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, 2013 |
|
Commission File Number 0-18761 |
MONSTER BEVERAGE CORPORATION
(Exact name of Registrant as specified in its charter)
|
Delaware |
39-1679918 |
|
(State or other jurisdiction of |
(I.R.S. Employer |
|
incorporation or organization) |
Identification No.) |
1 Monster Way
Corona, California 92879
(Address of principal executive offices) (Zip code)
(951) 739 6200
(Registrants 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 |
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|
Non-accelerated filer o (Do not check if smaller reporting company) |
Smaller reporting company 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 167,673,196 shares of common stock, par value $0.005 per share, outstanding as of October 24, 2013.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2013
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Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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54 |
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
(In Thousands, Except Par Value) (Unaudited)
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September 30, |
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December 31, |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
287,019 |
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$ |
222,514 |
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Short-term investments |
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315,572 |
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97,042 |
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Accounts receivable, net |
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339,155 |
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236,044 |
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Distributor receivables |
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4,050 |
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666 |
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Inventories |
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247,368 |
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203,106 |
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Prepaid expenses and other current assets |
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29,799 |
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24,983 |
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Prepaid income taxes |
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38,516 |
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33,709 |
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Deferred income taxes |
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16,978 |
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17,004 |
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Total current assets |
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1,278,457 |
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835,068 |
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INVESTMENTS |
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9,725 |
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21,393 |
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PROPERTY AND EQUIPMENT, net |
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88,495 |
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69,137 |
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DEFERRED INCOME TAXES |
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61,407 |
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59,503 |
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INTANGIBLES, net |
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63,613 |
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54,648 |
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OTHER ASSETS |
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10,170 |
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3,576 |
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Total Assets |
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$ |
1,511,867 |
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$ |
1,043,325 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
162,851 |
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$ |
127,330 |
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Accrued liabilities |
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63,213 |
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38,916 |
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Accrued promotional allowances |
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131,103 |
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91,208 |
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Deferred revenue |
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14,702 |
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12,695 |
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Accrued compensation |
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12,826 |
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12,926 |
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Income taxes payable |
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53,577 |
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5,470 |
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Total current liabilities |
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438,272 |
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288,545 |
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DEFERRED REVENUE |
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113,204 |
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110,383 |
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COMMITMENTS AND CONTINGENCIES (Note 9) |
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STOCKHOLDERS EQUITY: |
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Common stock - $0.005 par value; 240,000 shares authorized; |
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1,029 |
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1,019 |
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Additional paid-in capital |
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357,991 |
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287,953 |
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Retained earnings |
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1,771,219 |
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1,508,664 |
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Accumulated other comprehensive (loss) income |
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(1,134 |
) |
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2,074 |
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Common stock in treasury, at cost; 38,240 and 37,983 shares as of September 30, 2013 and December 31, 2012, respectively |
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(1,168,714 |
) |
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(1,155,313 |
) | ||
Total stockholders equity |
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960,391 |
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644,397 |
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Total Liabilities and Stockholders Equity |
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$ |
1,511,867 |
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$ |
1,043,325 |
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See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In Thousands, Except Per Share Amounts) (Unaudited)
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Three-Months Ended |
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Nine-Months Ended |
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September 30, |
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September 30, |
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2013 |
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2012 |
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2013 |
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2012 |
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NET SALES |
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$ |
590,422 |
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$ |
541,940 |
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$ |
1,705,579 |
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$ |
1,589,185 |
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COST OF SALES |
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282,952 |
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268,348 |
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809,809 |
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767,417 |
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GROSS PROFIT |
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307,470 |
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273,592 |
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895,770 |
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821,768 |
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OPERATING EXPENSES |
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156,041 |
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132,907 |
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457,610 |
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385,026 |
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OPERATING INCOME |
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151,429 |
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140,685 |
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438,160 |
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436,742 |
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OTHER (EXPENSE) INCOME: |
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Interest and other (expense) income, net |
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(750 |
) |
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331 |
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(8,690 |
) |
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255 |
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Gain on investments and put options, net (Note 3) |
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44 |
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222 |
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2,681 |
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585 |
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Total other (expense) income |
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(706 |
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553 |
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(6,009 |
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840 |
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INCOME BEFORE PROVISION FOR INCOME TAXES |
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150,723 |
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141,238 |
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432,151 |
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437,582 |
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PROVISION FOR INCOME TAXES |
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58,536 |
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55,096 |
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169,596 |
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165,545 |
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NET INCOME |
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$ |
92,187 |
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$ |
86,142 |
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$ |
262,555 |
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$ |
272,037 |
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NET INCOME PER COMMON SHARE: |
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Basic |
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$ |
0.55 |
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$ |
0.49 |
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$ |
1.58 |
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$ |
1.55 |
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Diluted |
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$ |
0.53 |
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$ |
0.47 |
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$ |
1.51 |
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$ |
1.47 |
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WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: |
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Basic |
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167,457 |
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175,026 |
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166,483 |
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175,347 |
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Diluted |
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173,948 |
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183,899 |
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173,344 |
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185,365 |
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See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In Thousands) (Unaudited)
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Three-Months Ended |
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Nine-Months Ended |
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2013 |
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2012 |
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2013 |
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2012 |
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Net income, as reported |
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$ |
92,187 |
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$ |
86,142 |
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$ |
262,555 |
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$ |
272,037 |
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Other comprehensive income (loss): |
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Change in foreign currency translation |
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1,850 |
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2,725 |
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(1,683 |
) |
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2,452 |
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Available-for-sale investments: |
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Change in net unrealized gains |
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- |
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- |
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- |
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- |
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Reclassification adjustment for net gains included in net income |
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- |
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- |
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(1,525 |
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- |
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Net change in available-for-sale investments |
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- |
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- |
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(1,525 |
) |
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- |
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Other comprehensive income (loss) |
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1,850 |
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2,725 |
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(3,208 |
) |
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2,452 |
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Comprehensive income |
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$ |
94,037 |
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$ |
88,867 |
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$ |
259,347 |
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$ |
274,489 |
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See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In Thousands) (Unaudited) |
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Nine-Months Ended |
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September 30, 2013 |
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September 30, 2012 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
262,555 |
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$ |
272,037 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Amortization of trademark |
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36 |
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36 |
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Depreciation and other amortization |
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16,408 |
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15,228 |
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Gain on disposal of property and equipment |
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(53) |
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(52) |
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Stock-based compensation |
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21,592 |
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21,581 |
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Loss on put option |
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411 |
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1,110 |
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Gain on investments, net |
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(3,091) |
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(1,695) |
| ||
Deferred income taxes |
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(926) |
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2,571 |
| ||
Tax benefit from exercise of stock options |
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(30,250) |
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(4,295) |
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Effect on cash of changes in operating assets and liabilities: |
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Accounts receivable |
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(104,666) |
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(70,533) |
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Distributor receivables |
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(3,384) |
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- |
| ||
Inventories |
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(46,687) |
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(38,646) |
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Prepaid expenses and other current assets |
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(13,026) |
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136 |
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Prepaid income taxes |
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(4,906) |
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(17,974) |
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Accounts payable |
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33,731 |
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27,814 |
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Accrued liabilities |
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21,157 |
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26,652 |
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Accrued promotional allowances |
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40,175 |
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(9,306) |
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Accrued distributor terminations |
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3,524 |
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(77) |
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Accrued compensation |
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(51) |
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1,463 |
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Income taxes payable |
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78,447 |
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(3,831) |
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Deferred revenue |
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4,838 |
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(4,170) |
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Net cash provided by operating activities |
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275,834 |
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218,049 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Maturities of held-to-maturity investments |
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179,575 |
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596,587 |
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Sales of available-for-sale investments |
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5,775 |
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61,950 |
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Sales of trading investments |
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1,250 |
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16,765 |
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Purchases of held-to-maturity investments |
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(392,870) |
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(557,168) |
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Purchases of available-for-sale investments |
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- |
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(9,502) |
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Purchases of property and equipment |
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(32,612) |
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(25,813) |
| ||
Proceeds from sale of property and equipment |
|
8,762 |
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238 |
| ||
Additions to intangibles |
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(9,001) |
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(4,490) |
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(Increase) decrease in other assets |
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(7,576) |
|
385 |
| ||
Net cash (used in) provided by investing activities |
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(246,697) |
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78,952 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Principal payments on debt |
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(1,322) |
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(1,622) |
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Tax benefit from exercise of stock options |
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30,250 |
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4,295 |
| ||
Issuance of common stock |
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18,198 |
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8,368 |
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Purchases of common stock held in treasury |
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(13,401) |
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(386,776) |
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Net cash provided by (used in) financing activities |
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33,725 |
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(375,735) |
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Effect of exchange rate changes on cash and cash equivalents |
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1,643 |
|
2,457 |
| ||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
64,505 |
|
(76,277) |
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CASH AND CASH EQUIVALENTS, beginning of period |
|
222,514 |
|
359,331 |
| ||
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
287,019 |
|
$ |
283,054 |
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SUPPLEMENTAL INFORMATION: |
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Cash paid during the period for: |
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Interest |
|
$ |
36 |
|
$ |
40 |
|
Income taxes |
|
$ |
97,171 |
|
$ |
184,451 |
|
See accompanying notes to condensed consolidated financial statements.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In Thousands) (Unaudited) (Continued)
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS
The Company entered into capital leases for the acquisition of promotional vehicles of $1.9 million and $1.4 million for the nine-months ended September 30, 2013 and 2012, respectively.
