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.

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 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.

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.