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 September 30, 2015 Commission File Number 0-18761

MONSTER BEVERAGE CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	39-1679918
(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)

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  X    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 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 Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if smaller reporting company)	Smaller reporting company ¨

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

Yes         No  X

The Registrant had 202,722,461 shares of common stock, par value $0.005 per share, outstanding as of October 26, 2015.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

SEPTEMBER 30, 2015

INDEX

Part I.	FINANCIAL INFORMATION	Page No.
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	3
	Condensed Consolidated Statements of Income for the Three- and Nine-Months Ended September 30, 2015 and 2014	4
	Condensed Consolidated Statements of Comprehensive Income for the Three- and Nine-Months Ended September 30, 2015 and 2014	5
	Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended September 30, 2015 and 2014	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	56
	Signatures	57

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, 2015 AND DECEMBER 31, 2014

(In Thousands, Except Par Value) (Unaudited)

	September 30, 2015		December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,240,717	$	370,323
Short-term investments	1,544,710		781,134
Accounts receivable, net	407,771		280,203
TCCC Transaction receivable	125,000		-
Distributor receivables	714		552
Inventories	159,691		174,573
Prepaid expenses and other current assets	25,742		19,673
Intangibles held-for-sale, net	-		18,079
Prepaid income taxes	90,933		8,617
Deferred income taxes	155,369		40,275
Total current assets	3,750,647		1,693,429
INVESTMENTS	34,355		42,940
PROPERTY AND EQUIPMENT, net	94,727		90,156
DEFERRED INCOME TAXES	-		54,106
GOODWILL	1,287,777		-
OTHER INTANGIBLE ASSETS, net	428,201		50,748
OTHER ASSETS	8,031		7,496
Total Assets	$	5,603,738	$	1,938,875
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	238,106	$	127,641
Accrued liabilities	67,933		40,271
Accrued promotional allowances	124,539		114,047
Accrued distributor terminations	7,654		-
Deferred revenue	31,413		49,926
Accrued compensation	20,152		17,983
Income taxes payable	14,809		5,848
Total current liabilities	504,606		355,716
DEFERRED REVENUE	355,128		68,009
DEFERRED INCOME TAXES	89,447		-
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY:
Common stock - $0.005 par value; 240,000 shares authorized; 206,788 shares issued and 202,731 outstanding as of September 30, 2015; 207,004 shares issued and 167,722 outstanding as of December 31, 2014	1,034		1,035
Additional paid-in capital	3,966,395		426,145
Retained earnings	1,256,121		2,330,510
Accumulated other comprehensive loss	(20,851)		(11,453)
Common stock in treasury, at cost; 4,057 and 39,282 shares as of September 30, 2015 and December 31, 2014, respectively	(548,142)		(1,231,087)
Total stockholders’ equity	4,654,557		1,515,150
Total Liabilities and Stockholders’ Equity	$	5,603,738	$	1,938,875

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

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

	Three-Months Ended				Nine-Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
NET SALES	$	756,619	$	635,972	$	2,077,131	$	1,859,301
COST OF SALES	291,143		294,052		848,191		851,274
GROSS PROFIT	465,476		341,920		1,228,940		1,008,027
OPERATING EXPENSES	174,038		152,013		725,205		453,443
GAIN ON SALE OF MONSTER NON-ENERGY (NOTE 2)	-		-		161,470		-
OPERATING INCOME	291,438		189,907		665,205		554,584
INTEREST INCOME AND OTHER (EXPENSE), net	(3,362)		(1,038)		(3,144)		(707)
INCOME BEFORE PROVISION FOR INCOME TAXES	288,076		188,869		662,061		553,877
PROVISION FOR INCOME TAXES	113,502		67,269		254,070		196,023
NET INCOME	$	174,574	$	121,600	$	407,991	$	357,854
NET INCOME PER COMMON SHARE:
Basic	$	0.85	$	0.73	$	2.22	$	2.14
Diluted	$	0.84	$	0.70	$	2.17	$	2.06
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Basic	205,051		167,346		184,098		167,116
Diluted	208,094		174,270		188,131		174,016

See accompanying notes to condensed consolidated financial statements.

4

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(In Thousands) (Unaudited)

	Three-Months Ended September 30,				Nine-Months Ended September 30,
	2015		2014		2015		2014
Net income, as reported	$	174,574	$	121,600	$	407,991	$	357,854
Other comprehensive income:
Change in foreign currency translation adjustment	(1,778)		(5,716)		(9,398)		(5,104)
Available-for-sale investments:
Change in net unrealized gains	-		-		-		-
Reclassification adjustment for net gains included in net income	-		-		-		-
Net change in available-for-sale investments	-		-		-		-
Other comprehensive loss	(1,778)		(5,716)		(9,398)		(5,104)
Comprehensive income	$	172,796	$	115,884	$	398,593	$	352,750

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(In Thousands) (Unaudited)

	Nine-Months Ended
	September 30, 2015		September 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	407,991	$	357,854
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,757		19,124
Gain on disposal of property and equipment	(212)		(379)
Gain on sale of Monster Non-Energy	(161,470)		-
Stock-based compensation	23,689		22,509
Loss on put option	-		771
Gain on investments, net	-		(732)
Deferred income taxes	(115,098)		(7,919)
Excess tax benefit from stock-based compensation	(303,914)		(11,541)
Effect on cash of changes in operating assets and liabilities, net of acquisition and divestiture:
Accounts receivable	(132,614)		(45,759)
Distributor receivables	393		2,047
Inventories	(9,076)		13,300
Prepaid expenses and other current assets	(6,863)		(4,564)
Prepaid income taxes	(83,276)		(8,723)
Accounts payable	75,142		30,032
Accrued liabilities	29,296		12,387
Accrued promotional allowances	15,196		32,421
Accrued distributor terminations	7,706		(2,338)
Accrued compensation	2,414		(467)
Income taxes payable	312,750		4,909
Deferred revenue	(35,991)		(5,883)
Net cash provided by operating activities	47,820		407,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held-to-maturity investments	998,762		545,774
Sales of available-for-sale investments	4,001		-
Sales of trading investments	2,625		12,075
Proceeds from transfer of distribution rights to TCCC	179,658		-
Purchases of held-to-maturity investments	(1,760,178)		(761,538)
Purchases of property and equipment	(25,627)		(19,300)
Proceeds from the sale of Monster Non-Energy	198,008		-
Proceeds from sale of property and equipment	484		745
Increase in intangibles	(5,352)		(1,765)
(Increase) decrease in other assets	(1,039)		1,027
Net cash used in investing activities	(408,658)		(222,982)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt	(807)		(1,316)
Excess tax benefit from stock-based compensation	303,914		11,541
Issuance of common stock	1,691,051		15,050
Purchases of common stock held in treasury	(758,974)		(8,126)
Net cash provided by financing activities	1,235,184		17,149
Effect of exchange rate changes on cash and cash equivalents	(3,952)		(4,242)
NET INCREASE IN CASH AND CASH EQUIVALENTS	870,394		196,974
CASH AND CASH EQUIVALENTS, beginning of period	370,323		211,349
CASH AND CASH EQUIVALENTS, end of period	$	1,240,717	$	408,323
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest	$	21	$	27
Income taxes	$	141,184	$	210,090

