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 June 30, 2018 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)

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 o
Non-accelerated filer o (Do not check if smaller reporting company)	Smaller reporting company o

Emerging growth company o

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

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

Yes ___    No  X

The Registrant had 552,523,130 shares of common stock, par value $0.005 per share, outstanding as of August 1, 2018.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

JUNE 30, 2018

INDEX

Part I.	FINANCIAL INFORMATION	Page No.
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	3
	Condensed Consolidated Statements of Income for the Three- and Six-Months Ended June 30, 2018 and 2017	4
	Condensed Consolidated Statements of Comprehensive Income for the Three- and Six-Months Ended June 30, 2018 and 2017	5
	Condensed Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2018 and 2017	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
	Signatures	52

2

PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2018 AND DECEMBER 31, 2017

(In Thousands, Except Par Value) (Unaudited)

	June 30, 2018		December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	659,687	$	528,622
Short-term investments		211,093		672,933
Accounts receivable, net		592,568		449,476
Inventories		275,566		255,745
Prepaid expenses and other current assets		57,320		40,877
Prepaid income taxes		32,445		138,724
Total current assets		1,828,679		2,086,377
INVESTMENTS		-		2,366
PROPERTY AND EQUIPMENT, net		240,658		230,276
DEFERRED INCOME TAXES		85,253		92,333
GOODWILL		1,331,643		1,331,643
OTHER INTANGIBLE ASSETS, net		1,039,401		1,034,085
OTHER ASSETS		16,436		13,932
Total Assets	$	4,542,070	$	4,791,012
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	267,117	$	245,910
Accrued liabilities		82,191		87,475
Accrued promotional allowances		178,193		137,998
Accrued distributor terminations		488		91
Deferred revenue		43,888		43,236
Accrued compensation		26,357		34,996
Income taxes payable		15,978		10,645
Total current liabilities		614,212		560,351
DEFERRED REVENUE		320,259		334,354
OTHER LIABILITIES		2,439		1,095
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY:
Common stock - $0.005 par value; 1,250,000 shares authorized; 630,330 shares issued and 552,457 shares outstanding as of June 30, 2018; 629,255 shares issued and 566,298 shares outstanding as of December 31, 2017		3,152		3,146
Additional paid-in capital		4,194,676		4,150,628
Retained earnings		3,407,806		2,928,226
Accumulated other comprehensive loss		(25,196)		(16,659)
Common stock in treasury, at cost; 77,873 shares and 62,957 shares as of June 30, 2018 and December 31, 2017, respectively		(3,975,278)		(3,170,129)
Total stockholders’ equity		3,605,160		3,895,212
Total Liabilities and Stockholders’ Equity	$	4,542,070	$	4,791,012

See accompanying notes to condensed consolidated financial statements.

3

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2018 AND 2017

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

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
NET SALES	$	1,015,873	$	907,068	$	1,866,793	$	1,649,214
COST OF SALES	395,615		323,571		731,279		584,843
GROSS PROFIT	620,258		583,497		1,135,514		1,064,371
OPERATING EXPENSES	262,637		233,456		497,979		450,068
OPERATING INCOME	357,621		350,041		637,535		614,303
INTEREST and OTHER INCOME (EXPENSE), net	476		(2,551)		2,281		(1,893)
INCOME BEFORE PROVISION FOR INCOME TAXES	358,097		347,490		639,816		612,410
PROVISION FOR INCOME TAXES	87,981		124,857		153,651		211,797
NET INCOME	$	270,116	$	222,633	$	486,165	$	400,613
NET INCOME PER COMMON SHARE:
Basic	$	0.48	$	0.39	$	0.86	$	0.71
Diluted	$	0.48	$	0.39	$	0.85	$	0.69
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Basic	559,867		567,910		562,917		567,384
Diluted	566,352		578,020		570,231		577,719

See accompanying notes to condensed consolidated financial statements.

4

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2018 AND 2017

(In Thousands) (Unaudited)

	Three-Months Ended June 30,				Six-Months Ended June 30,
	2018		2017		2018		2017
Net income, as reported	$	270,116	$	222,633	$	486,165	$	400,613
Other comprehensive income:
Change in foreign currency translation adjustment	(11,988)		5,111		(9,265)		6,311
Available-for-sale investments:
Change in net unrealized gains (losses)	513		(26)		728		105
Reclassification adjustment for net gains included in net income	-		-		-		-
Net change in available-for-sale investments	513		(26)		728		105
Other comprehensive (loss) income	(11,475)		5,085		(8,537)		6,416
Comprehensive income	$	258,641	$	227,718	$	477,628	$	407,029

See accompanying notes to condensed consolidated financial statements.