Included in accounts payable is equipment purchased of $2.0 million and $0.4 million as of September 30, 2013 and December 31, 2012, respectively.
See accompanying notes to condensed consolidated financial statements.
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 or, in reference to the Companys former name, Hansen Natural Corporation) Annual Report on Form 10-K for the year ended December 31, 2012 (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 Companys condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and Securities and Exchange Commission (SEC) rules and regulations applicable to interim financial reporting. They do not include all the information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP. The information set forth in these interim condensed consolidated financial statements for the three- and nine-months ended September 30, 2013 and 2012 is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed consolidated financial statements not misleading. Results of operations for periods covered by this report may not necessarily be indicative of results of operations for the full year.
The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2013, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). The amendments in this ASU provide guidance on the financial statements presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions, in which case such an unrecognized tax benefit should be presented in the financial statements as a liability. The amendments in this ASU do not require new recurring disclosures. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments in ASU No. 2013-11 are not expected to have a material impact on the Companys financial position, results of operations or liquidity.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The guidance became effective for the Company on January 1, 2013. The adoption of ASU 2013-02 did not have a material impact on the Companys financial position, results of operations or liquidity.
3. INVESTMENTS
The following table summarizes the Companys investments at:
September 30, 2013 |
|
Amortized Cost |
|
Gross |
|
Gross |
|
Fair |
|
Continuous |
|
Continuous | ||||||
Held-to-Maturity |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Certificates of deposit |
|
$ |
6,515 |
|
$ |
- |
|
$ |
- |
|
$ |
6,515 |
|
$ |
- |
|
$ |
- |
Municipal securities |
|
302,059 |
|
56 |
|
- |
|
302,115 |
|
- |
|
- | ||||||
Total |
|
$ |
308,574 |
|
$ |
56 |
|
$ |
- |
|
308,630 |
|
$ |
- |
|
$ |
- | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trading |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Auction rate securities |
|
|
|
|
|
|
|
6,998 |
|
|
|
| ||||||
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Auction rate securities |
|
|
|
|
|
|
|
9,725 |
|
|
|
| ||||||
Total |
|
|
|
|
|
|
|
$ |
325,353 |
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2012 |
|
Amortized Cost |
|
Gross |
|
Gross |
|
Fair |
|
Continuous |
|
Continuous | ||||||
Held-to-Maturity |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasuries |
|
$ |
16,040 |
|
$ |
- |
|
$ |
- |
|
$ |
16,040 |
|
$ |
- |
|
$ |
- |
Certificates of deposit |
|
2,201 |
|
- |
|
- |
|
2,201 |
|
- |
|
- | ||||||
Municipal securities |
|
77,038 |
|
- |
|
11 |
|
77,027 |
|
11 |
|
- | ||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Auction rate securities |
|
3,310 |
|
2,483 |
|
- |
|
5,793 |
|
- |
|
- | ||||||
Total |
|
$ |
98,589 |
|
$ |
2,483 |
|
$ |
11 |
|
101,061 |
|
$ |
11 |
|
$ |
- | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trading |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Auction rate securities |
|
|
|
|
|
|
|
1,763 |
|
|
|
| ||||||
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Auction rate securities |
|
|
|
|
|
|
|
15,600 |
|
|
|
| ||||||
Total |
|
|
|
|
|
|
|
$ |
118,424 |
|
|
|
|
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
During the nine-months ended September 30, 2013, the Company recognized $2.5 million of realized gains on the sale of available-for-sale investments. Realized gains or losses on the sale of all other investments during the nine-months ended September 30, 2013 were not significant. During the year ended December 31, 2012, realized gains or losses recognized on the sale of investments were not significant.
The Company recognized a net gain through earnings on its trading securities as follows:
|
|
Three-Months Ended |
|
Nine-Months Ended | ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 | ||||
Gain on transfer from available-for-sale to trading |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
Gain on trading securities sold |
|
140 |
|
27 |
|
140 |
|
1,100 | ||||
Gain on trading securities held |
|
71 |
|
80 |
|
468 |
|
579 | ||||
Gain on trading securites |
|
$ |
211 |
|
$ |
107 |
|
$ |
608 |
|
$ |
1,679 |
The Companys investments at September 30, 2013 and December 31, 2012 in U.S. Treasuries, certificates of deposit and/or municipal securities carried investment grade credit ratings. All of the Companys investments at September 30, 2013 in municipal, educational or other public body securities with an auction reset feature (auction rate securities) also carried investment grade credit ratings. A portion of the Companys investments at December 31, 2012 in auction rate securities carried investment grade credit ratings.
The following table summarizes the underlying contractual maturities of the Companys investments at:
|
|
September 30, 2013 |
|
December 31, 2012 | ||||||||
|
|
|
|
|
|
|
|
| ||||
|
|
Amortized Cost |
|
Fair Value |
|
Amortized Cost |
|
Fair Value | ||||
Less than 1 year: |
|
|
|
|
|
|
|
| ||||
U.S. Treasuries |
|
$ |
- |
|
$ |
- |
|
$ |
16,040 |
|
$ |
16,040 |
Certificates of deposit |
|
6,515 |
|
6,515 |
|
2,201 |
|
2,201 | ||||
Municipal securities |
|
302,059 |
|
302,115 |
|
77,038 |
|
77,027 | ||||
Due 11 - 20 years: |
|
|
|
|
|
|
|
| ||||
Auction rate securities |
|
10,861 |
|
10,861 |
|
10,748 |
|
10,748 | ||||
Due 21 - 30 years: |
|
|
|
|
|
|
|
| ||||
Auction rate securities |
|
5,862 |
|
5,862 |
|
9,925 |
|
12,408 | ||||
Total |
|
$ |
325,297 |
|
$ |
325,353 |
|
$ |
115,952 |
|
$ |
118,424 |
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
4. FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES
Accounting Standards Codification (ASC) 820 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three levels of inputs required by the standard that the Company uses to measure fair value are summarized below.