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(In Thousands) (Unaudited) (Continued)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS

The Company entered into capital leases for the acquisition of promotional vehicles of $1.1 million and $0.7 million for the nine-months ended September 30, 2015 and 2014, respectively.

Included in accounts payable as of September 30, 2015 are treasury stock purchases of $40.7 million.

During the nine-months ended September 30, 2015, the Company issued 11.8 million shares of the Company’s common stock in exchange for KO Energy (see Note 2).

During the nine-months ended September 30, 2015, in connection with the TCCC Transaction (as defined in Note 2), $125.0 million relating to the transfer of certain distribution rights was deposited into escrow pending certain transition milestones (see Note 2).

During the nine-months ended September 30, 2015, the Company cancelled 41.5 million shares of treasury stock (see Note 13). Amounts previously recorded as treasury stock were netted against common stock and retained earnings.

See accompanying notes to condensed consolidated financial statements.

7

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, 2014 (“Form 10-K”) 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- and nine-months ended September 30, 2015 and 2014 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 amount 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.

In the second quarter of 2015, as a result of the acquisitions and divestitures described in Note 2, the Company revised its reportable segments to reflect management’s new view of the business and to align its external financial reporting with its new operating and internal financial reporting model. Historical segment information has been revised to reflect the effect of this change. See Note 17 for additional information about the Company’s new reporting segments.

2.ACQUISITIONS AND DIVESTITURES

On June 12, 2015, Monster Beverage 1990 Corporation (formerly Monster Beverage Corporation) (“Old Monster”), now a wholly owned subsidiary of the Company, completed the transactions contemplated by the definitive agreements entered into with The Coca-Cola Company (“TCCC”) on August 14, 2014, which provided for a long-term strategic relationship in the global energy drink category (the “TCCC Transaction”).

Also, on June 12, 2015, Old Monster effected a holding company reorganization in connection with the TCCC Transaction by merging New Laser Merger Corp., a wholly owned subsidiary of the Company into Old Monster, with Old Monster surviving as a wholly owned subsidiary of the Company (the “Holding Company Reorganization”), and the Company changed its name from New Laser Corporation to “Monster Beverage Corporation.”

In the Holding Company Reorganization, each Old Monster common share, par value $0.005 per share, outstanding immediately prior to the consummation of the Holding Company Reorganization (other than any Old Monster common shares that were owned by Old Monster immediately prior to the closing of the TCCC Transaction, which were cancelled (see Note 13)), was converted automatically into the right to receive one Company common share, par value $0.005 per share. In addition, upon consummation of the Holding Company Reorganization:

8

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

·each unexercised and unexpired stock option then outstanding under any equity compensation plan of Old Monster, whether or not then exercisable, ceased to represent a right to acquire Old Monster common shares and was converted automatically into a right to acquire the same number of Company common shares, on the same terms and conditions as were applicable under such Old Monster stock option; and

·each share of restricted stock and each restricted stock unit of Old Monster granted under all outstanding equity compensation plans ceased to represent or relate to Old Monster common shares and was converted automatically to represent or relate to Company common shares, on the same terms and conditions as were applicable to such Old Monster restricted stock and restricted stock units (including the vesting or other lapse restrictions (without acceleration thereof by virtue of the Holding Company Reorganization and the TCCC Transaction)).

Promptly following the effective time of the Holding Company Reorganization, Old Monster assigned to the Company all obligations of Old Monster under Old Monster’s equity compensation plans and each stock option agreement, restricted stock award agreement, restricted stock unit award agreement and any similar agreement entered into pursuant to such equity compensation plans. In addition, all obligations of Old Monster under any employment agreements and indemnification agreements were assigned to the Company.

Immediately after the effective time of the Holding Company Reorganization, (1) the Company issued to TCCC 34,040,534 newly issued Company common shares representing approximately 16.7% of the total number of outstanding Company common shares (after giving effect to such issuance) (the “New Issuance”) and TCCC appointed two individuals to the Company’s Board of Directors, (2) TCCC transferred all of its rights in and to TCCC’s worldwide energy drink business (“KO Energy”) to the Company, (3) Old Monster transferred all of its rights in and to its non-energy drink business (“Monster Non-Energy”) to TCCC, (4) the Company and TCCC amended the distribution coordination agreements previously existing between them to govern the transition of third parties’ rights to distribute the Company’s energy products in most territories in the U.S. to members of TCCC’s distribution network, which consists of owned or controlled bottlers/distributors and independent bottling/distribution partners, and (5) TCCC and one of its subsidiaries made an aggregate net cash payment to the Company of $2.15 billion, $125.0 million of which is currently held in escrow as described below, pursuant to an escrow agreement (the “Escrow Agreement”), subject to release upon the achievement of milestones relating to the transition of distribution rights to TCCC’s distribution network.

Under the terms of the Escrow Agreement and the transition payment agreement entered into in connection therewith, if the distribution rights in the U.S. that are transitioned to TCCC’s distribution network represent case sales in excess of the following percentages of a target case sale amount agreed to by the parties, amounts in the escrow fund in excess of the applicable amounts below will be released to the Company:

Percentage Transitioned	Escrow Release
40%	Amounts in excess of $375 million
50%	Amounts in excess of $312.5 million
60%	Amounts in excess of $250 million
70%	Amounts in excess of $187.5 million
80%	Amounts in excess of $125 million
90%	Amounts in excess of $62.5 million
95%	All remaining amounts

On the one-year anniversary of the closing of the TCCC Transaction, the then-remaining escrow amount, less an amount sufficient to cover any unresolved claims, will be released to TCCC. Any amount described above that becomes payable following the one-year anniversary will be paid directly from TCCC to the Company.

