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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020

Commission File Number 001-18761

MONSTER BEVERAGE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

47-1809393

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1 Monster Way

Corona, California 92879

(Address of principal executive offices) (Zip code)

(951) 739 - 6200

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock

MNST

Nasdaq Global Select Market

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

Yes  X   No ___

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

Yes  X   No ___

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Yes ___ No   X 

The registrant had 527,396,445 shares of common stock, par value $0.005 per share, outstanding as of July 31, 2020.

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

JUNE 30, 2020

INDEX

Part I.

FINANCIAL INFORMATION

Page No.

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Income for the Three- and Six-Months Ended June 30, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Income for the Three- and Six-Months Ended June 30, 2020 and 2019

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three- and Six-Months Ended June 30, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2020 and 2019

8

Notes to Condensed Consolidated Financial Statements

10

Item 2.

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

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

48

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

52

Signatures

53

2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2020 AND DECEMBER 31, 2019

(In Thousands, Except Par Value) (Unaudited)

June 30, 

December 31, 

    

2020

    

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

921,326

$

797,957

Short-term investments

 

250,753

533,063

Accounts receivable, net

 

760,433

540,330

Inventories

 

340,536

360,731

Prepaid expenses and other current assets

 

78,425

54,868

Prepaid income taxes

 

19,977

29,360

Total current assets

 

2,371,450

2,316,309

INVESTMENTS

2,077

12,905

PROPERTY AND EQUIPMENT, net

 

301,946

298,640

DEFERRED INCOME TAXES, net

 

84,777

84,777

GOODWILL

 

1,331,643

1,331,643

OTHER INTANGIBLE ASSETS, net

 

1,055,544

1,052,105

OTHER ASSETS

 

46,376

53,973

Total Assets

$

5,193,813

$

5,150,352

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

261,969

$

274,045

Accrued liabilities

 

142,848

114,075

Accrued promotional allowances

 

167,011

166,761

Deferred revenue

 

44,894

44,237

Accrued compensation

 

35,646

47,262

Income taxes payable

 

22,497

14,717

Total current liabilities

 

674,865

661,097

DEFERRED REVENUE

 

272,926

287,469

OTHER LIABILITIES

24,482

30,505

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS' EQUITY:

Common stock - $0.005 par value; 1,250,000 shares authorized; 637,924 shares issued and 527,361 shares outstanding as of June 30, 2020; 636,460 shares issued and 536,698 shares outstanding as of December 31, 2019

 

3,190

3,182

Additional paid-in capital

 

4,474,379

4,397,511

Retained earnings

 

5,612,684

5,022,480

Accumulated other comprehensive loss

 

(53,438)

(32,387)

Common stock in treasury, at cost; 110,563 shares and 99,762 shares as of June 30, 2020 and December 31, 2019, respectively

 

(5,815,275)

(5,219,505)

Total stockholders’ equity

 

4,221,540

4,171,281

Total Liabilities and Stockholders’ Equity

$

5,193,813

$

5,150,352

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2020 AND 2019

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

Three-Months Ended

Six-Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

NET SALES

$

1,093,896

$

1,104,045

$

2,155,993

$

2,050,037

COST OF SALES

 

434,427

 

442,762

 

859,329

 

815,221

GROSS PROFIT

 

659,469

 

661,283

 

1,296,664

 

1,234,816

OPERATING EXPENSES

 

252,205

 

282,293

 

524,412

 

544,364

OPERATING INCOME

 

407,264

 

378,990

772,252

 

690,452

INTEREST and OTHER (EXPENSE) INCOME, net

 

(1,796)

 

2,973

 

(923)

 

5,714

INCOME BEFORE PROVISION FOR INCOME TAXES

 

405,468

 

381,963

771,329

 

696,166

PROVISION FOR INCOME TAXES

94,099

89,490

181,125

142,208

NET INCOME

$

311,369

$

292,473

$

590,204

$

553,958

NET INCOME PER COMMON SHARE:

Basic

$

0.59

$

0.54

$

1.11

$

1.02

Diluted

$

0.59

$

0.53

$

1.10

$

1.01

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

Basic

 

526,911

 

544,156

 

531,486

 

543,466

Diluted

 

531,191

 

548,218

 

535,897

 

548,299

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2020 AND 2019

(In Thousands) (Unaudited)

    

Three-Months Ended

    

Six-Months Ended

June 30, 

June 30, 

2020

    

2019

    

2020

    

2019

Net income, as reported

$

311,369

$

292,473

$

590,204

$

553,958

Other comprehensive income (loss):

Change in foreign currency translation adjustment

 

9,044

 

5,154

 

(21,555)

 

3,773

Available-for-sale investments:

Change in net unrealized gains

 

200

 

215

 

504

 

335

Reclassification adjustment for net gains included in net income

 

 

 

 

Net change in available-for-sale investments

 

200

 

215

 

504

 

335

Other comprehensive income (loss)

 

9,244

 

5,369

 

(21,051)

 

4,108

Comprehensive income

$

320,613

$

297,842

$

569,153

$

558,066

See accompanying notes to condensed consolidated financial statements.