· Level 1: Quoted prices in active markets for identical assets or liabilities.
· Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
· Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
ASC 820 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.
The following tables present the Companys held-to-maturity investments at amortized cost as well as the fair value of the Companys financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
September 30, 2013 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Cash |
|
$ |
187,984 |
|
$ |
- |
|
$ |
- |
|
$ |
187,984 |
|
Money market funds |
|
56,750 |
|
- |
|
- |
|
56,750 |
| ||||
Certificates of deposit |
|
- |
|
6,515 |
|
- |
|
6,515 |
| ||||
Municipal securities |
|
- |
|
344,344 |
|
- |
|
344,344 |
| ||||
Auction rate securities |
|
- |
|
- |
|
16,723 |
|
16,723 |
| ||||
Put option related to auction rate securities |
|
- |
|
- |
|
1,519 |
|
1,519 |
| ||||
Total |
|
$ |
244,734 |
|
$ |
350,859 |
|
$ |
18,242 |
|
$ |
613,835 |
|
|
|
|
|
|
|
|
|
|
| ||||
Amounts included in: |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
244,734 |
|
$ |
42,285 |
|
$ |
- |
|
$ |
287,019 |
|
Short-term investments |
|
- |
|
308,574 |
|
6,998 |
|
315,572 |
| ||||
Investments |
|
- |
|
- |
|
9,725 |
|
9,725 |
| ||||
Prepaid expenses and other current assets |
|
- |
|
- |
|
729 |
|
729 |
| ||||
Other assets |
|
- |
|
- |
|
790 |
|
790 |
| ||||
Total |
|
$ |
244,734 |
|
$ |
350,859 |
|
$ |
18,242 |
|
$ |
613,835 |
|
December 31, 2012 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Cash |
|
$ |
147,113 |
|
$ |
- |
|
$ |
- |
|
$ |
147,113 |
|
Money market funds |
|
63,974 |
|
- |
|
- |
|
63,974 |
| ||||
U.S. Treasuries |
|
- |
|
24,065 |
|
- |
|
24,065 |
| ||||
Certificates of deposit |
|
- |
|
5,603 |
|
- |
|
5,603 |
| ||||
Municipal securities |
|
- |
|
77,038 |
|
- |
|
77,038 |
| ||||
Auction rate securities |
|
- |
|
- |
|
23,156 |
|
23,156 |
| ||||
Put option related to auction rate securities |
|
- |
|
- |
|
1,929 |
|
1,929 |
| ||||
Total |
|
$ |
211,087 |
|
$ |
106,706 |
|
$ |
25,085 |
|
$ |
342,878 |
|
|
|
|
|
|
|
|
|
|
| ||||
Amounts included in: |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
211,087 |
|
$ |
11,427 |
|
$ |
- |
|
$ |
222,514 |
|
Short-term investments |
|
- |
|
95,279 |
|
1,763 |
|
97,042 |
| ||||
Investments |
|
- |
|
- |
|
21,393 |
|
21,393 |
| ||||
Prepaid expenses and other current assets |
|
- |
|
- |
|
225 |
|
225 |
| ||||
Other assets |
|
- |
|
- |
|
1,704 |
|
1,704 |
| ||||
Total |
|
$ |
211,087 |
|
$ |
106,706 |
|
$ |
25,085 |
|
$ |
342,878 |
|
The majority of the Companys short-term investments are classified within Level 1 or Level 2 of the fair value hierarchy. The Companys valuation of its Level 1 investments, which include money market funds, is based on quoted market prices in active markets for identical securities. The Companys valuation of its Level 2 investments, which include U.S. Treasuries, certificates of deposit and municipal 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. There were no transfers between Level 1 and Level 2 measurements during the nine-months ended September 30, 2013 or the year ended December 31, 2012, and there were no changes in the Companys valuation techniques.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The Companys Level 3 assets are comprised of auction rate securities and put options. The Companys Level 3 valuation utilized a mark-to-model approach which included estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums, as well as expected holding periods for the auction rate securities. These assumptions are typically volatile and subject to change as the underlying data sources and market conditions evolve. A significant change in any single input could have a significant valuation impact; however, no single input has a more significant impact on valuation than another. There were no changes in the Companys valuation techniques of its Level 3 assets during the nine-months ended September 30, 2013.
The following table presents quantitative information related to the significant unobservable inputs utilized in the Companys Level 3 recurring fair value measurements as of September 30, 2013.
|
|
Valuation Technique |
|
Unobservable Input |
|
Range (Weighted-Average) |
Auction Rate Securities |
|
Discounted cash flow |
|
Maximum rate probability |
|
0.34%-2.17% (1.21%) |
|
|
|
|
Principal returned probability |
|
76.72%-95.14% (86.75%) |
|
|
|
|
Default probability |
|
4.07%-22.94% (12.04%) |
|
|
|
|
Liquidity risk |
|
3.50%-3.50% (3.50%) |
|
|
|
|
Recovery rate |
|
60-60 (60) |
|
|
|
|
|
|
|
Put Options |
|
Discounted cash flow |
|
Counterparty risk |
|
0.73%-1.04% (0.83%) |
At September 30, 2013, the Company held auction rate securities with a face value of $18.2 million (amortized cost basis of $16.7 million). A Level 3 valuation was performed on the Companys auction rate securities as of September 30, 2013 resulting in a fair value of $16.7 million for the Companys trading auction rate securities (after a $1.5 million impairment), which are included in short-term and long-term investments.
In June 2011, the Company entered into an agreement (the 2011 ARS Agreement), related to $24.5 million of par value auction rate securities (the 2011 ARS Securities). Under the 2011 ARS Agreement, the Company has the right to sell the 2011 ARS Securities including all accrued but unpaid interest thereon (the 2011 Put Option) as follows: (i) on or after July 1, 2013, up to $1.0 million aggregate par value; (ii) on or after October 1, 2013, up to an additional $1.0 million aggregate par value; and (iii) in quarterly installments thereafter based on a formula of the then outstanding 2011 ARS Securities, as adjusted for normal market redemptions, with full sale rights available on or after April 1, 2016. The 2011 ARS Securities will continue to accrue interest until redeemed through the 2011 Put Option, or as determined by the auction process, or should the auction process fail, the terms outlined in the prospectus of the respective 2011 ARS Securities. Under the 2011 ARS Agreement, the Company has the obligation, should it receive written notification from the put issuer, to sell the 2011 ARS Securities at par plus all accrued but unpaid interest. During the nine-months ended September 30, 2013, $1.0 million of 2011 ARS Securities were redeemed at par through the exercise of a portion of the 2011 Put Option and $0.3 million of 2011 ARS Securities were redeemed at par through normal market channels ($1.3 million and $3.7 million of 2011 ARS Securities were redeemed at par through normal market channels during the years ended December 31, 2012 and 2011, respectively). Subsequent to September 30, 2013, $1.0 million of 2011 ARS Securities were redeemed at par through the exercise of a portion of the 2011 Put Option. The 2011 Put Option does not meet the definition of derivative instruments under ASC 815. Therefore, the Company elected the fair value option under ASC 825-10 in accounting for the 2011 Put Option. As of September 30, 2013, the Company recorded $1.5 million as the fair market value of the 2011 Put Option, included in prepaid expenses and other current assets, as well as in other assets, in the condensed consolidated balance sheet.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
In March 2010, the Company entered into an agreement (the 2010 ARS Agreement), related to $54.2 million of par value auction rate securities (the 2010 ARS Securities). Under the 2010 ARS Agreement, the Company had the right, but not the obligation, to sell the 2010 ARS Securities including all accrued but unpaid interest thereon (the 2010 Put Option), under various terms. During the three-months ended March 31, 2012, the remaining $15.7 million of par value 2010 ARS Securities were redeemed at par through the exercise of the 2010 Put Option, which exhausted the Companys rights under the 2010 ARS Agreement.