5

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTHS ENDED JUNE 30, 2018 AND 2017

(In Thousands) (Unaudited)

	Six-Months Ended June 30,
	2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	486,165	$	400,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,185		22,775
Gain on disposal of property and equipment	(308)		(436)
Stock-based compensation	28,345		25,983
Deferred income taxes	(76)		1,862
Effect on cash of changes in operating assets and liabilities:
Accounts receivable	(154,369)		(75,178)
TCCC Transaction receivable	-		125,000
Distributor receivables	5,826		(1,452)
Inventories	(22,753)		(24,859)
Prepaid expenses and other current assets	(15,977)		(8,131)
Prepaid income taxes	104,969		60,696
Accounts payable	24,684		8,784
Accrued liabilities	(15,617)		(667)
Accrued promotional allowances	43,196		25,805
Accrued distributor terminations	398		(7,917)
Accrued compensation	(8,413)		(7,225)
Income taxes payable	8,043		(5,362)
Other liabilities	1,344		-
Deferred revenue	(12,342)		(7,069)
Net cash provided by operating activities	501,300		533,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of available-for-sale investments	807,396		172,528
Purchases of available-for-sale investments	(342,463)		(286,858)
Purchases of property and equipment	(34,619)		(40,477)
Proceeds from sale of property and equipment	3,590		733
Decrease (Increase) in intangibles	(42)		26
Increase in other assets	(7,684)		(632)
Net cash provided by (used in) investing activities	426,178		(154,680)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt	(972)		(1,334)
Issuance of common stock	13,616		19,093
Purchases of common stock held in treasury	(805,149)		(302)
Net cash (used in) provided by financing activities	(792,505)		17,457
Effect of exchange rate changes on cash and cash equivalents	(3,908)		4,074
NET INCREASE IN CASH AND CASH EQUIVALENTS	131,065		400,073
CASH AND CASH EQUIVALENTS, beginning of period	528,622		377,582
CASH AND CASH EQUIVALENTS, end of period	$	659,687	$	777,655
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest	$	28	$	38
Income taxes	$	41,780	$	156,039

See accompanying notes to condensed consolidated financial statements.

6

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTHS ENDED JUNE 30, 2018 AND 2017

(In Thousands) (Unaudited) (Continued)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS

The Company entered into capital leases for the acquisition of promotional vehicles of $0.7 million and $1.5 million for the six-months ended June 30, 2018 and 2017, respectively.

Included in accounts payable as of June 30, 2018 and 2017 were $1.5 million and $0.3 million, respectively, related to purchases of property and equipment.

Included in accrued liabilities as of June 30, 2018 and 2017 were $0.1 million and $12.1 million, respectively, related to purchases of property and equipment.

Included in accounts payable as of June 30, 2018 was $1.8 million related to additions to other intangible assets. No such amounts were included in accounts payable at June 30, 2017.

Included in accrued liabilities as of June 30, 2018 and 2017 were $9.5 million and $6.2 million, respectively, related to additions to other intangible assets.

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, 2017 (“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 six-months ended June 30, 2018 and 2017, 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.

2.RECENT ACCOUNTING PRONOUNCEMENTS

Recently issued accounting pronouncements not yet adopted

In February 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02 (ASU No. 2018-02), “Income Statement - Reporting Comprehensive Income (Topic 220)”, which amends the previous guidance to allow for certain tax effects “stranded” in accumulated other comprehensive income, which are impacted by the Tax Cuts and Jobs Act (the “Tax Reform Act”), to be reclassified from accumulated other comprehensive income into retained earnings. This amendment pertains only to those items impacted by the new tax law and will not apply to any future tax effects stranded in accumulated other comprehensive income. This standard is effective for fiscal years beginning after December 15, 2018, and allows for early adoption. The Company is currently evaluating the impact of ASU No. 2018-02 on its financial position, results of operations and liquidity.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2017-04 on its financial position, results of operations and liquidity.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of ASU No. 2016-13 on its financial position, results of operations and liquidity.

8

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual and interim reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of ASU No. 2016-02 on its financial position, results of operations and liquidity.

Recently adopted accounting pronouncements

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, in an effort to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. FASB ASU No. 2016-16 establishes the requirement that an entity recognizes the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 was effective for financial statements issued for annual periods beginning after December 15, 2017 and interim periods within those annual periods. The Company adopted ASU No. 2016-16 effective January 1, 2018 on a modified retrospective basis, resulting in a $6.6 million reclassification of the unrecognized income tax effects related to assets transfers that occurred prior to the adoption from deferred income taxes to opening retained earnings.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which superseded previous revenue recognition guidance. ASU No. 2014-09 and its amendments were included in Accounting Standards Codification (“ASC”) 606 “Revenue from Contracts with Customers”. ASC 606 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. The Company adopted ASC 606 effective January 1, 2018, using the modified retrospective approach, with no impact to the opening retained earnings. Results for periods beginning on or after January 1, 2018 are presented under ASC 606, while prior periods are not adjusted and continue to be reported in accordance with the prior accounting guidance under ASC 605 “Revenue Recognition”. See Note 3.

3.REVENUE RECOGNITION

The Company currently has three operating and reportable segments, (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is comprised of the Company’s Monster Energy® drinks and Mutant® Super Soda drinks, (ii) Strategic Brands segment (“Strategic Brands”), which is comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”) in 2015, and (iii) Other segment (“Other”), which is comprised of certain products sold by American Fruits & Flavors LLC, a wholly-owned subsidiary of the Company, to independent third-party customers.

The Company’s Monster Energy® Drinks segment generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage distributors. In some cases, the Company sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, food service customers and the military.

9

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold to other bottlers and full service distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food service customers, drug stores and the military. To a lesser extent, our Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage distributors.

The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, control of the Company’s products passes to such bottlers/distributors when they notify the Company that they have taken possession or transferred the relevant portion of the Company’s finished goods. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as of June 30, 2018 or December 31, 2017.

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.

There were no changes to the Company’s accounting for variable consideration under ASC 606. 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;

· 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 by the Company direct to certain customers that fall within the bottlers’/distributors’ sales territories; and

· certain commissions paid based on sales to the Company’s bottlers/distributors.