5

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2020 AND 2019

(In Thousands) (Unaudited)

Accumulated

Additional

Other

Total

Common stock

Paid-in

Retained

Comprehensive

Treasury stock

Stockholders'

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

    

Shares

    

Amount

    

Equity

Balance, December 31, 2019

 

636,460

$

3,182

$

4,397,511

$

5,022,480

$

(32,387)

 

(99,762)

$

(5,219,505)

$

4,171,281

Stock-based compensation

 

 

 

17,098

 

 

 

 

 

17,098

Exercise of stock options

 

644

 

4

 

13,971

 

 

 

 

 

13,975

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

304

 

 

 

304

Repurchase of common stock

 

 

 

 

 

 

(10,503)

 

(579,948)

 

(579,948)

Foreign currency translation

 

 

 

 

 

(30,599)

 

 

 

(30,599)

Net income

 

 

 

 

278,835

 

 

 

 

278,835

Balance, March 31, 2020

 

637,104

$

3,186

$

4,428,580

$

5,301,315

$

(62,682)

 

(110,265)

$

(5,799,453)

$

3,870,946

Stock-based compensation

 

 

 

15,936

 

 

 

 

 

15,936

Exercise of stock options

 

820

 

4

 

29,863

 

 

 

 

 

29,867

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

200

 

 

 

200

Repurchase of common stock

 

 

 

 

 

 

(298)

 

(15,822)

 

(15,822)

Foreign currency translation

 

 

 

 

 

9,044

 

 

 

9,044

Net income

 

 

 

 

311,369

 

 

 

 

311,369

Balance, June 30, 2020

637,924

$

3,190

$

4,474,379

$

5,612,684

$

(53,438)

(110,563)

$

(5,815,275)

$

4,221,540

6

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2020 AND 2019

(In Thousands) (Unaudited) (Continued)

Accumulated

Additional

Other

                

Total

Common stock

Paid-in

Retained

Comprehensive

Treasury stock

Stockholders'

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

    

Shares

    

Amount

    

Equity

Balance, December 31, 2018

 

630,970

$

3,155

$

4,238,170

$

3,914,645

$

(32,864)

 

(87,294)

$

(4,512,205)

$

3,610,901

Stock-based compensation

 

 

 

15,324

 

 

 

 

 

15,324

Exercise of stock options

 

3,871

 

19

 

35,144

 

 

 

 

 

35,163

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

120

 

 

 

120

Repurchase of common stock

 

 

 

 

 

 

(4,000)

 

(222,792)

 

(222,792)

Foreign currency translation

 

 

 

 

 

(1,381)

 

 

 

(1,381)

Net income

 

 

 

 

261,485

 

 

 

 

261,485

Balance, March 31, 2019

 

634,841

$

3,174

$

4,288,638

$

4,176,130

$

(34,125)

 

(91,294)

$

(4,734,997)

$

3,698,820

Stock-based compensation

 

 

 

15,575

 

 

 

 

 

15,575

Exercise of stock options

 

1,288

 

6

 

45,964

 

 

 

 

 

45,970

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

215

 

 

 

215

Repurchase of common stock

 

 

 

 

 

 

(10)

 

(621)

 

(621)

Foreign currency translation

 

 

 

 

 

5,154

 

 

 

5,154

Net income

 

 

 

 

292,473

 

 

 

 

292,473

Balance, June 30, 2019

636,129

$

3,180

$

4,350,177

$

4,468,603

$

(28,756)

(91,304)

$

(4,735,618)

$

4,057,586

See accompanying notes to condensed consolidated financial statements.

7

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTHS ENDED JUNE 30, 2020 AND 2019

(In Thousands) (Unaudited)

Six-Months Ended

June 30, 

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

590,204

$

553,958

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

Depreciation and amortization

 

32,057

32,444

(Gain) loss on disposal of property and equipment

 

(179)

1,269

Impairment of intangibles

4,000

Stock-based compensation

 

33,034

30,899

Deferred income taxes

 

539

Effect on cash of changes in operating assets and liabilities:

Accounts receivable

 

(231,782)

(204,393)

Distributor receivables

 

188

4,527

Inventories

 

14,181

(21,505)

Prepaid expenses and other assets

 

(23,394)

(16,804)

Prepaid income taxes

 

7,245

4,554

Accounts payable

 

(6,772)

36,850

Accrued liabilities

 

31,691

(1,412)

Accrued promotional allowances

 

3,079

53,568

Accrued distributor terminations

 

(140)

427

Accrued compensation

 

(10,932)

(10,508)

Income taxes payable

 

8,278

4,959

Other liabilities

83

(169)

Deferred revenue

 

(10,383)

(14,418)

Net cash provided by operating activities

 

440,458

454,785

CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of available-for-sale investments