The net effect of (i) the revaluation of the 2011 Put Option as of September 30, 2013; (ii) the redemption at par of certain 2011 ARS Securities; (iii) the revaluation of the Companys trading auction rate securities as of September 30, 2013; and (iv) a recognized gain resulting from the redemption of previously other-than-temporary impaired securities; resulted in a gain of $0.04 million and $2.7 million, which is included in other (expense) income for the three- and nine-months ended September 30, 2013, respectively. The net effect of (i) the revaluation of the 2011 Put Option and the 2010 Put Option as of September 30, 2012; (ii) the revaluation of the Companys trading auction rate securities as of September 30, 2012; (iii) the redemption at par of certain 2011 ARS Securities; (iv) the redemption at par of certain 2010 ARS Securities, including those redeemed at par through the exercise of the 2010 Put Option; and (v) a recognized gain resulting from the redemption at par of a previously other-than-temporary impaired security; resulted in a gain of $0.2 million and $0.6 million, which is included in other (expense) income for the three- and nine-months ended September 30, 2012, respectively.
The following table provides a summary reconciliation of the Companys financial assets that are recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
Three-Months Ended |
|
Three-Months Ended | ||||||||
|
|
Auction |
|
Put Options |
|
Auction |
|
Put Options | ||||
Opening Balance |
|
$ |
17,762 |
|
$ |
1,686 |
|
$ |
20,873 |
|
$ |
1,816 |
Transfers into Level 3 |
|
- |
|
- |
|
- |
|
- | ||||
Transfers out of Level 3 |
|
- |
|
- |
|
- |
|
- | ||||
Total gains (losses) for the period: |
|
|
|
|
|
|
|
| ||||
Included in earnings |
|
211 |
|
(167) |
|
107 |
|
115 | ||||
Included in other comprehensive income |
|
- |
|
- |
|
- |
|
- | ||||
Settlements |
|
(1,250) |
|
- |
|
(225) |
|
- | ||||
Closing Balance |
|
$ |
16,723 |
|
$ |
1,519 |
|
$ |
20,755 |
|
$ |
1,931 |
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
|
|
Nine-Months Ended |
|
Nine-Months Ended | ||||||||
|
|
Auction |
|
Put Options |
|
Auction |
|
Put Options | ||||
Opening Balance |
|
$ |
23,156 |
|
$ |
1,929 |
|
$ |
35,852 |
|
$ |
3,041 |
Transfers into Level 3 |
|
- |
|
- |
|
- |
|
- | ||||
Transfers out of Level 3 |
|
- |
|
- |
|
- |
|
- | ||||
Total gains (losses) for the period: |
|
|
|
|
|
|
|
| ||||
Included in earnings |
|
3,091 |
|
(410) |
|
1,693 |
|
(1,110) | ||||
Included in other comprehensive income |
|
(2,483) |
|
- |
|
- |
|
- | ||||
Settlements |
|
(7,041) |
|
- |
|
(16,790) |
|
- | ||||
Closing Balance |
|
$ |
16,723 |
|
$ |
1,519 |
|
$ |
20,755 |
|
$ |
1,931 |
5. INVENTORIES
Inventories consist of the following at:
|
|
September 30, |
|
December 31, | ||
Raw materials |
|
$ |
76,914 |
|
$ |
65,010 |
Finished goods |
|
170,454 |
|
138,096 | ||
|
|
$ |
247,368 |
|
$ |
203,106 |
6. PROPERTY AND EQUIPMENT, Net
Property and equipment consist of the following at:
|
|
September 30, |
|
December 31, | ||
Land |
|
$ |
5,382 |
|
$ |
5,382 |
Leasehold improvements |
|
1,673 |
|
2,300 | ||
Furniture and fixtures |
|
4,279 |
|
2,087 | ||
Office and computer equipment |
|
14,004 |
|
8,981 | ||
Computer software |
|
933 |
|
1,135 | ||
Equipment |
|
59,411 |
|
48,427 | ||
Buildings |
|
33,309 |
|
21,998 | ||
Vehicles |
|
29,862 |
|
26,037 | ||
|
|
148,853 |
|
116,347 | ||
Less: accumulated depreciation and amortization |
|
(60,358) |
|
(47,210) | ||
|
|
$ |
88,495 |
|
$ |
69,137 |
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
7. INTANGIBLES, Net
Intangibles consist of the following at:
|
|
September 30, |
|
December 31, | ||
Amortizing intangibles |
|
$ |
1,061 |
|
$ |
1,061 |
Accumulated amortization |
|
(589) |
|
(553) | ||
|
|
472 |
|
508 | ||
Non-amortizing intangibles |
|
63,141 |
|
54,140 | ||
|
|
$ |
63,613 |
|
$ |
54,648 |
All amortizing intangibles have been assigned an estimated useful life and such intangibles are amortized on a straight-line basis over the number of years that approximate their respective useful lives ranging from one to 25 years (weighted-average life of 20 years). Amortization expense was $0.01 million for both the three-months ended September 30, 2013 and September 30, 2012. Amortization expense was $0.04 million for both the nine-months ended September 30, 2013 and September 30, 2012.
8. DISTRIBUTION AGREEMENTS
Pursuant to new and/or amended distribution agreements entered into with certain distributors, amounts of $9.7 million from such distributors, relating to the costs associated with terminating agreements with the Companys prior distributors, were recorded for the nine-months ended September 30, 2013. Such amounts have been accounted for as deferred revenue in the accompanying condensed consolidated balance sheets and are recognized as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years. Revenue recognized was $2.0 million and $1.9 million for the three-months ended September 30, 2013 and 2012, respectively. Revenue recognized was $6.3 million for both the nine-months ended September 30, 2013 and 2012, respectively.
The Company incurred termination costs to certain of its prior distributors amounting to $0.4 million and $0.01 million in aggregate for the three-months ended September 30, 2013 and 2012, respectively. The Company incurred termination costs to certain of its prior distributors amounting to $10.7 million and $0.6 million in aggregate for the nine-months ended September 30, 2013 and 2012, respectively. Such termination costs have been expensed in full and are included in operating expenses for the three- and nine-months ended September 30, 2013 and 2012. Accrued distributor terminations included in accrued liabilities in the accompanying consolidated balance sheets as of September 30, 2013 and December 31, 2012 were $4.3 million and $0.9 million, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company had purchase commitments aggregating approximately $34.9 million at September 30, 2013, 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.
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 $74.9 million at September 30, 2013, which related primarily to sponsorships and other marketing activities.
The Company had operating lease commitments aggregating approximately $16.7 million at September 30, 2013, which related primarily to warehouse and office space.
On August 12, 2013, the Company moved into its new corporate headquarters located in Corona, CA, which was previously acquired by the Company in October 2012.
