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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 September 30, 2020

Commission File Number 001-18761

MONSTER BEVERAGE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

47-1809393

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1 Monster Way

Corona, California 92879

(Address of principal executive offices) (Zip code)

(951) 739 - 6200

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock

MNST

Nasdaq Global Select Market

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

Yes  X   No ___

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

Yes  X   No ___

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Yes ___ No   X 

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

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

SEPTEMBER 30, 2020

INDEX

Part I.

FINANCIAL INFORMATION

Page No.

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

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

3

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

4

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

5

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

6

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

7

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

49

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

52

Signatures

53

2

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 SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

(In Thousands, Except Par Value) (Unaudited)

September 30, 

December 31, 

    

2020

    

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

1,074,730

$

797,957

Short-term investments

 

599,326

 

 

533,063

Accounts receivable, net

 

740,813

 

 

540,330

Inventories

 

318,956

 

 

360,731

Prepaid expenses and other current assets

 

75,958

 

 

54,868

Prepaid income taxes

 

16,064

 

 

29,360

Total current assets

 

2,825,847

 

 

2,316,309

INVESTMENTS

 

20,571

 

 

12,905

PROPERTY AND EQUIPMENT, net

 

304,687

 

 

298,640

DEFERRED INCOME TAXES, net

 

84,777

 

 

84,777

GOODWILL

 

1,331,643

 

 

1,331,643

OTHER INTANGIBLE ASSETS, net

 

1,059,537

 

 

1,052,105

OTHER ASSETS

 

70,621

 

 

53,973

Total Assets

$

5,697,683

 

$

5,150,352

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

281,522

 

$

274,045

Accrued liabilities

 

168,398

 

 

114,075

Accrued promotional allowances

 

200,668

 

 

166,761

Deferred revenue

 

45,538

 

 

44,237

Accrued compensation

 

45,555

 

 

47,262

Income taxes payable

 

32,082

 

 

14,717

Total current liabilities

 

773,763

 

 

661,097

DEFERRED REVENUE

 

268,281

 

 

287,469

OTHER LIABILITIES

26,318

30,505

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ EQUITY:

Common stock - $0.005 par value; 1,250,000 shares authorized; 638,458 shares issued and 527,893 shares outstanding as of September 30, 2020; 636,460 shares issued and 536,698 shares outstanding as of December 31, 2019

3,192

3,182

Additional paid-in capital

 

4,513,743

 

 

4,397,511

Retained earnings

 

5,960,338

 

 

5,022,480

Accumulated other comprehensive loss

 

(32,529)

 

 

(32,387)

Common stock in treasury, at cost; 110,565 shares and 99,762 shares as of September 30, 2020 and December 31, 2019, respectively

 

(5,815,423)

 

 

(5,219,505)

Total stockholders’ equity

 

4,629,321

 

 

4,171,281

Total Liabilities and Stockholders’ Equity

$

5,697,683

 

$

5,150,352

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

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

Three-Months Ended

Nine-Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

NET SALES

$

1,246,362

$

1,133,577

$

3,402,355

$

3,183,613

COST OF SALES

 

509,831

 

460,575

 

1,369,160

 

1,275,796

GROSS PROFIT

 

736,531

 

673,002

 

2,033,195

 

1,907,817

OPERATING EXPENSES

 

277,930

 

277,559

 

802,343

 

821,923

OPERATING INCOME

 

458,601

 

395,443

1,230,852

 

1,085,894

INTEREST and OTHER (EXPENSE) INCOME, net

 

(4,568)

 

3,121

 

(5,491)

 

8,835

INCOME BEFORE PROVISION FOR INCOME TAXES

 

454,033

 

398,564

1,225,361

 

1,094,729

PROVISION FOR INCOME TAXES

106,379

99,641

287,503

241,848

NET INCOME

$

347,654

$

298,923

$

937,858

$

852,881

NET INCOME PER COMMON SHARE:

Basic

$

0.66

$

0.55

$

1.77

$

1.57

Diluted

$

0.65

$

0.55

$

1.75

$

1.56

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

Basic

 

527,637

 

544,469

 

530,194

 

543,804

Diluted

 

533,263

 

548,422

 

535,011

 

548,387

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(In Thousands) (Unaudited)

Three-Months Ended

    

Nine-Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

2019

Net income, as reported

$

347,654

$

298,923

$

937,858

$

852,881

Other comprehensive income (loss):

Change in foreign currency translation adjustment

 

21,217

 

(14,359)

 

(338)

 

(10,586)

Available-for-sale investments:

Change in net unrealized gains

 

(308)

 

32

 

196

 

367

Reclassification adjustment for net gains included in net income

 

 

 

 

Net change in available-for-sale investments

 

(308)

 

32

 

196

 

367

Other comprehensive income (loss)

 

20,909

 

(14,327)

 

(142)

 

(10,219)

Comprehensive income

$

368,563

$

284,596

$

937,716

$

842,662

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(In Thousands) (Unaudited)

Accumulated

Other

Total

Common stock

Additional

Retained

Comprehensive

Treasury stock

Stockholders’

  

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

Loss

  

Shares

  

Amount

  

Equity

Balance, December 31, 2019

    

636,460

    

$

3,182

    

$

4,397,511

    

$

5,022,480

    

$

(32,387)

    

(99,762)

    

$

(5,219,505)

    

$

4,171,281

Stock-based compensation

 

17,098

17,098

Exercise of stock options

 

644

4

13,971

13,975

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

304

 

 

