, Reign Total Body Fuel® high performance energy drinks and True 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;

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

incentives given to the Company’s bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals;
discounted or free products;
contractual fees given to the Company’s bottlers/distributors related to sales made directly by the Company to certain customers that fall within the bottlers’/distributors’ sales territories; and
commissions to TCCC based on the Company’s sales to wholly-owned subsidiaries of TCCC (the “TCCC Subsidiaries”) and/or to TCCC bottlers/distributors accounted for under the equity method by TCCC (the “TCCC Related Parties”).

The Company’s promotional allowance programs with its bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, typically ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with bottlers/distributors and retail customers, and accruals are established at the time of initial product sale for the Company’s anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or bottler/distributor and retail customer performance levels. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.

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

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

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

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Disaggregation of Revenue

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

Three-Months Ended 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.

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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

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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

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The 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

%