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, 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 during the year for its anticipated

10

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Upon adoption of ASC 606, commissions paid to TCCC based on sales to certain of the Company’s bottlers/distributors who are (i) consolidated subsidiaries of TCCC (the “TCCC Subsidiaries”), (ii) accounted for under the equity method by TCCC (the “TCCC Related Parties”) and (iii) those not included in (i) or (ii) (the “TCCC Independent Bottlers”) are accounted for as follows:

	Three- and Six-Months Ended June 30, 2018
Commissions Related To:	As Reported	Without Adoption of ASC 606
TCCC Subsidiaries	Reduction to net sales	Reduction to net sales
TCCC Related Parties	Reduction to net sales	Operating expenses
TCCC Independent Bottlers	Operating expenses	Operating expenses

The impact of the adoption of ASC 606 on the Company’s condensed consolidated statement of income for the three- and six-months ended June 30, 2018 was as follows:

	Three-Months Ended June 30, 2018
	As Reported		Without Adoption of ASC 606		Decrease due to Adoption of ASC 606
Net Sales	$	1,015,873	$	1,028,085	$	(12,212)	1
Operating Expenses	$	262,637	$	274,849	$	(12,212)	1

	Six-Months Ended June 30, 2018
	As Reported		Without Adoption of ASC 606		Decrease due to Adoption of ASC 606
Net Sales	$	1,866,793	$	1,888,945	$	(22,152)	1
Operating Expenses	$	497,979	$	520,131	$	(22,152)	1

1 TCCC Commissions based on sales to the TCCC Related Parties. There were no other identified changes to our revenue recognition policies as a result of the adoption of ASC 606.

11

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 table disaggregates the Company’s revenue by geographical markets and reportable segments:

	Three-Months Ended June 30, 2018
Net Sales	U.S. and Canada		EMEA1		Asia Pacific		Latin America and Caribbean		Total
Monster Energy® Drinks	$	695,963	$	138,608	$	60,606	$	34,262	$	929,439
Strategic Brands	50,133		22,967		6,368		343		79,811
Other	6,623		-		-		-		6,623
Total Net Sales	$	752,719	$	161,575	$	66,974	$	34,605	$	1,015,873

	Six-Months Ended June 30, 2018
Net Sales	U.S. and Canada		EMEA1		Asia Pacific		Latin America and Caribbean		Total
Monster Energy® Drinks	$	1,284,778	$	249,538	$	108,037	$	67,590	$	1,709,943
Strategic Brands	89,857		42,280		11,916		1,517		145,570
Other	11,280		-		-		-		11,280
Total Net Sales	$	1,385,915	$	291,818	$	119,953	$	69,107	$	1,866,793

1Europe, Middle East and Africa (“EMEA”)

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 June 30, 2018, the Company had $364.1 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, 2017, the Company had $377.6 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- and six-months ended June 30, 2018, $11.0 million and $22.2 million, respectively, of deferred revenue was recognized in net sales. See Note 10.

12

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:

June 30, 2018	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
Available-for-sale
Short-term:
Commercial paper	$	15,177	$	-	$	-	$	15,177	$	-	$	-
Municipal securities	149,048		5		56		148,997		56		-
U.S. government agency securities	46,982		-		63		46,919		63		-
Variable rate demand notes	-		-		-		-		-		-
Total	$	211,207	$	5	$	119	$	211,093	$	119	$	-
December 31, 2017	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
Available-for-sale
Short-term:
Commercial paper	$	81,026	$	-	$	-	$	81,026	$	-	$	-
Certificates of deposit	11,869		-		-		11,869		-		-
Municipal securities	469,604		1		740		468,865		740		-
U.S. government agency securities	61,307		-		88		61,219		88		-
Variable rate demand notes	49,954		-		-		49,954		-		-
Long-term:
U.S. government agency securities	2,369		-		3		2,366		3		-
Total	$	676,129	$	1	$	831	$	675,299	$	831	$	-

During the six-months ended June 30, 2018 and 2017, realized gains or losses recognized on the sale of investments were not significant.

The Company’s investments at June 30, 2018 and December 31, 2017 in commercial paper, 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.

13

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

	June 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Less than 1 year:
Commercial paper	$	15,177	$	15,177	$	81,026	$	81,026
Municipal securities	149,048		148,997		469,604		468,865
U.S. government agency securities	46,982		46,919		61,307		61,219
Certificates of deposit	-		-		11,869		11,869
Due 1 -10 years:
U.S. government agency securities	-		-		2,369		2,366
Variable rate demand notes	-		-		6,366		6,366
Due 11 - 20 years:
Variable rate demand notes	-		-		28,377		28,377
Due 21 - 30 years:
Variable rate demand notes	-		-		15,211		15,211
Total	$	211,207	$	211,093	$	676,129	$	675,299

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 that 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.