Value Added Tax (VAT) The Company is seeking guidance from Her Majestys Revenue & Customs (HMRC), the VAT taxing authority in the United Kingdom, to ascertain if the Company should have charged VAT to certain customers in the United Kingdom on a portion of the Companys sales to those customers beginning in 2010. If HMRC determines that the Company should have charged VAT on such sales, the VAT would represent only a pass-through tax to our customers in the United Kingdom. Therefore, any related adjustment should represent an accounts receivable and accounts payable gross-up on the balance sheet and have no impact on the Companys results of operations. The Company estimates the maximum amount of the potential VAT pass-through tax to be $47.1 million at September 30, 2013 ($33.2 million at December 31, 2012). If HMRC determines that the Company should have charged VAT on such sales, it is possible that a tax penalty may be assessed by HMRC. However, the Company believes any such penalty would not have a material impact on its financial position, results of operations or liquidity.
Litigation In May 2009, Avraham Wellman, purporting to act on behalf of himself and a class of consumers in Canada, filed a putative class action in the Ontario Superior Court of Justice, in the City of Toronto, Ontario, Canada, against the Company and its former Canadian distributor, Pepsi-Cola Canada Ltd., as defendants (the Wellman Action). The plaintiff alleges that the defendants misleadingly packaged and labeled Monster Energy® products in Canada by not including sufficiently specific statements with respect to contra-indications and/or adverse reactions associated with the consumption of the energy drink products. The plaintiffs claims against the defendants are for negligence, unjust enrichment, and making misleading/false representations in violation of the Competition Act (Canada), the Food and Drugs Act (Canada) and the Consumer Protection Act, 2002 (Ontario). The plaintiff claims general damages on behalf of the putative class in the amount of CDN$20 million, together with punitive damages of CDN$5 million, plus legal costs and interest. The plaintiffs certification motion materials have not yet been filed. The Company believes that any such damages, if awarded, would not have a material adverse effect on the Companys financial position or results of operations. In accordance with class action practices in Ontario, the Company will not file an answer to the complaint until after the determination of the certification motion. The Company believes that the plaintiffs complaint is without merit and plans a vigorous defense.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
On October 17, 2012, Wendy Crossland and Richard Fournier filed a lawsuit in the Superior Court of the State of California, County of Riverside, styled Wendy Crossland and Richard Fournier v. Monster Beverage Corporation, against the Company claiming that the death of their 14 year old daughter (Anais Fournier) was caused by her consumption of two 24-ounce Monster Energy® drinks over the course of two days in December 2011. The plaintiffs allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The plaintiffs claim general damages in excess of $25,000 and punitive damages. The Company filed a demurrer and a motion to strike the plaintiffs complaint on November 19, 2012, and the plaintiffs filed a first amended complaint on December 19, 2012. The Company filed its answer to the first amended complaint on June 7, 2013. The court set a mediation completion date of November 26, 2013 and indicated that if the parties needed additional time to complete the mediation, the mediation could be scheduled for a later date. Discovery has commenced but no trial date has been set. The Company believes that the plaintiffs complaint is without merit and plans a vigorous defense. The Company also believes that any such damages, if awarded, would not have a material adverse effect on the Companys financial position or results of operations.
The Company has also been named as a defendant in other complaints containing similar allegations to those presented in the Fournier lawsuit, each of which the Company believes is also without merit and would not have a material adverse effect on the Companys financial position or results of operations in the event any damages were awarded.
Securities Litigation On September 11, 2008, a federal securities class action complaint styled Cunha v. Hansen Natural Corp., et al. was filed in the United States District Court for the Central District of California (the District Court). On September 17, 2008, a second federal securities class action complaint styled Brown v. Hansen Natural Corp., et al. was also filed in the District Court. After the District Court consolidated the two actions and appointed the Structural Ironworkers Local Union #1 Pension Fund as lead plaintiff, a Consolidated Complaint for Violations of Federal Securities Laws was filed on August 28, 2009 (the Consolidated Class Action Complaint).
The Consolidated Class Action Complaint purported to be brought on behalf of a class of purchasers of the Companys stock during the period November 9, 2006 through November 8, 2007 (the Class Period). It named as defendants the Company, Rodney C. Sacks, Hilton H. Schlosberg, and Thomas J. Kelly. Plaintiff principally alleged that, during the Class Period, the defendants made false and misleading statements relating to the Companys distribution coordination agreements with Anheuser-Busch, Inc. (AB) and its sales of Allied energy drink lines, and engaged in sales of shares in the Company on the basis of material non-public information. Plaintiff also alleged that the Companys financial statements for the second quarter of 2007 did not include certain promotional expenses. The Consolidated Class Action Complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and Rule 10b-5 promulgated thereunder, and sought an unspecified amount of damages.
The District Court dismissed the Consolidated Class Action Complaint, with leave to amend, on July 12, 2010. Plaintiff thereafter filed a Consolidated Amended Class Action Complaint for Violations of Federal Securities Laws on August 27, 2010 (the Amended Class Action Complaint). While similar in many respects to the Consolidated Class Action Complaint, the Amended Class Action Complaint drops certain of the allegations set forth in the Consolidated Class Action Complaint and makes certain new allegations, including that the Company engaged in channel stuffing during the Class Period that rendered false or misleading the Companys reported sales results and certain other statements made by the defendants. In addition, it no longer names Thomas J. Kelly as a defendant.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
On September 4, 2012, the District Court dismissed certain of the claims in the Amended Class Action Complaint, including plaintiffs allegations relating to promotional expenses, but denied defendants motion to dismiss with regard to the majority of plaintiffs claims, including plaintiffs channel stuffing allegations. Plaintiff filed a motion seeking class certification on December 6, 2012. At a hearing on plaintiffs class certification motion held on June 20, 2013, the District Court issued a tentative ruling indicating that it was inclined to deny the motion, without prejudice. The District Court has not yet, however, issued a final ruling and the motion for class certification remains sub judice. Fact discovery in the action has been stayed pending resolution of the class certification motion.
The Amended Class Action Complaint seeks an unspecified amount of damages. As a result, the amount or range of reasonably possible litigation losses to which the Company is exposed cannot be estimated. Although the ultimate outcome of this action cannot be determined with certainty, the Company believes that the allegations in the Amended Class Action Complaint are without merit. The Company intends to vigorously defend against this lawsuit.
State Attorney General Inquiry In July 2012, the Company received a subpoena from a state attorney general in connection with an investigation concerning the Companys advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand of energy drinks. As the investigation is in an early stage, it is unknown what, if any, action the state attorney general may take against the Company, the relief which may be sought in the event of any such proceeding or whether such proceeding could have a material adverse effect on the Companys business, financial condition or results of operations.
San Francisco City Attorney Litigation. On October 31, 2012, the Company received a written request for information from the City Attorney for the City and County of San Francisco concerning the Companys advertising and marketing of its Monster Energy® brand of energy drinks and specifically concerning the safety of its products for consumption by adolescents. In a letter dated March 29, 2013, the San Francisco City Attorney threatened to bring suit against the Company if it did not agree to take the following five steps immediately: (i) Reformulate its product to lower the caffeine content to safe levels; (ii) Provide adequate warning labels; (iii) Cease promoting over-consumption in marketing; (iv) Cease use of alcohol and drug references in marketing; and (v) Cease targeting minors.
On April 29, 2013, the Company and its wholly owned subsidiary, Monster Energy Company, filed a complaint for declaratory and injunctive relief against the San Francisco City Attorney in United States District Court for the Central District of California (the Central District Court), styled Monster Beverage Corp., et al. v. Dennis Herrera. The Company seeks a declaration from the Central District Court that the San Francisco City Attorneys investigation and demands are impermissible and preempted, subject to the doctrine of primary jurisdiction, are unconstitutional in that they violate the First and Fourteenth Amendments prohibitions against compelled speech,
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
content-based speech and commercial speech, are impermissibly void-for-vagueness, and/or violate the Commerce Clause. On June 3, 2013, the City Attorney filed a motion to dismiss the Companys complaint, arguing in part that the complaint should be dismissed in light of the San Francisco Action (described below) filed on May 6, 2013. On August 22, 2013, the Central District Court granted in part and denied in part the City Attorneys motion.