9

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

TCCC is contractually obligated to authorize payment to the Company of the funds in escrow upon achievement of the milestones referred to above. As of November 6, 2015, distribution rights in the U.S. representing approximately 89% of the target case sales have been transitioned to TCCC’s distribution network.  As a result, $125 million is currently held in escrow. The Company expects to commence steps to transition sufficient additional distribution rights, which will, in due course, result in the release of all remaining amounts held in escrow. Therefore, the Company believes that achievement of the milestones is probable.

The following table summarizes the TCCC Transaction consideration allocation:

	Identifiable Assets Acquired and Liabilities Assumed		Consideration Transferred
Equity issued to TCCC for cash (22.2 million shares issued)	$	-	$	1,647,333
Equity issued to TCCC for KO Energy (11.8 million shares issued)	-		1,521,802
KO Energy intangibles - trademarks (non-amortizing)	325,500		-
KO Energy intangibles - customer relationships (amortizing)	35,000		-
KO Energy intangibles - other (non-amortizing)	13,700		-
KO Energy inventories	6,144		-
KO Energy accounts payable	(2,758)		-
Goodwill	1,287,777		-
Deferred tax liability	(143,561)		-
New and amended U.S. distribution rights transferred to TCCC’s distribution network	-		304,658
Monster Non-Energy business transferred to TCCC	-		198,009
Cash and escrow receivable	2,150,000		-
Total	$	3,671,802	$	3,671,802

The preliminary book value of the KO Energy inventories, prepaid expenses and other current assets and accounts payable approximate fair value. 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 allocation is preliminary and is 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 no later than twelve months from the closing of the TCCC Transaction. Any differences between the final respective fair value allocations and the preliminary management estimates may differ materially and potentially have a material impact on the Company’s financial position, results of operations or liquidity.

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.

The goodwill recorded as part of the TCCC Transaction is not deductible for tax purposes. The goodwill includes access to new geographies, access to new sales channels, including vending and specialty accounts, as well as the opportunity for supply chain optimization.

10

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company determined the estimated fair values of KO Energy trademarks, customer relationships and other intangibles as follows:

1.Trademarks—valued using the relief from royalty method. Royalty rates for the different brands were selected based on brand strength and profitability.

2.Customer relationships—valued using the with- and-without method assuming that the customer relationships could be rebuilt over a one-year period.

3.Other (Trade Secrets/Formulas)—valued using the cost savings method.

The Company determined the estimated fair value of the “new and amended U.S. distribution rights” transferred to TCCC’s distribution network using the discounted cash flow method. The cash flows were defined as the expected cost savings arising from the new distribution agreements.

The Company determined the estimated fair value of the Monster Non-Energy brands sold utilizing the discounted cash flow method and market multiple method. Market multiples for each brand were selected based on profitability, size and expected growth for each brand. The resulting business enterprise value derived under the income and market approaches was then adjusted for working capital and fixed assets that were not transferred to TCCC.

Of the approximately 34.0 million shares of the Company’s common stock issued to TCCC in the TCCC Transaction, approximately 11.8 million shares, or 34.8% of the total shares issued, were allocated to the purchase of KO Energy and approximately 22.2 million shares, or 65.2% of the total shares issued, were issued for cash. The 34.8% allocation was based on the relative fair value of KO Energy to the approximate fair value of the 34.0 million shares of Old Monster’s common stock on August 14, 2014. The remaining shares of the Company’s common stock were deemed to be issued for cash. The $2.15 billion of cash and escrow receivable was first allocated to the new and amended U.S. distribution rights and the Monster Non-Energy business based on their respective preliminary fair values, and the residual cash of $1.6 billion was then allocated to the equity issued for cash. On August 14, 2014, the date on which the terms of the TCCC Transaction were agreed to and announced, the closing market price of Old Monster’s common stock was $71.65 per share. The fair value of KO Energy per ASC 820 is approximately $880.1 million, which approximates the negotiated price for KO Energy based on the closing market price of Old Monster’s common stock on August 14, 2014. However, per ASC 805, equity securities issued as consideration in a business combination are to be recorded at fair value as of the closing date. Therefore, the value of the Company’s common stock issued to TCCC in exchange for KO Energy was $128.39 per share, the closing price of the Company’s common stock on June 12, 2015, resulting in a total consideration value transferred for KO Energy of $1.5 billion.

The Company recognized a gain of $161.5 million on the disposal of Monster Non-Energy during the second quarter of 2015.

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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 unaudited pro forma condensed combined financial information is presented as if the TCCC Transaction had closed on January 1, 2014:

	Three-Months Ended September 30, 2015
						Pro Forma Adjustments
	Monster Beverage Corporation as reported¹		KO Energy			Disposal of Monster Non- Energy		Other		Pro Forma Combined
Net sales	$	756,619	$	-		$	-	$	-	$	756,619
Net income	174,574		-			-		180		174,754
	Three-Months Ended September 30, 2014
						Pro Forma Adjustments
	Monster Beverage Corporation as reported		KO Energy			Disposal of Monster Non- Energy		Other		Pro Forma Combined
Net sales	$	635,972	$	85,608		$	(41,624)	$	3,840	$	683,796
Net income	121,600		54,614		²	(1,376)		(24,075)		150,763

¹Includes net sales of $69.9 million and net income of $27.4 million (tax affected) related to the acquired KO Energy assets for the three-months ended September 30, 2015.

²The $54.6 million of net income for KO Energy for the three-months ended September 30, 2014 is presented before tax. The associated estimated provision for income taxes is included in the “Other” category.

	Nine-Months Ended September 30, 2015
						Pro Forma Adjustments
	Monster Beverage Corporation as reported¹		KO Energy²			Disposal of Monster Non- Energy³		Other		Pro Forma Combined
Net sales	$	2,077,131	$	138,127		$	(60,824)	$	6,803	$	2,161,237
Net income	407,991		100,575		4	(101,881)		(36,487)		370,198
	Nine-Months Ended September 30, 2014
						Pro Forma Adjustments
	Monster Beverage Corporation as reported		KO Energy			Disposal of Monster Non- Energy		Other		Pro Forma Combined
Net sales	$	1,859,301	$	256,824		$	(119,608)	$	11,393	$	2,007,910
Net income	357,854		163,842		4	(4,398)		(74,747)		442,551

¹Includes net sales of $82.9 million and net income of $32.9 million (tax affected) related to the acquired KO Energy assets since the date of acquisition, June 12, 2015.