14

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

June 30, 2018	Level 1		Level 2			Level 3		Total
Cash	$	358,788	$	-		$	-	$	358,788
Money market funds	299,949		-			-		299,949
Commercial paper	-		16,127			-		16,127
Municipal securities	-		148,997			-		148,997
U.S. government agency securities	-		46,919			-		46,919
Foreign currency derivatives	-		(996		)	-		(996		)
Total	$	658,737	$	211,047		$	-	$	869,784
Amounts included in:
Cash and cash equivalents	$	658,737	$	950		$	-	$	659,687
Short-term investments	-		211,093			-		211,093
Accounts receivable, net	-		21			-		21
Investments	-		-			-		-
Accrued liabilities	-		(1,017		)	-		(1,017		)
Total	$	658,737	$	211,047		$	-	$	869,784
December 31, 2017	Level 1		Level 2			Level 3		Total
Cash	$	310,885	$	-		$	-	$	310,885
Money market funds	112,848		-			-		112,848
Certificates of deposit	-		15,720			-		15,720
Commercial paper	-		99,903			-		99,903
Variable rate demand notes	-		49,954			-		49,954
Municipal securities	-		529,984			-		529,984
U.S. government agency securities	-		81,230			-		81,230
U.S. Treasuries	-		3,397			-		3,397
Foreign currency derivatives	-		(1,484		)	-		(1,484		)
Total	$	423,733	$	778,704		$	-	$	1,202,437
Amounts included in:
Cash and cash equivalents	$	423,733	$	104,889		$	-	$	528,622
Short-term investments	-		672,933			-		672,933
Accounts receivable, net	-		95			-		95
Investments	-		2,366			-		2,366
Accrued liabilities	-		(1,579		)	-		(1,579		)
Total	$	423,733	$	778,704		$	-	$	1,202,437

All 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 municipal securities, commercial paper, certificates of deposit, VRDNs, U.S. Treasuries and U.S. government agency securities, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical tools and other relevant information for the same or similar securities. The Company’s valuation of its Level 2 foreign currency exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk. There were no transfers between Level 1 and Level 2 measurements during the six-months ended June 30, 2018 or the year ended December 31, 2017, and there were no changes in the Company’s valuation techniques.

15

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 three- and six-months ended June 30, 2018 and the year ended December 31, 2017, 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 June 30, 2018 have terms of one month or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.

The Company has not designated its foreign currency exchange contracts as hedge transactions under ASC 815. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in interest and other income (expense), net, in the condensed consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item.

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

June 30, 2018
Derivatives not designated as hedging instruments under FASB ASC 815-20	Notional Amount		Fair Value		Balance Sheet Location
Assets:
Foreign currency exchange contracts:
Receive SGD/pay USD	$	5,279	$	7	Accounts receivable, net
Receive USD/pay NZD	2,719		12		Accounts receivable, net
Receive NOK/pay USD	918		2		Accounts receivable, net
Liabilities:
Foreign currency exchange contracts:
Receive USD/pay EUR	$	50,572	$	(408)	Accrued liabilities
Receive USD/pay GBP	37,904		(129)		Accrued liabilities
Receive USD/pay ZAR	16,633		(192)		Accrued liabilities
Receive USD/pay AUD	14,118		(82)		Accrued liabilities
Receive USD/pay TRY	5,277		(92)		Accrued liabilities
Receive USD/pay COP	3,567		(30)		Accrued liabilities
Receive USD/pay MXN	3,035		(54)		Accrued liabilities
Receive USD/pay RUB	2,774		(30)		Accrued liabilities

16

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2017
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	$	4,892	$	61	Accounts receivable, net
Receive USD/pay COP	2,803		13		Accounts receivable, net
Receive USD/pay BRL	1,806		1		Accounts receivable, net
Receive NOK/pay USD	1,534		18		Accounts receivable, net
Receive SGD/pay USD	223		2		Accounts receivable, net
Liabilities:
Foreign currency exchange contracts:
Receive USD/pay EUR	$	65,131	$	(642)	Accrued liabilities
Receive USD/pay GBP	31,342		(334)		Accrued liabilities
Receive USD/pay ZAR	21,311		(222)		Accrued liabilities
Receive USD/pay AUD	17,238		(177)		Accrued liabilities
Receive USD/pay MXN	7,720		(126)		Accrued liabilities
Receive USD/pay TRY	5,483		(52)		Accrued liabilities
Receive USD/pay NZD	1,826		(18)		Accrued liabilities
Receive USD/pay CLP	1,112		(8)		Accrued liabilities

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

		Amount of gain (loss) recognized in income on derivatives
		Three-months ended
Derivatives not designated as  hedging instruments under  FASB ASC 815-20	Location of gain (loss) recognized in income on derivatives	June 30, 2018		June 30, 2017
Foreign currency exchange contracts	Interest and other income (expense), net	$	10,393	$	(4,439)

		Amount of gain (loss) recognized in income on derivatives
		Six-months ended
Derivatives not designated as  hedging instruments under  FASB ASC 815-20	Location of gain (loss) recognized in income on derivatives	June 30, 2018		June 30, 2017
Foreign currency exchange contracts	Interest and other income (expense), net	$	5,734	$	(9,467)

17

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

7.INVENTORIES

Inventories consist of the following at:

	June 30, 2018		December 31, 2017
Raw materials	$	89,362	$	78,834
Finished goods	186,204		176,911
	$	275,566	$	255,745

8.PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following at:

	June 30, 2018		December 31, 2017
Land	$	44,261	$	47,373
Leasehold improvements	3,278		3,109
Furniture and fixtures	6,732		6,461
Office and computer equipment	17,683		14,506
Computer software	3,334		3,650
Equipment	165,861		148,434
Buildings	116,143		107,374
Vehicles	39,967		38,179
	397,259		369,086
Less: accumulated depreciation and amortization	(156,601)		(138,810)
	$	240,658	$	230,276

Total depreciation and amortization expense recorded was $11.2 million and $8.6 million for the three-months ended June 30, 2018 and 2017, respectively. Total depreciation and amortization expense recorded was $22.2 million and $16.8 million for the six-months ended June 30, 2018 and 2017, respectively.