On October 17, 2013 (after the San Francisco Action described below was remanded to San Francisco Superior Court), the City Attorney filed a renewed motion to dismiss. A hearing on that motion is scheduled for December 9, 2013.
On May 6, 2013, the San Francisco City Attorney filed a complaint for declaratory and injunctive relief, civil penalties and restitution for alleged violation of Californias Unfair Competition Law, Business & Professions Code sections 17200, et seq., styled People Of The State Of California ex rel. Dennis Herrera, San Francisco City Attorney v. Monster Beverage Corporation, San Francisco Superior Court (the San Francisco Action). The City Attorney alleges that the Company (1) mislabeled its products as a dietary supplement, in violation of Californias Sherman Food, Drug and Cosmetic Law, California Health & Safety Code sections 109875 et. seq.; (2) is selling an adulterated product because caffeine is not generally recognized as safe (GRAS) due to the alleged lack of scientific consensus concerning the safety of the levels of caffeine in the Companys products; and (3) is engaged in unfair and misleading business practices because its marketing (a) does not disclose the health risks that energy drinks pose for children and teens; (b) fails to warn against and promotes unsafe consumption; (c) implicitly promotes mixing of energy drinks with alcohol or drugs; and (d) is deceptive because it includes unsubstantiated claims about the purported special benefits of its killer ingredients and energy blend. The City Attorney seeks a declaration that the Company has engaged in unfair and unlawful business acts and practices in violation of the Unfair Competition Law; an injunction from performing or proposing to perform any acts in violation of the Unfair Competition Law; restitution; and civil penalties. On June 3, 2013, the Company removed the case to the United States District Court for the Northern District of California (the Northern District Court). On July 3, 2013, the Company filed a motion to dismiss, stay, or transfer the action to the Central District Court. On that same day, the City Attorney filed a motion to remand the case back to state court. On September 18, 2013, the Northern District Court granted the City Attorneys motion to remand. Because of the remand, the Northern District Court did not reach the merits of the Companys motion to dismiss, stay, or transfer the action.
Following remand of the San Francisco Action, the Superior Court designated the case as complex and set an initial case management conference for December 13, 2013. The Companys initial response to the complaint is due 30 days after the case management conference.
The Company denies that it has violated the Unfair Competition Law or any other law and believes that the City Attorneys claims and demands are preempted and unconstitutional, as alleged in the action the Company filed in the Central District Court. The Company intends to vigorously defend against this lawsuit. At this time, no evaluation of the likelihood of an unfavorable outcome or range of potential loss can be expressed.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
In addition to the above matters, the Company has been named as a defendant in various false advertising putative class actions and in a private attorney general action, each of which contains certain allegations similar to those presented in the Wellman Action. In these actions, plaintiffs allege that defendants misleadingly labeled and advertised Monster Energy® brand products that allegedly were ineffective for the advertised benefits (including, but not limited to, an allegation that the products do not hydrate as advertised because they contain caffeine). The plaintiffs further allege that the Monster Energy® brand products at issue are unsafe because they contain one or more ingredients that allegedly could result in illness, injury or death. In connection with these product safety allegations, the plaintiffs claim that the product labels did not provide adequate warnings and/or that the Company did not include sufficiently specific statements with respect to contra-indications and/or adverse reactions associated with the consumption of its energy drink products (including, but not limited to, claims that certain ingredients, when consumed individually or in combination with other ingredients, could result in high blood pressure, palpitations, liver damage or other negative health effects and/or that the products themselves are unsafe). Based on these allegations, the plaintiffs assert claims for violation of state consumer protection statutes, including unfair competition and false advertising statutes, and for breach of warranty and unjust enrichment. In their prayers for relief, the plaintiffs seek, inter alia, compensatory and punitive damages, restitution, attorneys fees, and, in some cases, injunctive relief. Furthermore, the Company is subject to litigation from time to time in the normal course of business, including intellectual property litigation and claims from terminated distributors. Although it is not possible to predict the 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 Companys financial position or results of operations.
10. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Changes in accumulated other comprehensive (loss) income by component, after tax, for the nine-months ended September 30, 2013 are as follows:
|
|
Currency |
|
Unrealized |
|
Total | |||
Balance at December 31, 2012 |
|
$ |
549 |
|
$ |
1,525 |
|
$ |
2,074 |
Other comprehensive loss before reclassifications |
|
(1,683) |
|
- |
|
(1,683) | |||
Amounts reclassified from accumulated other comprehensive (loss) income |
|
- |
|
(1,525) |
1 |
(1,525) | |||
Net current-period other comprehensive loss |
|
(1,683) |
|
(1,525) |
|
(3,208) | |||
Balance at September 30, 2013 |
|
$ |
(1,134) |
|
$ |
- |
|
$ |
(1,134) |
1 Included in other (expense) income.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
11. TREASURY STOCK PURCHASE
On November 13, 2012, the Companys Board of Directors authorized a new share repurchase program for the repurchase of up to $250.0 million of the Companys outstanding common stock (the November 2012 Repurchase Plan). During the nine-months ended September 30, 2013, the Company purchased 0.257 million shares of common stock at an average purchase price of $51.99 per share for a total amount of $13.4 million (excluding broker commissions), which exhausted the availability under the November 2012 Repurchase Plan.
On April 7, 2013, the Companys Board of Directors authorized a new share repurchase program for the repurchase of up to $200.0 million of the Companys outstanding common stock (the April 2013 Repurchase Plan). As of November 8, 2013, no shares have been purchased under the April 2013 Repurchase Plan.
During the three- and nine-months ended September 30, 2013, 87 shares and 875 shares, respectively, were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $0.005 million and $0.05 million, respectively. While such purchases are considered common stock repurchases, they are not counted as purchases against the Companys authorized share repurchase programs, including the April 2013 Repurchase Plan.
12. STOCK-BASED COMPENSATION
The Company has two stock-based compensation plans under which shares were available for grant at September 30, 2013: the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the 2011 Omnibus Incentive Plan) and the 2009 Monster Beverage Corporation Stock Incentive Plan for Non-Employee Directors (the 2009 Directors Plan).
The Company recorded $7.2 million and $7.9 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units during the three-months ended September 30, 2013 and 2012, respectively. The Company recorded $21.6 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units during both the nine-months ended September 30, 2013 and 2012.
The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options, vesting of restricted stock units and restricted stock awards for both the three-months ended September 30, 2013 and 2012 was $1.4 million. The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options, vesting of restricted stock units and restricted stock awards for the nine-months ended September 30, 2013 and 2012 was $30.2 million and $4.3 million, respectively.
Stock Options
Under the Companys stock-based compensation plans, all stock options granted as of September 30, 2013 were granted at prices based on the fair value of the Companys 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-employees 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.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The following weighted-average assumptions were used to estimate the fair value of options granted during:
|
|
Three-Months Ended September 30, |
|
Nine-Months Ended September 30, |
| ||||
|
|
2013¹ |
|
2012 |
|
2013 |
|
2012 |
|
Dividend yield |
|
0.0 % |
|
0.0 % |
|
0.0 % |
|
0.0 % |
|
Expected volatility |
|
0 % |
|
47.7 % |
|
47.9 % |
|
47.9 % |
|
Risk-free interest rate |
|
0.0 % |
|
0.6 % |
|
0.9 % |
|
0.7 % |
|
Expected term |
|
0.0 Years |
|
5.4 Years |
|
5.7 Years |
|
5.4 Years |
|
1 No options were granted during the three-months ended September 30, 2013.
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 Companys expected term represents the weighted-average period that the Companys stock options are expected to be outstanding. The expected term is based on expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.