²Includes results through June 12, 2015, the date the TCCC Transaction was finalized. Net income for KO Energy includes only net revenues and direct operating expenses, rather than full “carve-out” financial statements, because such financial information would not be meaningful given that it is not possible to provide a meaningful allocation of business unit and corporate costs, interest or tax in respect of KO Energy.

³Includes results through June 12, 2015. Net income includes gain recognized on the sale of Monster Non-Energy of $161.5 million.

4The $100.6 million of net income for the nine-months ended September 30, 2015 and $163.8 million of net income for KO Energy for the nine-months ended September 30, 2014 are presented before tax. The associated estimated provision for income taxes is included in the “Other” category.

12

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Pro-Forma Adjustments – Other include the following:

	Three-Months Ended September 30, 2015		Three-Months Ended September 30, 2014		Nine-Months Ended September 30, 2015¹		Nine-Months Ended September 30, 2014
Net sales:
Amortization of deferred revenue	$	-	$	3,840	$	6,803	$	11,393
Net income:
Amortization of deferred revenue	$	-	$	3,840	$	6,803	$	11,393
To record sales commissions	-		(9,588)		(15,470)		(28,764)
To record amortization of definite lived KO Energy intangibles	-		(1,764)		(3,126)		(5,236)
To eliminate TCCC Transaction expenses	292		2,567		15,425		3,635
Estimated provision for income taxes on pro forma adjustments	(112)		1,904		(1,398)		7,304
Estimated provision for income taxes on KO Energy income	-		(21,034)		(38,721)		(63,079)
Total	$	180	$	(24,075)	$	(36,487)	$	(74,747)

¹Includes amortization of deferred revenue, sales commissions and amortization of intangibles through June 12, 2015, the date the TCCC Transaction was consummated.

For purposes of the unaudited pro forma financial information, a combined U.S. Federal and state statutory tax rate of 38.5% has been used. This rate does not reflect the Company’s expected effective tax rate, which includes other tax charges and benefits, and does not take into account any historical or possible future tax events that may impact the combined company.

The unaudited pro forma financial information is presented for information purposes only and is not intended to represent or be indicative of the combined results of operations that the Company would have reported had the TCCC Transaction been completed as of the date and for the periods presented, and should not be taken as representative of the Company’s consolidated results of operations following the completion of the TCCC Transaction. In addition, the unaudited pro forma financial information is not intended to project the future financial results of operations of the combined company. The unaudited pro forma combined financial information does not reflect any cost savings, operational synergies or revenue enhancements that the combined company may achieve as a result of the TCCC Transaction or the costs to combine the operations or costs necessary to achieve cost savings, operating synergies and revenue enhancements.

3.RECENT ACCOUNTING PRONOUNCEMENTS

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”.  ASU 2015-11 requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for annual periods, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU 2015-11 is not expected to have a material impact on the Company’s financial position, results of operations or liquidity.

13

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In September 2014, the Company elected to early adopt FASB ASU No. 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”.  ASU 2014-08 provides new guidance related to the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The adoption of ASU 2014-08 did not have a material impact on the Company’s financial position, results of operations or liquidity.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force)”.  ASU 2014-12 clarifies that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. ASU 2014-12 is effective for annual periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 may be applied either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s financial position, results of operations or liquidity.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes previous revenue recognition guidance. ASU 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 (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 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 is currently evaluating the impact of ASU 2014-09 on its financial position, results of operations and liquidity.

14

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

4.INVESTMENTS

The following table summarizes the Company’s investments at:

September 30, 2015	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value		Continuous Unrealized Loss Position less than 12 Months		Continuous Unrealized Loss Position greater than 12 Months
Held-to-Maturity
Short-term:
Commercial paper	$	306,858	$	-	$	-	$	306,858	$	-	$	-
U.S. Treasuries	92,994		5		-		92,999		-		-
Certificates of deposit	44,506		-		-		44,506		-		-
Municipal securities	611,370		319		10		611,679		10		-
U.S. government agency securities	487,495		23		4		487,514		4		-
Long-term:
Municipal securities	29,333		16		4		29,345		4		-
U.S. government agency securities	5,022		-		3		5,019		3		-
Total	$	1,577,578	$	363	$	21	1,577,920		$	21	$	-
Trading
Short-term:
Auction rate securities							1,487
Long-term:
Auction rate securities							-
Total							$	1,579,407
December 31, 2014	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value		Continuous Unrealized Loss Position less than 12 Months		Continuous Unrealized Loss Position greater than 12 Months
Held-to-Maturity
Short-term:
Commercial paper	$	19,482	$	-	$	2	$	19,480	$	-	$	-
Municipal securities	744,542		105		-		744,647		-		-
U.S. government agency securities	9,199		-		1		9,198		-		-
Long-term:
Municipal securities	42,940		10		-		42,950		-		-
Available-for-sale
Variable rate demand notes	4,001		-		-		4,001		-		-
Total	$	820,164	$	115	$	3	820,276		$	-	$	-
Trading
Short-term:
Auction rate securities							3,910
Long-term:
Auction rate securities							-
Total							$	824,186

During the three- and nine-months ended September 30, 2015 and September 30, 2014, realized gains or losses recognized on the sale of investments were not significant. During the three- and nine-months ended September 30, 2015 and September 30, 2014, the net gains recognized on the Company’s trading securities were not significant.

15

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company’s investments at September 30, 2015 and December 31, 2014 in commercial paper, U.S. Treasuries, certificates of deposit, municipal securities, U.S. government agency securities and/or variable rate demand notes (“VRDNs”) carried investment grade credit ratings. VRDNs are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. While they are classified as marketable investment securities, the put option allows the VRDNs to be liquidated at par on a same day, or more generally on a seven day, settlement basis. All of the Company’s investments at September 30, 2015 and December 31, 2014 in municipal, educational or other public body securities with an auction reset feature (“auction rate securities”) also carried investment grade credit ratings.