 

304

Repurchase of common stock

 

(10,503)

(579,948)

(579,948)

Foreign currency translation

 

(30,599)

(30,599)

Net income

 

278,835

278,835

Balance, March 31, 2020

 

637,104

 

$

3,186

 

$

4,428,580

 

$

5,301,315

 

$

(62,682)

(110,265)

 

$

(5,799,453)

 

$

3,870,946

Stock-based compensation

 

15,936

15,936

Exercise of stock options

 

820

4

29,863

29,867

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

200

 

 

 

200

Repurchase of common stock

 

(298)

(15,822)

(15,822)

Foreign currency translation

 

9,044

9,044

Net income

 

311,369

311,369

Balance, June 30, 2020

 

637,924

 

$

3,190

 

$

4,474,379

 

$

5,612,684

 

$

(53,438)

(110,563)

 

$

(5,815,275)

 

$

4,221,540

Stock-based compensation

 

17,668

17,668

Exercise of stock options

 

534

2

21,696

21,698

Unrealized loss, net on available-for-sale securities

 

 

 

 

 

(308)

 

 

 

(308)

Repurchase of common stock

 

(2)

(148)

(148)

Foreign currency translation

 

21,217

21,217

Net income

 

347,654

347,654

Balance, September 30, 2020

 

638,458

$

3,192

$

4,513,743

$

5,960,338

$

(32,529)

(110,565)

$

(5,815,423)

$

4,629,321

Accumulated

Other

Total

Common stock

Additional

Retained

Comprehensive

Treasury stock

Stockholders’

  

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

Loss

  

Shares

  

Amount

  

Equity

Balance, December 31, 2018

    

630,970

    

$

3,155

    

$

4,238,170

    

$

3,914,645

    

$

(32,864)

    

(87,294)

    

$

(4,512,205)

    

$

3,610,901

Stock-based compensation

 

15,324

15,324

Exercise of stock options

 

3,871

19

35,144

35,163

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

120

 

 

 

120

Repurchase of common stock

 

(4,000)

(222,792)

(222,792)

Foreign currency translation

 

(1,381)

(1,381)

Net income

 

261,485

261,485

Balance, March 31, 2019

 

634,841

 

$

3,174

 

$

4,288,638

 

$

4,176,130

 

$

(34,125)

(91,294)

 

$

(4,734,997)

 

$

3,698,820

Stock-based compensation

 

15,575

15,575

Exercise of stock options

 

1,288

6

45,964

45,970

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

215

 

 

 

215

Repurchase of common stock

 

(10)

(621)

(621)

Foreign currency translation

 

5,154

5,154

Net income

 

292,473

292,473

Balance, June 30, 2019

 

636,129

 

$

3,180

 

$

4,350,177

 

$

4,468,603

 

$

(28,756)

(91,304)

 

$

(4,735,618)

 

$

4,057,586

Stock-based compensation

 

15,991

15,991

Exercise of stock options

 

106

1

4,112

4,113

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

32

 

 

 

32

Repurchase of common stock

 

(4,340)

(254,308)

(254,308)

Foreign currency translation

 

(14,359)

(14,359)

Net income

 

298,923

298,923

Balance, September 30, 2019

 

636,235

$

3,181

$

4,370,280

$

4,767,526

$

(43,083)

(95,644)

$

(4,989,926)

$

4,107,978

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(In Thousands) (Unaudited)

<

Nine-Months Ended

September 30, 

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

937,858

$

852,881

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

Depreciation and amortization

 

45,879

47,843

Gain on disposal of property and equipment

 

(210)

(7)

Impairment of intangibles

7,000

Stock-based compensation

 

53,042

46,890

Deferred income taxes

 

540

Effect on cash of changes in operating assets and liabilities:

Accounts receivable

 

(201,677)

(179,838)

Distributor receivables

 

341

5,813

Inventories

 

39,490

(44,947)

Prepaid expenses and other assets

 

(20,446)

(16,121)

Prepaid income taxes

 

11,460

6,174

Accounts payable

 

(9,724)

69,480

Accrued liabilities

 

53,501

(9,592)

Accrued promotional allowances

 

31,915

55,799

Accrued distributor terminations

 

(150)

6

Accrued compensation

 

(1,214)

(3,901)

Income taxes payable

17,969

10,311

Other liabilities

 

(562)

(631)

Deferred revenue

 

(15,236)

(19,631)

Net cash provided by operating activities

949,236

821,069

CASH FLOWS FROM INVESTING ACTIVITIES:

 

Sales of available-for-sale investments

 

795,858

558,128

Purchases of available-for-sale investments

 

(849,276)

(835,964)

Purchases of property and equipment

 

(42,062)

(44,392)

Proceeds from sale of property and equipment

 

880

810

Additions to intangibles

 

(19,686)

(5,478)

Increase in other assets

(26,228)

(1,289)

Net cash used in investing activities

(140,514)

(328,185)

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on debt

 

(2,500)

(12,841)

Issuance of common stock

 

65,540

85,245

Purchases of common stock held in treasury

 

(595,918)

(477,721)

Net cash used in financing activities

 

(532,878)

(405,317)

Effect of exchange rate changes on cash and cash equivalents

 

929

(7,463)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

276,773

80,104

CASH AND CASH EQUIVALENTS, beginning of period

 

797,957

637,513

CASH AND CASH EQUIVALENTS, end of period

$

1,074,730

$

717,617

SUPPLEMENTAL INFORMATION:

Cash paid during the period for: