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, 2020 Commission File Number 001-18761

MONSTER BEVERAGE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	47-1809393
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1 Monster Way

Corona, California 92879

(Address of principal executive offices) (Zip code)

(951) 739 - 6200

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MNST	Nasdaq Global Select Market

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

Yes  X   No ___

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

Yes  X   No ___

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

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

Yes ___ No   X 

The registrant had 527,916,757 shares of common stock, par value $0.005 per share, outstanding as of October 30, 2020.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

SEPTEMBER 30, 2020

INDEX

Part I.	FINANCIAL INFORMATION	Page No.
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Income for the Three- and Nine-Months Ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Comprehensive Income for the Three- and Nine-Months Ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three- and Nine-Months Ended September 30, 2020 and 2019	6
	Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended September 30, 2020 and 2019	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	49
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
	Signatures	53

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, 2020 AND DECEMBER 31, 2019

(In Thousands, Except Par Value) (Unaudited)

	September 30,		December 31,
	2020		2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,074,730	$	797,957
Short-term investments		599,326		533,063
Accounts receivable, net		740,813		540,330
Inventories		318,956		360,731
Prepaid expenses and other current assets		75,958		54,868
Prepaid income taxes		16,064		29,360
Total current assets		2,825,847		2,316,309
INVESTMENTS		20,571		12,905
PROPERTY AND EQUIPMENT, net		304,687		298,640
DEFERRED INCOME TAXES, net		84,777		84,777
GOODWILL		1,331,643		1,331,643
OTHER INTANGIBLE ASSETS, net		1,059,537		1,052,105
OTHER ASSETS		70,621		53,973
Total Assets	$	5,697,683	$	5,150,352
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	281,522	$	274,045
Accrued liabilities		168,398		114,075
Accrued promotional allowances		200,668		166,761
Deferred revenue		45,538		44,237
Accrued compensation		45,555		47,262
Income taxes payable		32,082		14,717
Total current liabilities		773,763		661,097
DEFERRED REVENUE		268,281		287,469
OTHER LIABILITIES		26,318		30,505
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS’ EQUITY:
Common stock - $0.005 par value; 1,250,000 shares authorized; 638,458 shares issued and 527,893 shares outstanding as of September 30, 2020; 636,460 shares issued and 536,698 shares outstanding as of December 31, 2019		3,192		3,182
Additional paid-in capital		4,513,743		4,397,511
Retained earnings		5,960,338		5,022,480
Accumulated other comprehensive loss		(32,529)		(32,387)
Common stock in treasury, at cost; 110,565 shares and 99,762 shares as of September 30, 2020 and December 31, 2019, respectively		(5,815,423)		(5,219,505)
Total stockholders’ equity		4,629,321		4,171,281
Total Liabilities and Stockholders’ Equity	$	5,697,683	$	5,150,352

See accompanying notes to condensed consolidated financial statements.

3

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

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

	Three-Months Ended				Nine-Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
NET SALES	$	1,246,362	$	1,133,577	$	3,402,355	$	3,183,613
COST OF SALES		509,831		460,575		1,369,160		1,275,796
GROSS PROFIT		736,531		673,002		2,033,195		1,907,817
OPERATING EXPENSES		277,930		277,559		802,343		821,923
OPERATING INCOME		458,601		395,443		1,230,852		1,085,894
INTEREST and OTHER (EXPENSE) INCOME, net		(4,568)		3,121		(5,491)		8,835
INCOME BEFORE PROVISION FOR INCOME TAXES		454,033		398,564		1,225,361		1,094,729
PROVISION FOR INCOME TAXES		106,379		99,641		287,503		241,848
NET INCOME	$	347,654	$	298,923	$	937,858	$	852,881
NET INCOME PER COMMON SHARE:
Basic	$	0.66	$	0.55	$	1.77	$	1.57
Diluted	$	0.65	$	0.55	$	1.75	$	1.56
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Basic		527,637		544,469		530,194		543,804
Diluted		533,263		548,422		535,011		548,387

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, 2020 AND 2019

(In Thousands) (Unaudited)

	Three-Months Ended				Nine-Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income, as reported	$	347,654	$	298,923	$	937,858	$	852,881
Other comprehensive income (loss):
Change in foreign currency translation adjustment		21,217		(14,359)		(338)		(10,586)
Available-for-sale investments:
Change in net unrealized gains		(308)		32		196		367
Reclassification adjustment for net gains included in net income		—		—		—		—
Net change in available-for-sale investments		(308)		32		196		367
Other comprehensive income (loss)		20,909		(14,327)		(142)		(10,219)
Comprehensive income	$	368,563	$	284,596	$	937,716	$	842,662

See accompanying notes to condensed consolidated financial statements.

5

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In Thousands) (Unaudited)