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

	September 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Less than 1 year:
Commercial paper	$	306,858	$	306,858	$	19,482	$	19,480
U.S. Treasuries	92,994		92,999		-		-
Certificates of deposit	44,506		44,506		-		-
Municipal securities	611,370		611,679		744,542		744,647
U.S. government agency securities	487,495		487,514		9,199		9,198
Due 1 - 10 years:
Municipal securities	29,333		29,345		42,940		42,950
U.S. government agency securities	5,022		5,019		-		-
Due 11 - 20 years:
Auction rate securities	1,487		1,487		3,910		3,910
Due 21 - 30 years:
Variable rate demand notes	-		-		4,001		4,001
Total	$	1,579,065	$	1,579,407	$	824,074	$	824,186

5.FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

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 which 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.

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.

16

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 Company’s held-to-maturity investments at amortized cost, available-for-sale investments at fair value and 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, 2015	Level 1		Level 2			Level 3		Total
Cash	$	194,242	$	-		$	-	$	194,242
Money market funds	624,007		-			-		624,007
Commercial paper	-		361,833			-		361,833
U.S. Treasuries	-		111,993			-		111,993
Certificates of deposit	-		115,509			-		115,509
Municipal securities	-		670,186			-		670,186
U.S. government agency securities	-		740,525			-		740,525
Variable rate demand notes	-		-			-		-
Auction rate securities	-		-			1,487		1,487
Put option related to auction rate securities	-		-			48		48
Foreign currency derivatives	-		(570		)	-		(570		)
Total	$	818,249	$	1,999,476		$	1,535	$	2,819,260
Amounts included in:
Cash and cash equivalents	$	818,249	$	422,468		$	-	$	1,240,717
Short-term investments	-		1,543,223			1,487		1,544,710
Accounts receivable, net	-		48			-		48
Investments	-		34,355			-		34,355
Prepaid expenses and other current assets	-		-			48		48
Accrued liabilities	-		(618		)	-		(618		)
Total	$	818,249	$	1,999,476		$	1,535	$	2,819,260
December 31, 2014	Level 1		Level 2			Level 3		Total
Cash	$	196,090	$	-		$	-	$	196,090
Money market funds	106,928		-			-		106,928
Commercial paper	-		19,482			-		19,482
Municipal securities	-		854,787			-		854,787
U.S. government agency securities	-		9,199			-		9,199
Variable rate demand notes	-		4,001			-		4,001
Auction rate securities	-		-			3,910		3,910
Put option related to auction rate securities	-		-			250		250
Foreign currency derivatives	-		(252		)	-		(252		)
Total	$	303,018	$	887,217		$	4,160	$	1,194,395
Amounts included in:
Cash and cash equivalents	$	303,018	$	67,305		$	-	$	370,323
Short-term investments	-		777,224			3,910		781,134
Accounts receivable, net	-		83			-		83
Investments	-		42,940			-		42,940
Prepaid expenses and other current assets	-		-			250		250
Accrued liabilities	-		(335		)	-		(335		)
Total	$	303,018	$	887,217		$	4,160	$	1,194,395

17

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The majority of the Company’s short-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 commercial paper, U.S. Treasuries, certificates of deposit, municipal securities, U.S. government agency securities and VRDNs, 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 exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk. There were no transfers between Level 1 and Level 2 measurements during the nine-months ended September 30, 2015 or the year ended December 31, 2014, and there were no changes in the Company’s valuation techniques.

The Company’s Level 3 assets are comprised of auction rate securities and put options. The Company’s Level 3 valuation utilized a mark-to-model approach which included estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums, as well as expected holding periods for the auction rate securities. These assumptions are typically volatile and subject to change as the underlying data sources and market conditions evolve. A significant change in any single input could have a significant valuation impact; however, no single input has a more significant impact on valuation than another. There were no changes in the Company’s valuation techniques of its Level 3 assets during the nine-months ended September 30, 2015.

At September 30, 2015, the Company held auction rate securities with a face value of $1.54 million (amortized cost basis of $1.49 million). A Level 3 valuation was performed on the Company’s auction rate securities as of September 30, 2015 resulting in a fair value of $1.49 million for the Company’s trading auction rate securities (after a $0.05 million impairment), which are included in short-term investments.

In June 2011, the Company entered into an agreement (the “2011 ARS Agreement”), related to $24.5 million of par value auction rate securities (the “2011 ARS Securities”).  Under the 2011 ARS Agreement, the Company had the right to sell the 2011 ARS Securities including all accrued but unpaid interest thereon (the “2011 Put Option”) as follows: (i) on or after July 1, 2013, up to $1.0 million aggregate par value; (ii) on or after October 1, 2013, up to an additional $1.0 million aggregate par value; and (iii) in quarterly installments thereafter based on a formula of the then outstanding 2011 ARS Securities, as adjusted for normal market redemptions, with full sale rights available on or after April 1, 2016. The 2011 ARS Securities continued to accrue interest until redeemed through the 2011 Put Option, or as determined by the auction process, or should the auction process have failed, the terms outlined in the prospectus of the respective 2011 ARS Securities. Under the 2011 ARS Agreement, the Company had the obligation, should it have received written notification from the put issuer, to sell the 2011 ARS Securities at par plus all accrued but unpaid interest. During the nine-months ended September 30, 2015, $2.6 million of ARS Securities were redeemed ($13.1 million, $2.3 million, $1.3 million and $3.7 million of par value 2011 ARS Securities were redeemed at par during the years ended December 31, 2014, 2013, 2012 and 2011, respectively). Subsequent to September 30, 2015, the Company’s remaining $1.5 million balance of 2011 ARS Securities were redeemed at par through the exercise of the remaining portion of the 2011 Put Option, which exhausted the Company’s rights under the 2011 ARS Agreement. The 2011 Put Option did not meet the definition of derivative instruments under ASC 815.  Therefore, the Company elected the fair value option under ASC 825-10 in accounting for the 2011 Put Option. As of September 30, 2015, the Company recorded $0.05 million as the fair market value of the 2011 Put Option, included in prepaid expenses and other current assets.