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 Companys activities with respect to its stock option plans as follows:
|
|
|
|
|
|
Weighted- |
|
|
| ||
|
|
|
|
Weighted- |
|
Average |
|
|
| ||
|
|
|
|
Average |
|
Remaining |
|
|
| ||
|
|
Number of |
|
Exercise |
|
Contractual |
|
|
| ||
|
|
Shares (In |
|
Price Per |
|
Term (In |
|
Aggregate |
| ||
Options |
|
Thousands) |
|
Share |
|
Years) |
|
Intrinsic Value |
| ||
Outstanding at January 1, 2013 |
|
14,000 |
|
$ |
12.12 |
|
4.1 |
|
$ |
572,530 |
|
Granted 01/01/13 - 03/31/13 |
|
636 |
|
$ |
47.36 |
|
|
|
|
| |
Granted 04/01/13 - 06/30/13 |
|
450 |
|
$ |
54.00 |
|
|
|
|
| |
Granted 07/01/13 - 09/30/13 |
|
- |
|
$ |
- |
|
|
|
|
| |
Exercised |
|
(1,906) |
|
$ |
9.55 |
|
|
|
|
| |
Cancelled or forfeited |
|
(169) |
|
$ |
27.47 |
|
|
|
|
| |
Outstanding at September 30, 2013 |
|
13,011 |
|
$ |
15.47 |
|
4.0 |
|
$ |
482,058 |
|
Vested and expected to vest in the future at September 30, 2013 |
|
12,650 |
|
$ |
14.66 |
|
3.8 |
|
$ |
478,562 |
|
Exercisable at September 30, 2013 |
|
10,033 |
|
$ |
9.05 |
|
2.8 |
|
$ |
433,715 |
|
No options were granted during the three-months ended September 30, 2013. The weighted-average grant-date fair value of options granted during the three-months ended September 30, 2012 was $24.88 per share. The weighted-average grant-date fair value of options granted during the nine-months ended September 30, 2013 and 2012 was $22.44 per share and $25.73 per share, respectively. The total intrinsic value of options exercised during the three-months ended September 30, 2013 and 2012 was $3.3 million and $84.6 million, respectively. The total intrinsic value of options exercised during the nine-months ended September 30, 2013 and 2012 was $87.6 million and $204.3 million, respectively.
Cash received from option exercises under all plans for both the three-months ended September 30, 2013 and 2012 was approximately $1.9 million. Cash received from option exercises under all plans for the nine-months ended September 30, 2013 and 2012 was approximately $18.2 million and $8.4 million, respectively.
At September 30, 2013, there was $42.4 million of total unrecognized compensation expense related to non-vested options granted to employees under the Companys share-based payment plans. That cost is expected to be recognized over a weighted-average period of 2.6 years.
Restricted Stock Awards and Restricted Stock Units
Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Companys 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.
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 Companys activities with respect to non-vested restricted stock awards and non-vested restricted stock units as follows:
|
|
|
|
Weighted |
| |
|
|
Number of |
|
Average |
| |
|
|
Shares (in |
|
Grant-Date |
| |
|
|
thousands) |
|
Fair Value |
| |
Non-vested at January 1, 2013 |
|
637 |
|
$ |
46.97 |
|
Granted 01/01/13 - 03/31/13 |
|
8 |
|
$ |
50.89 |
|
Granted 04/01/13 - 06/30/13 |
|
15 |
|
$ |
54.64 |
|
Granted 07/01/13 - 09/30/13 |
|
- |
|
$ |
- |
|
Vested |
|
(258) |
|
$ |
43.83 |
|
Forfeited/cancelled |
|
(7) |
|
$ |
58.91 |
|
Non-vested at September 30, 2013 |
|
395 |
|
$ |
49.14 |
|
No restricted stock awards or restricted stock units were granted during the three-months ended September 30, 2013. The weighted-average grant-date fair value of restricted stock units and restricted stock awards granted during the three-months ended September 30, 2012 was $59.87 per share. The weighted-average grant-date fair value of restricted stock units and restricted stock awards granted during the nine-months ended September 30, 2013 and 2012 was $53.25 and $62.31 per share, respectively. As of September 30, 2013, 0.4 million of restricted stock units and restricted stock awards are expected to vest in the future.
At September 30, 2013, total unrecognized compensation expense relating to non-vested restricted stock awards and non-vested restricted stock units was $16.4 million, which is expected to be recognized over a weighted-average period of 2.1 years.
13. INCOME TAXES
The following is a roll-forward of the Companys total gross unrecognized tax benefits, not including interest and penalties, for the nine-months ended September 30, 2013:
|
|
Gross Unrealized Tax Benefits |
| |
Balance at December 31, 2012 |
|
$ |
926 |
|
Additions for tax positions related to the current year |
|
- |
| |
Additions for tax positions related to the prior year |
|
9 |
| |
Decreases related to settlement with taxing authority |
|
- |
| |
Balance at September 30, 2013 |
|
$ |
935 |
|
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Companys condensed consolidated financial statements. As of September 30, 2013, the Company had accrued approximately $0.4 million in interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions, the resultant impact on the Companys effective tax rate would not be significant. It is expected that the amount of unrecognized tax benefits will not change within the next 12 months.
On March 8, 2013, the Internal Revenue Service (IRS) began its examination of the Companys U.S. federal income tax returns for the years ended December 31, 2010 and 2011. The Company is also in various stages of examination with certain states.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions. Federal income tax returns are subject to IRS examination for the 2010, 2011 and 2012 tax years. State income tax returns are subject to examination for the 2009 through 2012 tax years.
14. EARNINGS PER SHARE
A reconciliation of the weighted-average shares used in the basic and diluted earnings per common share computations is presented below:
|
|
Three-Months Ended |
|
Nine-Months Ended |
| ||||
|
|
September 30, |
|
Septemer 30, |
| ||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
167,457 |
|
175,026 |
|
166,483 |
|
175,347 |
|
Dilutive securities |
|
6,491 |
|
8,873 |
|
6,861 |
|
10,018 |
|
Diluted |
|
173,948 |
|
183,899 |
|
173,344 |
|
185,365 |
|
For the three-months ended September 30, 2013 and 2012, options outstanding totaling 1.5 million and 0.4 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive. For the nine-months ended September 30, 2013 and 2012, options outstanding totaling 1.2 million and 0.2 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive.
15. SEGMENT INFORMATION
The Company has two reportable segments, namely Direct Store Delivery (DSD), whose principal products comprise energy drinks, and Warehouse (Warehouse), whose principal products comprise juice-based and soda beverages. The DSD segment develops, markets and sells products primarily through an exclusive distributor network, whereas the Warehouse segment develops, markets and sells products primarily direct to retailers. Corporate and unallocated amounts that do not relate to DSD or Warehouse segments have been allocated to Corporate & Unallocated.