								Accumulated
								Other					Total
	Common stock			Additional		Retained		Comprehensive		Treasury stock			Stockholders’
	Shares	Amount		Paid-in Capital		Earnings		Loss		Shares	Amount		Equity
Balance, December 31, 2019	636,460	$	3,182	$	4,397,511	$	5,022,480	$	(32,387)	(99,762)	$	(5,219,505)	$	4,171,281
Stock-based compensation	—		—		17,098		—		—	—		—		17,098
Exercise of stock options	644		4		13,971		—		—	—		—		13,975
Unrealized gain, net on available-for-sale securities	—		—		—		—		304	—		—		304
Repurchase of common stock	—		—		—		—		—	(10,503)		(579,948)		(579,948)
Foreign currency translation	—		—		—		—		(30,599)	—		—		(30,599)
Net income	—		—		—		278,835		—	—		—		278,835
Balance, March 31, 2020	637,104	$	3,186	$	4,428,580	$	5,301,315	$	(62,682)	(110,265)	$	(5,799,453)	$	3,870,946
Stock-based compensation	—		—		15,936		—		—	—		—		15,936
Exercise of stock options	820		4		29,863		—		—	—		—		29,867
Unrealized gain, net on available-for-sale securities	—		—		—		—		200	—		—		200
Repurchase of common stock	—		—		—		—		—	(298)		(15,822)		(15,822)
Foreign currency translation	—		—		—		—		9,044	—		—		9,044
Net income	—		—		—		311,369		—	—		—		311,369
Balance, June 30, 2020	637,924	$	3,190	$	4,474,379	$	5,612,684	$	(53,438)	(110,563)	$	(5,815,275)	$	4,221,540
Stock-based compensation	—		—		17,668		—		—	—		—		17,668
Exercise of stock options	534		2		21,696		—		—	—		—		21,698
Unrealized loss, net on available-for-sale securities	—		—		—		—		(308)	—		—		(308)
Repurchase of common stock	—		—		—		—		—	(2)		(148)		(148)
Foreign currency translation	—		—		—		—		21,217	—		—		21,217
Net income	—		—		—		347,654		—	—		—		347,654
Balance, September 30, 2020	638,458	$	3,192	$	4,513,743	$	5,960,338	$	(32,529)	(110,565)	$	(5,815,423)	$	4,629,321

								Accumulated
								Other					Total
	Common stock			Additional		Retained		Comprehensive		Treasury stock			Stockholders’
	Shares	Amount		Paid-in Capital		Earnings		Loss		Shares	Amount		Equity
Balance, December 31, 2018	630,970	$	3,155	$	4,238,170	$	3,914,645	$	(32,864)	(87,294)	$	(4,512,205)	$	3,610,901
Stock-based compensation	—		—		15,324		—		—	—		—		15,324
Exercise of stock options	3,871		19		35,144		—		—	—		—		35,163
Unrealized gain, net on available-for-sale securities	—		—		—		—		120	—		—		120
Repurchase of common stock	—		—		—		—		—	(4,000)		(222,792)		(222,792)
Foreign currency translation	—		—		—		—		(1,381)	—		—		(1,381)
Net income	—		—		—		261,485		—	—		—		261,485
Balance, March 31, 2019	634,841	$	3,174	$	4,288,638	$	4,176,130	$	(34,125)	(91,294)	$	(4,734,997)	$	3,698,820
Stock-based compensation	—		—		15,575		—		—	—		—		15,575
Exercise of stock options	1,288		6		45,964		—		—	—		—		45,970
Unrealized gain, net on available-for-sale securities	—		—		—		—		215	—		—		215
Repurchase of common stock	—		—		—		—		—	(10)		(621)		(621)
Foreign currency translation	—		—		—		—		5,154	—		—		5,154
Net income	—		—		—		292,473		—	—		—		292,473
Balance, June 30, 2019	636,129	$	3,180	$	4,350,177	$	4,468,603	$	(28,756)	(91,304)	$	(4,735,618)	$	4,057,586
Stock-based compensation	—		—		15,991		—		—	—		—		15,991
Exercise of stock options	106		1		4,112		—		—	—		—		4,113
Unrealized gain, net on available-for-sale securities	—		—		—		—		32	—		—		32
Repurchase of common stock	—		—		—		—		—	(4,340)		(254,308)		(254,308)
Foreign currency translation	—		—		—		—		(14,359)	—		—		(14,359)
Net income	—		—		—		298,923		—	—		—		298,923
Balance, September 30, 2019	636,235	$	3,181	$	4,370,280	$	4,767,526	$	(43,083)	(95,644)	$	(4,989,926)	$	4,107,978

See accompanying notes to condensed consolidated financial statements.

6

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In Thousands) (Unaudited)

	Nine-Months Ended
	September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	937,858	$	852,881
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		45,879		47,843
Gain on disposal of property and equipment		(210)		(7)
Impairment of intangibles		7,000		—
Stock-based compensation		53,042		46,890
Deferred income taxes		—		540
Effect on cash of changes in operating assets and liabilities:
Accounts receivable		(201,677)		(179,838)
Distributor receivables		341		5,813
Inventories		39,490		(44,947)
Prepaid expenses and other assets		(20,446)		(16,121)
Prepaid income taxes		11,460		6,174
Accounts payable		(9,724)		69,480
Accrued liabilities		53,501		(9,592)
Accrued promotional allowances		31,915		55,799
Accrued distributor terminations		(150)		6
Accrued compensation		(1,214)		(3,901)
Income taxes payable		17,969		10,311
Other liabilities		(562)		(631)
Deferred revenue		(15,236)		(19,631)
Net cash provided by operating activities		949,236		821,069
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of available-for-sale investments		795,858		558,128
Purchases of available-for-sale investments		(849,276)		(835,964)
Purchases of property and equipment		(42,062)		(44,392)
Proceeds from sale of property and equipment		880		810
Additions to intangibles		(19,686)		(5,478)
Increase in other assets		(26,228)		(1,289)
Net cash used in investing activities		(140,514)		(328,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt		(2,500)		(12,841)
Issuance of common stock		65,540		85,245
Purchases of common stock held in treasury		(595,918)		(477,721)
Net cash used in financing activities		(532,878)		(405,317)
Effect of exchange rate changes on cash and cash equivalents		929		(7,463)
NET INCREASE IN CASH AND CASH EQUIVALENTS		276,773		80,104
CASH AND CASH EQUIVALENTS, beginning of period		797,957		637,513
CASH AND CASH EQUIVALENTS, end of period	$	1,074,730	$	717,617
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest	$	39