18

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table provides a summary reconciliation of the Company’s financial assets that are recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Three-Months Ended September 30, 2015				Three-Months Ended September 30, 2014
	Auction Rate Securities		Put Options		Auction Rate Securities		Put Options
Opening Balance	$	3,246	$	189	$	12,819	$	994
Transfers into Level 3	-		-		-		-
Transfers out of Level 3	-		-		-		-
Total gains (losses) for the period:
Included in earnings	141		(141)		648		(674)
Included in other comprehensive income	-		-		-		-
Settlements	(1,900)		-		(8,625)		-
Closing Balance	$	1,487	$	48	$	4,842	$	320
	Nine-Months Ended September 30, 2015				Nine-Months Ended September 30, 2014
	Auction Rate Securities		Put Options		Auction Rate Securities		Put Options
Opening Balance	$	3,910	$	250	$	16,184	$	1,092
Transfers into Level 3	-		-		-		-
Transfers out of Level 3	-		-		-		-
Total gains (losses) for the period:
Included in earnings	202		(202)		732		(772)
Included in other comprehensive income	-		-		-		-
Settlements	(2,625)		-		(12,074)		-
Closing Balance	$	1,487	$	48	$	4,842	$	320

6.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-months ended September 30, 2015 and the year ended December 31, 2014, 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, 2015 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 income and other (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.

19

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The notional amount and fair value of all outstanding foreign currency derivative instruments in the condensed consolidated balance sheets consist of the following at:

September 30, 2015
Derivatives not designated as hedging instruments under FASB ASC 815-20	Notional Amount		Fair Value		Balance Sheet Location
Assets:
Foreign currency exchange contracts:
Receive USD/pay GBP	$	9,410	$	36	Accounts receivable, net
Receive USD/pay JPY	5,389		12		Accounts receivable, net
Liabilities:
Foreign currency exchange contracts:
Receive EUR/pay USD	$	26,749	$	(160)	Accrued liabilities
Receive USD/pay AUD	7,263		(17)		Accrued liabilities
Receive USD/pay ZAR	14,921		(243)		Accrued liabilities
Receive USD/pay MXN	7,442		(72)		Accrued liabilities
Receive USD/pay RUB	1,736		(21)		Accrued liabilities
Receive USD/pay BRL	2,284		(58)		Accrued liabilities
Receive USD/pay CLP	1,631		(29)		Accrued liabilities
Receive USD/pay COP	1,120		(18)		Accrued liabilities
December 31, 2014
Derivatives not designated as hedging instruments under FASB ASC 815-20	Notional Amount		Fair Value		Balance Sheet Location
Assets:
Foreign currency exchange contracts:
Receive CAD/pay USD	$	19,940	$	83	Accounts receivable, net
Liabilities:
Foreign currency exchange contracts:
Receive EUR/pay USD	$	13,265	$	(75)	Accrued liabilities
Receive USD/pay AUD	8,343		(48)		Accrued liabilities
Receive USD/pay JPY	10,620		(84)		Accrued liabilities
Receive USD/pay ZAR	14,760		(105)		Accrued liabilities
Receive USD/pay MXN	4,961		(11)		Accrued liabilities
Receive USD/pay CLP	2,685		(10)		Accrued liabilities
Receive USD/pay COP	2,845		(2)		Accrued liabilities

20

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The net losses on derivative instruments in the condensed consolidated statements of income were as follows:

		Amount of gain recognized in income on derivatives
		Three-months ended
Derivatives not designated as hedging instruments under FASB ASC 815-20	Location of gain recognized in income on derivatives	September 30, 2015		September 30, 2014
Foreign currency exchange contracts	Interest income and other (expense), net	$	3,552	$	960
		Amount of gain recognized in income on derivatives
		Nine-months ended
Derivatives not designated as hedging instruments under FASB ASC 815-20	Location of gain recognized in income on derivatives	September 30, 2015		September 30, 2014
Foreign currency exchange contracts	Interest income and other (expense), net	$	1,634	$	194

7.INVENTORIES

Inventories consist of the following at:

	September 30, 2015		December 31, 2014
Raw materials	$	56,578	$	59,938
Finished goods	103,113		114,635
	$	159,691	$	174,573

8.PROPERTY AND EQUIPMENT, Net

Property and equipment consist of the following at:

	September 30, 2015		December 31, 2014
Land	$	6,792	$	6,792
Leasehold improvements	2,745		2,796
Furniture and fixtures	3,497		3,371
Office and computer equipment	10,864		10,072
Computer software	2,283		1,317
Equipment	99,874		84,263
Buildings	39,421		37,311
Vehicles	28,391		27,813
	193,867		173,735
Less: accumulated depreciation and amortization	(99,140)		(83,579)
	$	94,727	$	90,156

21

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

9.GOODWILL AND OTHER INTANGIBLE ASSETS

The following is a roll-forward of goodwill for the nine-months ended September 30, 2015 by reportable segment:

	Finished Products		Concentrate		Total
Balance at December 31, 2014	$	-	$	-	$	-
Acquisitions	785,277		502,500		1,287,777
Balance at September 30, 2015	$	785,277	$	502,500	$	1,287,777

Intangible assets consist of the following at:

	September 30, 2015		December 31, 2014
Amortizing intangibles	$	35,264	$	233
Accumulated amortization	(2,148)		(50)
	33,116		183
Non-amortizing intangibles	395,085		50,565
	$	428,201	$	50,748

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 5 years. Total amortization expense recorded was $1.8 million and $0.1 million for the three-months ended September 30, 2015 and 2014, respectively. Total amortization expense recorded was $2.1 million and $0.4 million for the nine-months ended September 30, 2015 and 2014, respectively. Non-amortizing intangibles primarily consist of indefinite-lived tradenames.

10.DISTRIBUTION AGREEMENTS

As part of the TCCC Transaction, the amended distribution coordination agreements entered into with TCCC provided for the transition of third parties’ rights to distribute the Company’s products in most territories in the U.S. and Canada to members of TCCC’s distribution network, which consists of owned or controlled bottlers/distributors and independent bottling/distribution partners. In February 2015, in accordance with its then existing agreements with certain affected third-party distributors, Old Monster sent notices of termination to the applicable affected third-party distributors in the U.S., providing for the termination of their respective distribution agreements.  The associated distribution rights relating to such terminated distribution agreements were transitioned to the TCCC distribution network as of the effective date of termination of the affected third-party distributors’ rights in the applicable territories.  As of November 6, 2015, distribution rights in the U.S. representing approximately 89% of the target case sales (see Note 2) have been transitioned to TCCC’s distribution network.

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.  As a result, the Company incurred termination costs of $2.5 million and $220.7 million for the three- and nine-months ended September 30, 2015. Such termination costs have been expensed in full and are included in operating expenses for the three- and nine-months ended September 30, 2015.