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 DSD and Warehouse segments and other financial information related thereto are as follows:
|
|
Three-Months Ended September 30, 2013 |
| ||||||||||||||
|
|
DSD |
|
Warehouse |
|
Corporate and |
|
Total |
| ||||||||
Net sales |
|
$ |
566,768 |
|
$ |
23,654 |
|
$ |
- |
|
$ |
590,422 |
| ||||
Contribution margin |
|
194,915 |
|
(2,193) |
|
- |
|
192,722 |
| ||||||||
Corporate and unallocated expenses |
|
- |
|
- |
|
(41,293) |
|
(41,293 |
) | ||||||||
Operating income |
|
|
|
|
|
|
|
151,429 |
| ||||||||
Other (expense) income |
|
180 |
|
- |
|
(886) |
|
(706 |
) | ||||||||
Income before provision for income taxes |
|
|
|
|
|
|
|
150,723 |
| ||||||||
Depreciation and amortization |
|
(5,069) |
|
(67) |
|
(960) |
|
(6,096 |
) | ||||||||
Trademark amortization |
|
- |
|
(11) |
|
(1) |
|
(12 |
) | ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
Three-Months Ended September 30, 2012 |
| ||||||||||||||
|
|
DSD |
|
Warehouse |
|
Corporate and |
|
Total |
| ||||||||
Net sales |
|
$ |
516,268 |
|
$ |
25,672 |
|
$ |
- |
|
$ |
541,940 |
| ||||
Contribution margin |
|
170,096 |
|
41 |
|
- |
|
170,137 |
| ||||||||
Corporate and unallocated expenses |
|
- |
|
- |
|
(29,452) |
|
(29,452 |
) | ||||||||
Operating income |
|
|
|
|
|
|
|
140,685 |
| ||||||||
Other (expense) income |
|
147 |
|
- |
|
406 |
|
553 |
| ||||||||
Income before provision for income taxes |
|
|
|
|
|
|
|
141,238 |
| ||||||||
Depreciation and amortization |
|
(3,884) |
|
(38) |
|
(1,233) |
|
(5,155 |
) | ||||||||
Trademark amortization |
|
- |
|
(11) |
|
(1) |
|
(12 |
) | ||||||||
Revenue is derived from sales to external customers. Operating expenses that pertain to each segment are allocated to the appropriate segment.
Corporate and unallocated expenses were $41.3 million for the three-months ended September 30, 2013 and included $19.8 million of payroll costs, of which $7.2 million was attributable to stock-based compensation expense (see Note 12, Stock-Based Compensation), $10.9 million attributable to professional service expenses, including accounting and legal costs, and $10.6 million of other operating expenses. Corporate and unallocated expenses were $29.5 million for the three-months ended September 30, 2012 and included $19.8 million of payroll costs, of which $7.9 million was attributable to stock-based compensation expense (see Note 12, Stock-Based Compensation), $4.5 million attributable to professional service expenses, including accounting and legal costs, $1.2 million of depreciation and $4.0 million of other operating expenses.
Coca-Cola Refreshments USA Inc. (CCR), a customer of the DSD segment, accounted for approximately 29% and 28% of the Companys net sales for the three-months ended September 30, 2013 and 2012, respectively.
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 $121.1 million and $114.5 million for the three-months ended September 30, 2013 and 2012, respectively.
The net revenues derived from the DSD and Warehouse segments and other financial information related thereto are as follows:
|
|
Nine-Months Ended September 30, 2013 |
| ||||||||||
|
|
DSD |
|
Warehouse |
|
Corporate and |
|
Total |
| ||||
Net sales |
|
$ |
1,627,936 |
|
$ |
77,643 |
|
$ |
- |
|
$ |
1,705,579 |
|
Contribution margin |
|
548,906 |
|
(682) |
|
- |
|
548,224 |
| ||||
Corporate and unallocated expenses |
|
- |
|
- |
|
(110,064) |
|
(110,064 |
) | ||||
Operating income |
|
|
|
|
|
|
|
438,160 |
| ||||
Other (expense) income |
|
468 |
|
(1) |
|
(6,476) |
|
(6,009 |
) | ||||
Income before provision for income taxes |
|
|
|
|
|
|
|
432,151 |
| ||||
Depreciation and amortization |
|
(14,091) |
|
(168) |
|
(2,149) |
|
(16,408 |
) | ||||
Trademark amortization |
|
- |
|
(33) |
|
(3) |
|
(36 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
Nine-Months Ended September 30, 2012 |
| ||||||||||
|
|
DSD |
|
Warehouse |
|
Corporate and |
|
Total |
| ||||
Net sales |
|
$ |
1,515,476 |
|
$ |
73,709 |
|
$ |
- |
|
$ |
1,589,185 |
|
Contribution margin |
|
515,010 |
|
3,817 |
|
- |
|
518,827 |
| ||||
Corporate and unallocated expenses |
|
- |
|
- |
|
(82,085) |
|
(82,085 |
) | ||||
Operating income |
|
|
|
|
|
|
|
436,742 |
| ||||
Other (expense) income |
|
414 |
|
- |
|
426 |
|
840 |
| ||||
Income before provision for income taxes |
|
|
|
|
|
|
|
437,582 |
| ||||
Depreciation and amortization |
|
(11,577) |
|
(93) |
|
(3,558) |
|
(15,228 |
) | ||||
Trademark amortization |
|
- |
|
(33) |
|
(3) |
|
(36 |
) |
Revenue is derived from sales to external customers. Operating expenses that pertain to each segment are allocated to the appropriate segment.
Corporate and unallocated expenses were $110.1 million for the nine-months ended September 30, 2013 and included $60.6 million of payroll costs, of which $21.6 million was attributable to stock-based compensation expense (see Note 12, Stock-Based Compensation), $27.9 million attributable to professional service expenses, including accounting and legal costs, and $21.6 million of other operating expenses. Corporate and unallocated expenses were $82.1 million for the nine-months ended September 30, 2012 and included $55.4 million of payroll costs, of which $21.6 million was attributable to stock-based compensation expense (see Note 12, Stock-Based Compensation), $11.6 million attributable to professional service expenses, including accounting and legal costs, $3.6 million of depreciation and $11.5 million of other operating expenses.
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)
Coca-Cola Refreshments USA Inc. (CCR), a customer of the DSD segment, accounted for approximately 29% of the Companys net sales for both the nine-months ended September 30, 2013 and 2012, respectively.
Net sales to customers outside the United States amounted to $354.9 million and $318.0 million for the nine-months ended September 30, 2013 and 2012, respectively.
The Companys net sales by product line were as follows:
|
|
Three-Months Ended |
|
Nine-Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
Product Line |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Energy drinks |
|
$ |
548,109 |
|
$ |
498,563 |
|
$ |
1,577,034 |
|
$ |
1,468,036 |
|
Non-carbonated (primarily juice based beverages and Peace Tea® iced teas) |
|
30,622 |
|
32,453 |
|
94,760 |
|
86,737 |
| ||||
Carbonated (primarily soda beverages) |
|
8,067 |
|
8,018 |
|
22,732 |
|
24,445 |
| ||||
Other |
|
3,624 |
|
2,906 |
|
11,053 |
|
9,967 |
| ||||
|
|
$ |
590,422 |
|
$ |
541,940 |
|
$ |
1,705,579 |
|
$ |
1,589,185 |
|
16. RELATED PARTY TRANSACTIONS
Two directors and officers of the Company and their families are principal owners of a company that provides promotional materials to the Company. Expenses incurred with such company in connection with promotional materials purchased during the three-months ended September 30, 2013 and 2012 were $0.1 million and $0.6 million, respectively. Expenses incurred with such company in connection with promotional materials purchased during the nine-months ended September 30, 2013 and 2012 were $0.4 million and $0.7 million, respectively.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Business
Overview
Monster Beverage Corporation was incorporated in Delaware on April 25, 1990. Our principal place of business is located at 1 Monster Way, Corona, California 92879 and our telephone number is (951) 739-6200. When this report uses the words the Company, Hansen Natural Corporation (the Companys former name), we, us, and our, these words refer to Monster B