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Table of Contents

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, 2019

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 544,879,342 shares of common stock, par value $0.005 per share, outstanding as of July 29, 2019.

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

JUNE 30, 2019

INDEX

Part I.

FINANCIAL INFORMATION

Page No.

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

3

Condensed Consolidated Statements of Income for the Three- and Six-Months Ended June 30, 2019 and 2018

4

Condensed Consolidated Statements of Comprehensive Income for the Three- and Six-Months Ended June 30, 2019 and 2018

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three- and Six-Months Ended June 30, 2019 and 2018

6

Condensed Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2019 and 2018

7

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

46

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

47

Signatures

48

2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2019 AND DECEMBER 31, 2018

(In Thousands, Except Par Value) (Unaudited)

June 30, 

December 31, 

    

2019

    

2018

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

888,247

$

637,513

Short-term investments

 

357,988

320,650

Accounts receivable, net

 

688,197

484,562

Inventories

 

299,529

277,705

Prepaid expenses and other current assets

 

58,477

44,909

Prepaid income taxes

 

34,330

38,831

Total current assets

 

2,326,768

1,804,170

INVESTMENTS

7,006

-

PROPERTY AND EQUIPMENT, net

 

240,165

243,051

DEFERRED INCOME TAXES

 

85,148

85,687

GOODWILL

 

1,331,643

1,331,643

OTHER INTANGIBLE ASSETS, net

 

1,045,810

1,045,878

OTHER ASSETS

 

47,792

16,462

Total Assets

$

5,084,332

$

4,526,891

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

292,627

$

248,760

Accrued liabilities

 

124,659

112,507

Accrued promotional allowances

 

199,324

145,741

Accrued distributor terminations

 

427

-

Deferred revenue

 

43,839

44,045

Accrued compensation

 

29,445

39,903

Income taxes payable

 

15,179

10,189

Total current liabilities

 

705,500

601,145

DEFERRED REVENUE

 

298,375

312,224

OTHER LIABILITIES

22,871

2,621

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS' EQUITY:

Common stock - $0.005 par value; 1,250,000 shares authorized; 636,129 shares issued and 544,825 shares outstanding as of June 30, 2019; 630,970 shares issued and 543,676 shares outstanding as of December 31, 2018

 

3,180

3,155

Additional paid-in capital

 

4,350,177

4,238,170

Retained earnings

 

4,468,603

3,914,645

Accumulated other comprehensive loss

 

(28,756)

(32,864)

Common stock in treasury, at cost; 91,304 shares and 87,294 shares as of June 30, 2019 and December 31, 2018, respectively

 

(4,735,618)

(4,512,205)

Total stockholders’ equity

 

4,057,586

3,610,901

Total Liabilities and Stockholders’ Equity

$

5,084,332

$

4,526,891

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2019 AND 2018

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

Three-Months Ended

Six-Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

NET SALES

$

1,104,045

$

1,015,873

$

2,050,037

$

1,866,793

COST OF SALES

 

442,762

 

395,615

 

815,221

 

731,279

GROSS PROFIT

 

661,283

 

620,258

 

1,234,816

 

1,135,514

OPERATING EXPENSES

 

282,293

 

262,637

 

544,364

 

497,979

OPERATING INCOME

 

378,990

 

357,621

 

690,452

 

637,535

INTEREST and OTHER INCOME, net

 

2,973

 

476

 

5,714

 

2,281

INCOME BEFORE PROVISION FOR INCOME TAXES

 

381,963

 

358,097

 

696,166

 

639,816

PROVISION FOR INCOME TAXES

89,490

87,981

142,208

153,651

NET INCOME

$

292,473

$

270,116

$

553,958

$

486,165

NET INCOME PER COMMON SHARE:

Basic

$

0.54

$

0.48

$

1.02

$

0.86

Diluted

$

0.53

$

0.48

$

1.01

$

0.85

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:

Basic

 

544,156

 

559,867

 

543,466

 

562,917

Diluted

 

548,218

 

566,352

 

548,299

 

570,231

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2019 AND 2018

(In Thousands) (Unaudited)

    

Three-Months Ended

    

Six-Months Ended

June 30, 

June 30, 

2019

    

2018

    

2019

    

2018

Net income, as reported

$

292,473

$

270,116

$

553,958

$

486,165

Other comprehensive income:

Change in foreign currency translation adjustment

 

5,154

 

(11,988)

 

3,773

 

(9,265)

Available-for-sale investments:

Change in net unrealized gains

 

215

 

513

 

335

 

728

Reclassification adjustment for net gains included in net income

 

-

 

-

 

-

 

-

Net change in available-for-sale investments

 

215

 

513

 

335

 

728

Other comprehensive income (loss)

 

5,369

 

(11,475)

 

4,108

 

(8,537)

Comprehensive income

$

297,842

$

258,641

$

558,066

$

477,628

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2019 AND 2018 (In Thousands) (Unaudited)