22

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In the normal course of business, amounts received pursuant to new and/or amended distribution agreements entered into with certain distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years. Revenue recognized was $5.5 million and $1.9 million for the three-months ended September 30, 2015 and 2014, respectively. Revenue recognized was $45.1 million and $5.8 million for the nine-months ended September 30, 2015 and 2014, respectively. Included in the $45.1 million of revenue recognized for the nine-months ended September 30, 2015 was $39.8 million related to the accelerated amortization of the deferred revenue balances associated with certain of the Company’s prior distributors who were sent notices of termination during the first quarter of 2015, as described above.

11.COMMITMENTS AND CONTINGENCIES

The Company had purchase commitments aggregating approximately $37.5 million at September 30, 2015, 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 $77.6 million at September 30, 2015, which related primarily to sponsorships and other marketing activities.

The Company had operating lease commitments aggregating approximately $10.6 million at September 30, 2015, which related primarily to warehouse and office space.

Legal Proceedings

The Company has been named a defendant in various personal injury lawsuits, claiming that the death or other serious injury of the plaintiffs was caused by consumption of Monster 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.  No decision has been rendered. 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.

San Francisco City Attorney Litigation – On October 31, 2012, the Company received a written request for information from the City Attorney for the City and County of San Francisco concerning the Company’s advertising and marketing of its Monster Energy® brand energy drinks and specifically concerning the safety of its products for consumption by adolescents. In a letter dated March 29, 2013, the San Francisco

23

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

City Attorney threatened to bring suit against the Company if it did not agree to take the following five steps immediately: (i) “Reformulate its products to lower the caffeine content to safe levels” - (ii) “Provide adequate warning labels”; (iii) “Cease promoting over-consumption in marketing”; (iv) “Cease use of alcohol and drug references in marketing”; and (v) “Cease targeting minors.”

(i) The Company Action – On April 29, 2013, the Company and its wholly owned subsidiary, Monster Energy Company, filed a complaint for declaratory and injunctive relief against the San Francisco City Attorney (the “Company Action”) in United States District Court for the Central District of California (the “Central District Court”), styled Monster Beverage Corp., et al. v. Dennis Herrera. The Company sought a declaration from the Central District Court that the San Francisco City Attorney’s investigation and demands are impermissible and preempted, subject to the doctrine of primary jurisdiction, are unconstitutional in that they violate the First and Fourteenth Amendments’ prohibitions against compelled speech, content-based speech and commercial speech, are impermissibly void-for-vagueness, and/or violate the Commerce Clause. On June 3, 2013, the City Attorney filed a motion to dismiss the Company Action, arguing in part that the complaint should be dismissed in light of the San Francisco Action (described below) filed on May 6, 2013. On August 22, 2013, the Central District Court granted in part and denied in part the City Attorney’s motion. On October 17, 2013, the City Attorney filed a renewed motion to dismiss the Company Action and on December 16, 2013, the Central District Court granted the City Attorney’s renewed motion, dismissing the Company Action. The Company filed a Notice of Appeal to the Ninth Circuit on December 18, 2013. The appeal is fully briefed but has not yet been set for argument.

(ii) The San Francisco Action – On May 6, 2013, the San Francisco City Attorney filed a complaint for declaratory and injunctive relief, civil penalties and restitution for alleged violation of California’s Unfair Competition Law, Business & Professions Code sections 17200, et seq., styled People Of The State Of California ex rel. Dennis Herrera, San Francisco City Attorney v. Monster Beverage Corporation, in San Francisco Superior Court (the “San Francisco Action”). The City Attorney alleges that the Company (1) mislabeled its products as a dietary supplement, in violation of California’s Sherman Food, Drug and Cosmetic Law, California Health & Safety Code sections 109875 et. seq.; (2) is selling an “adulterated” product because caffeine is not generally recognized as safe (“GRAS”) due to the alleged lack of scientific consensus concerning the safety of the levels of caffeine in the Company’s products; and (3) is engaged in unfair and misleading business practices because its marketing (a) does not disclose the health risks that energy drinks pose for children and teens; (b) fails to warn against and promotes unsafe consumption; (c) implicitly promotes mixing of energy drinks with alcohol or drugs; and (d) is deceptive because it includes unsubstantiated claims about the purported special benefits of its “killer” ingredients and “energy blend.” The City Attorney sought a declaration that the Company has engaged in unfair and unlawful business acts and practices in violation of the Unfair Competition Law; an injunction from performing or proposing to perform any acts in violation of the Unfair Competition Law; restitution; and civil penalties.

After a motion to strike filed by the Company was granted in part, on March 20, 2014, the City Attorney filed an amended complaint, adding allegations supporting the theory for relief as to which the Court had granted the motion to strike. On April 18, 2014, the Company filed a renewed motion to strike, as well as a motion asking the Court to bifurcate and/or stay claims relating to the safety of Monster Energy® drinks, pending resolution of the ongoing FDA investigation of the safety and labeling of food products to which caffeine is added. On May 22, 2014, the Court denied the Company’s motion to strike and motion to bifurcate and/or stay claims relating to safety.

On September 5, 2014, the City Attorney filed a second amended complaint, adding Monster Energy Company as a defendant. The Company and Monster Energy Company filed answers to the second amended complaint on October 4, 2014 and November 10, 2014, respectively. Discovery is ongoing.

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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 Court has set the case for a two-week bench trial beginning on February 8, 2016.

The Company denies that it has violated the Unfair Competition Law or any other law and believes that the City Attorney’s claims and demands are preempted and unconstitutional, as alleged in the action the Company filed in the Central District Court. The Company intends to vigorously defend against this lawsuit. At this time, no evaluation of the likelihood of an unfavorable outcome or range of potential loss can be expressed.

The actions or investigations described above have not progressed to a point where a reasonably possible range of losses associated with their ultimate outcome can be estimated at this time. If the final resolution of any such litigation or proceedings is unfavorable, the Company’s financial condition, operating results and cash flows could be materially affected.