9.GOODWILL AND OTHER INTANGIBLE ASSETS

The following is a roll-forward of goodwill for the six-months ended June 30, 2018 and 2017 by reportable segment:

	Monster Energy® Drinks		Strategic Brands		Other		Total
Balance at December 31, 2017	$	693,644	$	637,999	$	-	$	1,331,643
Acquisitions	-		-		-		-
Balance at June 30, 2018	$	693,644	$	637,999	$	-	$	1,331,643

	Monster Energy® Drinks		Strategic Brands		Other		Total
Balance at December 31, 2016	$	693,644	$	637,999	$	-	$	1,331,643
Acquisitions	-		-		-		-
Balance at June 30, 2017	$	693,644	$	637,999	$	-	$	1,331,643

18

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Intangible assets consist of the following at:

	June 30, 2018		December 31, 2017
Amortizing intangibles	$	71,355	$	71,400
Accumulated amortization	(32,387)		(26,383)
	38,968		45,017
Non-amortizing intangibles	1,000,433		989,068
	$	1,039,401	$	1,034,085

Amortizing intangibles primarily consist of customer relationships. All amortizing intangibles have been assigned an estimated finite useful life and such intangibles are amortized on a straight-line basis over the number of years that approximate their respective useful lives, generally five to seven years. Total amortization expense recorded was $3.0 million for both the three-months ended June 30, 2018 and 2017. Total amortization expense recorded was $6.0 million for both the six-months ended June 30, 2018 and 2017.

10.DISTRIBUTION AGREEMENTS

In accordance with ASC No. 420 “Exit or Disposal Cost Obligations”, the Company expenses distributor termination costs in the period in which the written notification of termination occurs. The Company incurred termination costs of $5.5 million and $0.2 million for the three-months ended June 30, 2018 and 2017, respectively. The Company incurred termination costs of $12.5 million and $20.1 million for the six-months ended June 30, 2018 and 2017, respectively. Such termination costs have been expensed in full and are included in operating expenses for the three- and six-months ended June 30, 2018 and 2017.

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 $11.0 million and $10.2 million for the three-months ended June 30, 2018 and 2017, respectively. Revenue recognized was $22.2 million and $20.1 million for the six-months ended June 30, 2018 and 2017, respectively.

11.COMMITMENTS AND CONTINGENCIES

The Company had purchase commitments aggregating approximately $50.0 million at June 30, 2018, 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.

19

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company had contractual obligations aggregating approximately $154.2 million at June 30, 2018, which related primarily to sponsorships and other marketing activities.

The Company had operating lease commitments aggregating approximately $16.3 million at June 30, 2018, which related primarily to warehouse and office space.

In February 2018, the working capital line limit for the Company’s credit facility with HSBC Bank (China) Company Limited, Shanghai Branch was increased from $9.0 million to $15.0 million. At June 30, 2018, the interest rate on borrowings under the line of credit was 5.5%. As of June 30, 2018, the Company had $11.2 million outstanding on this line of credit, including interest, which is included in accounts payable in the condensed consolidated balance sheet.

Legal Proceedings

Litigation — The Company has been named a defendant in personal injury lawsuits, claiming that the death or other serious injury of the plaintiffs was caused by consumption of Monster Energy® brand energy drinks. The plaintiffs in these lawsuits allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The Company believes that each complaint is without merit and plans a vigorous defense. The Company also believes that any damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.

Furthermore, from time to time in the normal course of business, the Company is named in other litigation, including consumer class actions, intellectual property litigation and claims from prior distributors. 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 June 30, 2018, the Company’s condensed consolidated balance sheet includes accrued loss contingencies of approximately $3.3 million.

20

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 six-months ended June 30, 2018 are as follows:

	Currency Translation Losses		Unrealized (Gains) Losses on Available-for- Sale Securities		Total
Balance at December 31, 2017	$	15,818	$	841	$	16,659
Other comprehensive loss (gain) before reclassifications	9,265		(728)		8,537
Amounts reclassified from accumulated other comprehensive loss (gain)	-		-		-
Net current-period other comprehensive loss (gain)	9,265		(728)		8,537
Balance at June 30, 2018	$	25,083	$	113	$	25,196

13.TREASURY STOCK

On February 27, 2018, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $250.0 million of the Company’s outstanding common stock (the “February 2018 Repurchase Program”). During the three-months ended June 30, 2018, the Company purchased 5.0 million shares of common stock at an average purchase price of $49.81 per share, for a total amount of $249.9 million (excluding broker commissions), which exhausted the availability under the February 2018 Repurchase Program. Such shares are included in common stock in treasury in the accompanying condensed consolidated balance sheet at June 30, 2018.

On May 29, 2018, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “May 2018 Repurchase Program”). During the three-months ended June 30, 2018, the Company purchased 5.5 million shares of common stock at an average purchase price of $54.78 per share, for a total amount of $303.2 million (excluding broker commissions), under the May 2018 Repurchase Program. Such shares are included in common stock in treasury in the accompanying condensed consolidated balance sheet at June 30, 2018. As of August 9, 2018, $196.7 million remained available for repurchase under the May 2018 Repurchase Program.

On August 7, 2018, the Company’s Board of Directors authorized a new repurchase program for the repurchase of up to an additional $500.0 million of the Company’s outstanding common stock (the “August 2018 Repurchase Program”). As of August 9, 2018, $500.0 million remained available for repurchase under the August 2018 Repurchase Program.