Accumulated

Additional

Other

Total

Common stock

Paid-in

Retained

Comprehensive

Treasury stock

Stockholders'

    

Shares

    

Amount

    

 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 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 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

Accumulated

Additional

Other

Total

Common stock

Paid-in

Retained

Comprehensive

Treasury stock

Stockholders'

    

Shares

    

Amount

    

 Capital

    

Earnings

    

Loss

    

Shares

    

Amount

    

Equity

Balance, December 31, 2017

 

629,255

$

3,146

$

4,150,628

$

2,928,226

$

(16,659)

 

(62,957)

$

(3,170,129)

$

3,895,212

Stock-based compensation

 

-

 

-

 

13,439

 

-

 

-

 

-

 

-

 

13,439

Exercise of stock options

 

669

 

4

 

6,498

 

-

 

-

 

-

 

-

 

6,502

Unrealized gain on available-for-sale securities

 

-

 

-

 

-

 

-

 

215

 

-

 

-

 

215

ASU No. 2016-16 adoption

 

-

 

-

 

-

 

(6,585)

 

-

 

-

 

-

 

(6,585)

Repurchase of common stock

 

-

 

-

 

-

 

-

 

-

 

(4,362)

 

(251,949)

 

(251,949)

Foreign currency translation

 

-

 

-

 

-

 

-

 

2,723

 

-

 

-

 

2,723

Net income

 

-

 

-

 

-

 

216,050

 

-

 

-

 

-

 

216,050

Balance, March 31, 2018

 

629,924

$

3,150

$

4,170,565

$

3,137,691

$

(13,721)

 

(67,319)

$

(3,422,078)

$

3,875,607

Stock-based compensation

 

-

 

-

 

14,906

 

-

 

-

 

-

 

-

 

14,906

Exercise of stock options

 

406

 

2

 

7,112

 

-

 

-

 

-

 

-

 

7,114

Unrealized gain on available-for-sale securities

 

-

 

-

 

-

 

-

 

513

 

-

 

-

 

513

Adjustment to excess tax from prior periods

 

-

 

-

 

2,093

 

-

 

-

 

-

 

-

 

2,093

Repurchase of common stock

 

-

 

-

 

-

 

-

 

-

 

(10,554)

 

(553,200)

 

(553,200)

Foreign currency translation

 

-

 

-

 

-

 

-

 

(11,988)

 

-

 

-

 

(11,988)

Net income

 

-

 

-

 

-

 

270,116

 

-

 

-

 

-

 

270,116

Balance, June 30, 2018

 

630,330

$

3,152

$

4,194,676

$

3,407,807

$

(25,196)

 

(77,873)

$

(3,975,278)

$

3,605,161

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTHS ENDED JUNE 30, 2019 AND 2018

(In Thousands) (Unaudited)

Six-Months Ended

June 30, 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

553,958

$

486,165

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

Depreciation and amortization

 

32,444

28,185

(Gain) loss on disposal of property and equipment

 

1,269

(308)

Stock-based compensation

 

30,899

28,345

Deferred income taxes

 

539

(76)

Effect on cash of changes in operating assets and liabilities:

Accounts receivable

 

(204,393)

(154,369)

Distributor receivables

 

4,527

5,826

Inventories

 

(21,505)

(22,753)

Prepaid expenses and other assets

 

(16,804)

(15,977)

Prepaid income taxes

 

4,554

104,969

Accounts payable

 

36,850

24,684

Accrued liabilities

 

(1,412)

(15,617)

Accrued promotional allowances

 

53,568

43,196

Accrued distributor terminations

 

427

398

Accrued compensation

 

(10,508)

(8,413)

Income taxes payable

 

4,959

8,043

Other liabilities

(169)

1,344

Deferred revenue

 

(14,418)

(12,342)

Net cash provided by operating activities

 

454,785

501,300

CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of available-for-sale investments

 

346,464

807,396

Purchases of available-for-sale investments

 

(380,851)

(342,463)

Purchases of property and equipment

 

(21,077)

(34,619)

Proceeds from sale of property and equipment

 

441

3,590

Increase in intangibles

 

-

(42)

Increase in other assets

 

(1,019)

(7,684)

Net cash (used in) provided by investing activities

 

(56,042)

426,178

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on debt

 

(9,075)

(972)

Issuance of common stock

 

81,134

13,616

Purchases of common stock held in treasury

 

(223,413)

(805,149)

Net cash used in financing activities

 

(151,354)

(792,505)

Effect of exchange rate changes on cash and cash equivalents

 

3,345

(3,908)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

250,734

131,065

CASH AND CASH EQUIVALENTS, beginning of period

 

637,513

528,622

CASH AND CASH EQUIVALENTS, end of period

$

888,247

$

659,687

SUPPLEMENTAL INFORMATION:

Cash paid during the period for:

Interest

$

253

$

28

Income taxes

$

133,122

$