In addition to the above matters, the Company has been named as a defendant in various false advertising putative class actions and in a private attorney general action. In these actions, plaintiffs allege that defendants misleadingly labeled and advertised Monster Energy® brand products that allegedly were ineffective for the advertised benefits (including, but not limited to, an allegation that the products do not hydrate as advertised because they contain caffeine). The plaintiffs further allege that the Monster Energy® brand products at issue are unsafe because they contain one or more ingredients that allegedly could result in illness, injury or death. In connection with these product safety allegations, the plaintiffs claim that the product labels did not provide adequate warnings and/or that the Company did not include sufficiently specific statements with respect to contra-indications and/or adverse reactions associated with the consumption of its energy drink products (including, but not limited to, claims that certain ingredients, when consumed individually or in combination with other ingredients, could result in high blood pressure, palpitations, liver damage or other negative health effects and/or that the products themselves are unsafe). Based on these allegations, the plaintiffs assert claims for violation of state consumer protection statutes, including unfair competition and false advertising statutes, and for breach of warranty and unjust enrichment. In their prayers for relief, the plaintiffs seek, inter alia, compensatory and punitive damages, restitution, attorneys’ fees, and, in some cases, injunctive relief. The Company regards these cases and allegations as having no merit. Furthermore, the Company is subject to litigation from time to time in the normal course of business, including intellectual property litigation and claims from terminated 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 of any related insurance reimbursements recorded. As of September 30, 2015, the Company’s consolidated balance sheet includes accrued loss contingencies of approximately $2.8 million.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

12.ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in accumulated other comprehensive loss by component, after tax, for the nine-months ended September 30, 2015 are as follows:

	Currency
	Translation
	Losses
Balance at December 31, 2014	$	11,453
Other comprehensive loss before reclassifications	-
Amounts reclassified from accumulated other comprehensive loss	-
Net current-period other comprehensive loss	9,398
Balance at September 30, 2015	$	20,851

13.TREASURY STOCK

On June 12, 2015, as part of the TCCC Transaction, the Company cancelled 41.5 million shares of treasury stock owned by the Company. The cancelled stock had a carrying value of approximately $1,482.6 million. The Company’s accounting policy upon the formal retirement of treasury stock is to deduct its par value from common stock and to reflect any excess of cost over par as a deduction from retained earnings.

On April 7, 2013, the Company’s Board of Directors authorized a new share repurchase program for the repurchase of up to $200.0 million of the Company’s outstanding common stock (the “April 2013 Repurchase Plan”).  During the three-months ended September 30, 2015, the Company purchased 1.1 million shares of common stock at an average purchase price of $134.71 per share, for a total amount of $145.7 million (excluding broker commissions), which exhausted the availability under the April 2013 Repurchase Plan.

On September 11, 2015, the Company’s Board of Directors authorized a new share repurchase program for the repurchase of up to $500.0 million of the Company’s outstanding common stock (the “September 2015 Repurchase Plan”). During the three-months ended September 30, 2015, the Company purchased 1.8 million shares of common stock at an average purchase price of $134.27 per share, for a total amount of $241.8 million (excluding broker commissions), under the September 2015 Repurchase Plan.

During the three-months ended September 30, 2015, 75 shares were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $0.01 million. While such purchases are considered common stock repurchases, they are not counted as purchases against the Company’s authorized share repurchase programs, including the September 2015 Repurchase Plan or the April 2013 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying condensed consolidated balance sheet at September 30, 2015.

14.STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which shares were available for grant at September 30, 2015: the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”) and the 2009 Monster Beverage Corporation Stock Incentive Plan for Non-Employee Directors (the “2009 Directors Plan”).

26

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company recorded $8.9 million and $7.4 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units during the three-months ended September 30, 2015 and 2014, respectively. The Company recorded $23.7 million and $22.5 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, 2015 and 2014, respectively.

The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options, vesting of restricted stock units and restricted stock awards for the three-months ended September 30, 2015 and 2014 was $3.6 million and $8.2 million, respectively. The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options, vesting of restricted stock units and restricted stock awards for the nine-months ended September 30, 2015 and 2014 was $303.9 million and $11.5 million, respectively.

Stock Options

Under the Company’s stock-based compensation plans, all stock options granted as of September 30, 2015 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.

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,
	2015	2014¹	2015	2014
Dividend yield	0.0%	-	0.0%	0.0%
Expected volatility	36.7%	-	37.1%	42.4%
Risk-free interest rate	1.5%	-	1.6%	1.6%
Expected term	6.1 years	-	5.8 years	5.8 years

¹ No options were granted during the three-months ended September 30, 2014.

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 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 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.

27

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 Company’s activities with respect to its stock option plans as follows:

Options	Number of Shares (In thousands)	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value
Outstanding at January 1, 2015	13,066	$	19.73	3.1	$	1,158,412
Granted 01/01/15 - 03/31/15	903	$	133.68
Granted 04/01/15 - 06/30/15	33	$	133.43
Granted 07/01/15 - 09/30/15	56	$	135.00
Exercised	(7,153)	$	6.11
Cancelled or forfeited	(73)	$	64.62
Outstanding at September 30, 2015	6,832	$	50.05	5.8	$		581,663
Vested and expected to vest in the
future at September 30, 2015	6,428	$	47.00	5.6	$		566,879
Exercisable at September 30, 2015	4,005	$	23.74	4.0	$		446,159

The weighted-average grant-date fair value of options granted during the three-months ended September 30, 2015 was $51.14 per share. No options awards were granted during the three-months ended September 30, 2014. The weighted-average grant-date fair value of options granted during the nine-months ended September 30, 2015 and 2014 was $50.20 per share and $29.33 per share, respectively. The total intrinsic value of options exercised during the three-months ended September 30, 2015 and 2014 was $11.9 million and $25.4 million, respectively. The total intrinsic value of options exercised during the nine-months ended September 30, 2015 and 2014 was $841.5 million and $40.4 million, respectively.

Cash received from option exercises under all plans for the three-months ended September 30, 2015 and 2014 was approximately $1.9 million and $7.3 million, respectively. Cash received from option exercises under all plans for the nine-months ended September 30, 2015 and 2014 was approximately $43.6 million and $15.0 million, respectively.

At September 30, 2015, there was $76.7 million of total unrecognized compensation expense related to non-vested options granted to employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Awards and Restricted Stock Units

Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit in cash, the award is classified as a liability and revalued at each balance sheet date.

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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 Company’s activities with respect to non-vested restricted stock awards and non-vested restricted stock units as follows:

	Number of Shares (in thousands)	Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2015	149	$	61.09
Granted 01/01/15 - 03/31/15	83	$	135.48
Granted 04/01/15 - 06/30/15	-	$	-
Granted 07/01/15 - 09/30/15	8	$	147.36
Vested	(43)	$	57.57
Forfeited/cancelled	(14)