During the three-months ended June 30, 2018, 504 shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due, for a total amount of $0.03 million. While such purchases are considered common stock repurchases, they are not counted as purchases against the Company’s authorized share repurchase programs. Such shares are included in common stock in treasury in the accompanying condensed consolidated balance sheet at June 30, 2018.

14.STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which shares were available for grant at June 30, 2018: the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”), including the Monster Beverage Deferred Compensation Plan (the “Deferred Compensation Plan”) as a sub plan thereunder, and the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (the “2017 Directors Plan”), including the Monster Beverage Deferred Compensation Plan for Non-Employee Directors (the “Non-Employee Director Deferral Plan”) as a sub plan thereunder.

21

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company recorded $14.9 million and $12.8 million of compensation expense relating to outstanding options and restricted stock units during the three-months ended June 30, 2018 and 2017, respectively. The Company recorded $28.3 million and $26.0 million of compensation expense relating to outstanding options and restricted stock units during the six-months ended June 30, 2018 and 2017, respectively.

The excess tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units for the three-months ended June 30, 2018 and 2017 was $1.7 million and $1.9 million, respectively. The excess tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units for the six-months ended June 30, 2018 and 2017 was $4.5 million and $11.3 million, respectively.

Stock Options

Under the Company’s stock-based compensation plans, all stock options granted as of June 30, 2018 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 June 30,		Six-Months Ended June 30,
	2018	2017	2018	2017
Dividend yield	0.0%	0.0%	0.0%	0.0%
Expected volatility	34.9%	36.5%	34.9%	36.6%
Risk-free interest rate	2.7%	1.8%	2.8%	2.1%
Expected term	6.1 years	6.1 years	6.1 years	6.1 years

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury zero coupon yield curve in effect at the time of grant for the expected term of the option.

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.

22

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, 2018	17,819	$	29.62	6.1	$	600,032
Granted 01/01/18 - 03/31/18	2,615	$	58.76
Granted 04/01/18 - 06/30/18	360	$	51.72
Exercised	(814)	$	16.73
Cancelled or forfeited	(216)	$	42.60
Outstanding at June 30, 2018	19,764	$	34.26	6.2	$	459,527
Vested and expected to vest in the
future at June 30, 2018	18,673	$	33.32	6.1	$	451,327
Exercisable at June 30, 2018	10,639	$	22.40	4.5	$	371,252

The weighted-average grant-date fair value of options granted during the three-months ended June 30, 2018 and 2017 was $20.20 per share and $18.97 per share, respectively. The weighted-average grant-date fair value of options granted during the six-months ended June 30, 2018 and 2017 was $22.51 per share and $18.01 per share, respectively. The total intrinsic value of options exercised during the three-months ended June 30, 2018 and 2017 was $14.7 million and $8.5 million, respectively. The total intrinsic value of options exercised during the six-months ended June 30, 2018 and 2017 was $32.9 million and $40.9 million, respectively.

Cash received from option exercises under all plans for the three-months ended June 30, 2018 and 2017 was approximately $7.1 million and $5.5 million, respectively. Cash received from option exercises under all plans for the six-months ended June 30, 2018 and 2017 was approximately $13.6 million and $19.1 million, respectively.

At June 30, 2018, there was $121.1 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 3.0 years.

Restricted Stock Units

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

23

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 units as follows:

	Number of Shares (in thousands)	Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2018	530	$	45.09
Granted 01/01/18- 03/31/18	221	$	58.75
Granted 04/01/18- 06/30/18	48	$	52.31
Vested	(262)	$	45.36
Forfeited/cancelled	(6)	$	32.17
Non-vested at June 30, 2018	531	$	51.45

The weighted-average grant-date fair value of restricted stock units granted during the three-months ended June 30, 2018 and 2017 was $52.31 per share and $50.86 per share, respectively. The weighted-average grant-date fair value of restricted stock units granted during the six-months ended June 30, 2018 and 2017 was $57.59 per share and $46.65 per share, respectively.  As of June 30, 2018, 0.5 million of restricted stock units are expected to vest over their respective terms.

At June 30, 2018, total unrecognized compensation expense relating to non-vested restricted stock units was $22.2 million, which is expected to be recognized over a weighted-average period of 2.1 years.

15.INCOME TAXES

On December 22, 2017, the President of the United States signed into law the Tax Reform Act.  The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. A company may select between one of three scenarios to determine a reasonable estimate for certain income tax effects arising from the Tax Reform Act. Those scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable estimate leaving the measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. The Company was able to provide a reasonable estimate for the revaluation of deferred taxes and the effects of the toll charge on undistributed foreign subsidiary earnings and profits (“E&P”). As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its net deferred tax assets at December 31, 2017, resulting in a provisional $39.8 million charge included in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided for a one-time deemed mandatory repatriation of Post-1986 E&P through the year ended December 31, 2017.  As a result, the Company recognized a provisional $2.1 million charge in the provision for income taxes for the year ended December 31, 2017 related to such deemed mandatory repatriation.

The Company has not made additional measurement window adjustments to these items during the three- and six-months ended June 30, 2018. The Company continues to evaluate the various provisions of the Tax Reform Act, including, the global intangible low-taxed income (“GILTI”) and the foreign derived intangible income (“FDII”) provisions. The ultimate impact of the Tax Reform Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, as well as any related actions the Company may take. The measurement window begins in the reporting period that includes the enactment date and ends when an entity has obtained, prepared and analyzed the information needed in order to complete the accounting requirements under ASC Topic 740.

24

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following is a roll-forward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the six-months ended June 30, 2018:

	Gross Unrecognized Tax Benefits
Balance at December 31, 2017	$	6,540
Additions for tax positions related to the current year	210
Additions for tax positions related to the prior year	1,172
Decreases related to settlement with taxing authority	(2,665)
Balance at June 30, 2018	$	5,257

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s condensed consolidated financial statements. As of June 30, 2018, the Company had approximately $1.0 million in accrued interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions, the resultant impact on the Company’s effective tax rate would not be significant. It is expected that any change in the amount of unrecognized tax benefits within the next 12 months will not be significant.

The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.

On October 18, 2016, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2014. On March 27, 2017, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2015.

The Company is in various stages of examination with certain states and certain foreign jurisdictions. The Company’s 2014 through 2017 U.S. federal income tax returns are subject to examination by the IRS. The Company’s state income tax returns are subject to examination for the 2013 through 2017 tax years.

25

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

16.EARNINGS PER SHARE

A reconciliation of the weighted-average shares used in the basic and diluted earnings per common share computations is presented below (in thousands):

	Three-Months Ended		Six-Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
Weighted-average shares outstanding:
Basic	559,867	567,910	562,917	567,384
Dilutive	6,485	10,110	7,314	10,335
Diluted	566,352	578,020	570,231	577,719

For the three-months ended June 30, 2018 and 2017, options and awards outstanding totaling 6.4 million shares and 8.8 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive. For the six-months ended June 30, 2018 and 2017, options and awards outstanding totaling 2.6 million shares and 8.4 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive.

17.SEGMENT INFORMATION

The Company currently has three operating and reportable segments, (i) Monster Energy® Drinks segment, which is comprised of the Company’s Monster Energy® drinks and Mutant® Super Soda drinks, (ii) Strategic Brands segment, which is comprised of the various energy drink brands acquired from TCCC in 2015, and (iii) Other segment, which is comprised of certain products sold by American Fruits & Flavors LLC, a wholly-owned subsidiary of the Company, to independent third-party customers.

The Company’s Monster Energy® Drinks segment primarily generates net operating revenues by selling ready-to-drink packaged drinks primarily to bottlers and full service beverage distributors. In some cases, the Company sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food service customers and the military.

The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold to other bottlers, full service distributors or retailers, including, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food service customers, drug stores and the military. To a lesser extent, the Company’s Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage distributors.

Generally, the Monster Energy® Drinks segment generates higher per case net operating revenues, but lower per case gross profit margins than the Strategic Brands segment.

Corporate and unallocated amounts that do not relate to a reportable segment have been allocated to “Corporate & Unallocated.” No asset information, other than goodwill and other intangible assets, has been provided for in the Company’s reportable segments as management does not measure or allocate such assets on a segment basis.

26

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The net revenues derived from the Company’s reportable segments and other financial information related thereto for the three- and six-months ended June 30, 2018 and 2017 are as follows:

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net sales:
Monster Energy® Drinks(¹)	$	929,439	$	815,261	$	1,709,943	$	1,483,831
Strategic Brands	79,811		85,633		145,570		153,669
Other	6,623		6,174		11,280		11,714
Corporate and unallocated	-		-		-		-
	$	1,015,873	$	907,068	$	1,866,793	$	1,649,214

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Operating Income:
Monster Energy® Drinks(¹) (2)	$	373,103	$	356,223	$	674,805	$	635,654
Strategic Brands	50,791		53,175		93,393		95,281
Other	1,826		1,718		2,797		3,134
Corporate and unallocated	(68,099)		(61,075)		(133,460)		(119,766)
	$	357,621	$	350,041	$	637,535	$	614,303

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Income before tax:
Monster Energy® Drinks(¹) (2)	$	373,342	$	356,316	$	675,305	$	635,651
Strategic Brands	50,833		53,174		93,416		95,268
Other	1,826		1,718		2,797		3,134
Corporate and unallocated	(67,904)		(63,718)		(131,702)		(121,643)
	$	358,097	$	347,490	$	639,816	$	612,410

(1)Includes $11.0 million and $10.2 million for the three-months ended June 30, 2018 and 2017, respectively, related to the recognition of deferred revenue. Includes $22.2 million and $20.1 million for the six-months ended June 30, 2018 and 2017, respectively, related to the recognition of deferred revenue.

(2)Includes $5.5 million and $0.2 million for the three-months ended June 30, 2018 and 2017, respectively, related to distributor termination costs. Includes $12.5 million and $20.1 million for the six-months ended June 30, 2018 and 2017, respectively, related to distributor termination costs.

27

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Depreciation and amortization:
Monster Energy® Drinks	$	8,960	$	6,873	$	17,770	$	13,413
Strategic Brands	1,946		1,842		3,872		3,638
Other	1,167		1,153		2,326		2,306
Corporate and unallocated	2,121		1,725		4,217		3,418
	$	14,194	$	11,593	$	28,185	$	22,775

Corporate and unallocated expenses for the three-months ended June 30, 2018 include $44.7 million of payroll costs, of which $14.9 million was attributable to stock-based compensation expenses (see Note 14, “Stock-Based Compensation”), as well as $11.8 million attributable to professional service expenses, including accounting and legal costs, and $11.6 million of other operating expenses. Corporate and unallocated expenses for the three-months ended June 30, 2017 include $38.4 million of payroll costs, of which $12.8 million was attributable to stock-based compensation expenses (see Note 14, “Stock-Based Compensation”), as well as $14.0 million attributable to professional service expenses, including accounting and legal costs, and $8.6 million of other operating expenses.

Corporate and unallocated expenses for the six-months ended June 30, 2018 include $87.8 million of payroll costs, of which $28.3 million was attributable to stock-based compensation expenses (see Note 14, “Stock-Based Compensation”), as well as $24.2 million attributable to professional service expenses, including accounting and legal costs, and $21.4 million of other operating expenses. Corporate and unallocated expenses for the six-months ended June 30, 2017 include $76.1 million of payroll costs, of which $26.0 million was attributable to stock-based compensation expenses (see Note 14, “Stock-Based Compensation”), as well as $26.4 million attributable to professional service expenses, including accounting and legal costs, and $17.3 million of other operating expenses.

TCCC, through the TCCC Subsidiaries, accounted for approximately 4% and 17% of the Company’s net sales for the three-months ended June 30, 2018 and 2017, respectively. TCCC, through the TCCC Subsidiaries, accounted for approximately 4% and 25% of the Company’s net sales for the six-months ended June 30, 2018 and 2017, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent TCCC bottlers/distributors and/or TCCC Related Parties. Accordingly, the Company’s percentage of net sales classified as sales to the TCCC Subsidiaries significantly decreased for three- and six-months ended June 30, 2018.

CCBCC Operations, LLC accounted for approximately 13% of the Company’s net sales for both the three-months ended June 30, 2018 and 2017. CCBCC Operations, LLC accounted for approximately 13% and 12% of the Company’s net sales for the six-months ended June 30, 2018 and 2017, respectively.

Coca-Cola European Partners accounted for approximately 9% of the Company’s net sales for both the three-months ended June 30, 2018 and 2017. Coca-Cola European Partners accounted for approximately 10% and 9% of the Company’s net sales for the six-months ended June 30, 2018 and 2017, respectively.

Reyes Coca-Cola Bottling accounted for approximately 12% and 5% of the Company’s net sales for the three-months ended June 30, 2018 and 2017, respectively. Reyes Coca-Cola Bottling accounted for approximately 13% and 4% of the Company’s net sales for the six-months ended June 30, 2018 and 2017, respectively.

28

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Net sales to customers outside the United States amounted to $293.8 million and $247.9 million for the three-months ended June 30, 2018 and 2017, respectively. Net sales to customers outside the United States amounted to $535.9 million and $438.8 million for the six-months ended June 30, 2018 and 2017, respectively.

Goodwill and other intangible assets for the Company’s reportable segments as of June 30, 2018 and December 31, 2017 are as follows:

	June 30,		December 31,
	2018		2017
Goodwill and other intangible assets:
Monster Energy® Drinks	$	1,357,017	$	1,346,648
Strategic Brands	992,800		995,582
Other	21,227		23,498
Corporate and unallocated	-		-
	$	2,371,044	$	2,365,728

18.RELATED PARTY TRANSACTIONS

TCCC controls approximately 18% of the voting interests of the Company.  The TCCC Subsidiaries, the TCCC Related Parties and the TCCC Independent Bottlers, purchase and distribute certain of the Company’s products in certain domestic and international markets. The Company also pays TCCC a commission based on certain sales within the TCCC distribution network.

TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, for the three- and six-months ended June 30, 2018 were $13.2 million and $24.5 million, respectively, and are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Independent Bottlers for the three- and six-months ended June 30, 2018 were $4.3 million and $7.5 million, respectively, and are included in operating expenses.

TCCC commissions, based on sales to the TCCC Subsidiaries, for the three- and six-months ended June 30, 2017 were $2.1 million and $5.7 million, respectively, and are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Related Parties and the TCCC Independent Bottlers, for the three- and six-months ended June 30, 2017 were $12.8 million and $20.7 million, respectively, and are included in operating expenses.

Upon adoption of ASC 606, commissions paid to TCCC, based on sales to the TCCC Related Parties, are included as a reduction to net sales. Prior to January 1, 2018, such commissions, based on sales to the TCCC Related Parties, were included in operating expenses.

Net sales to the TCCC Subsidiaries for the three-months ended June 30, 2018 and 2017 were $39.6 million and $154.5 million, respectively.  Net sales to the TCCC Subsidiaries for the six-months ended June 30, 2018 and 2017 were $74.6 million and $409.7 million, respectively. As part of the North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent TCCC bottlers/distributors and/or TCCC Related Parties. Accordingly, the Company’s net sales classified as sales to the TCCC Subsidiaries significantly decreased for the three- and six-months ended June 30, 2018.

29

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company also purchases concentrates from TCCC which are then sold to certain of the Company’s bottlers/distributors. Concentrate purchases from TCCC were $11.3 million and $6.6 million for the three-months ended June 30, 2018 and 2017, respectively. Concentrate purchases from TCCC were $14.2 million and $12.5 million for the six-months ended June 30, 2018 and 2017, respectively.

Certain TCCC Subsidiaries also contract manufacture certain of the Company’s Monster Energy® brand energy drinks. Such contract manufacturing expenses were $6.4 million and $2.9 million for the three-months ended June 30, 2018 and 2017, respectively. Such contract manufacturing expenses were $11.8 million and $5.1 million for the six-months ended June 30, 2018 and 2017, respectively.

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

June 30,
2018