SEC Filing | Monster Energy Company

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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, 2012

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.)

550 Monica Circle, Suite 201

Corona, California 92880

(Address of principal executive offices) (Zip code)

(951) 739 – 6200

(Registrant’s 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
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 176,428,972 shares of common stock, par value $0.005 per share, outstanding as of July 25, 2012.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

JUNE 30, 2012

INDEX

Part I.	FINANCIAL INFORMATION	Page No.

Item 1.	Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	3

	Condensed Consolidated Statements of Income for the Three- and Six-Months Ended June 30, 2012 and 2011	4

	Condensed Consolidated Statements of Comprehensive Income for the Three- and Six-Months Ended June 30, 2012 and 2011	5

	Condensed Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2012 and 2011	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	47

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	51

	Signatures	52

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PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2012 AND DECEMBER 31, 2011

(In Thousands, Except Par Value) (Unaudited)

	June 30, 2012				December 31, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	419,167			$	359,331
Short-term investments	451,063				411,282
Trade accounts receivable, net	305,707				218,072
Distributor receivables	686				669
Inventories	199,053				155,613
Prepaid expenses and other current assets	19,414				20,912
Prepaid income taxes	2,739				370
Deferred income taxes	16,428				16,428
Total current assets	1,414,257				1,182,677

INVESTMENTS	20,873				23,194
PROPERTY AND EQUIPMENT, net	55,944				45,151
DEFERRED INCOME TAXES	56,002				58,576
INTANGIBLES, net	50,875				48,396
OTHER ASSETS	3,566				4,405
Total Assets		$	1,601,517			$	1,362,399

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	157,212			$	113,446
Accrued liabilities	58,217				31,966
Accrued promotional allowances	61,416				87,746
Deferred revenue	12,062				11,583
Accrued compensation	7,857				10,353
Income taxes payable	3,068				10,996
Total current liabilities	299,832				266,090

DEFERRED REVENUE	113,756				117,151

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS’ EQUITY:
Common stock - $0.005 par value; 240,000 shares authorized; 200,873 shares issued and 176,421 outstanding as of June 30, 2012; 198,729 shares issued and 174,277 outstanding as of December 31, 2011	1,004				994
Additional paid-in capital	252,440				229,301
Retained earnings	1,354,539				1,168,644
Accumulated other comprehensive loss	(1,820			)	(1,547			)
Common stock in treasury, at cost; 24,452 shares as of June 30, 2012 and December 31, 2011, respectively	(418,234			)	(418,234			)
Total stockholders’ equity	1,187,929				979,158
Total Liabilities and Stockholders’ Equity		$	1,601,517			$	1,362,399

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2012 AND 2011

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

	Three-Months Ended								Six-Months Ended
	June 30,								June 30,
	2012				2011				2012				2011

NET SALES		$	592,640			$	462,145			$	1,047,245			$	818,564

COST OF SALES	285,632				217,924				499,068				388,806

GROSS PROFIT	307,008				244,221				548,177				429,758

OPERATING EXPENSES	137,235				111,739				252,118				208,822

OPERATING INCOME	169,773				132,482				296,059				220,936

OTHER (EXPENSE) INCOME:
Interest and other (expense) income, net	(27			)	624				(77			)	627
(Loss) gain on investments and put options, net (Note 3)	(33			)	(350			)	363				(51			)
Total other (expense) income	(60			)	274				286				576

INCOME BEFORE PROVISION FOR INCOME TAXES	169,713				132,756				296,345				221,512

PROVISION FOR INCOME TAXES	59,918				48,508				110,450				82,221

NET INCOME		$	109,795			$	84,248			$	185,895			$	139,291

NET INCOME PER COMMON SHARE:
Basic		$	0.62			$	0.48			$	1.06			$	0.79
Diluted		$	0.59			$	0.45			$	1.00			$	0.74

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Basic	176,186				176,950				175,509				177,402
Diluted	186,284				187,208				185,833				187,284

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE- AND SIX-MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands) (Unaudited)

	Three-Months Ended June 30,								Six-Months Ended June 30,
	2012				2011				2012				2011
Net income, as reported		$	109,795			$	84,248			$	185,895			$	139,291
Other comprehensive income:
Change in unrealized gain on available-for-sale securities, net of tax	-				1,377				-				1,478
Foreign currency translation adjustments	(2,728			)	(483			)	(273			)	245
Comprehensive income		$	107,067			$	85,142			$	185,622			$	141,014

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands) (Unaudited)

	Six-Months Ended
	June 30, 2012				June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	185,895			$	139,291
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of trademark	24				24
Depreciation and other amortization	10,069				7,671
Gain on disposal of property and equipment	(50			)	(108			)
Stock-based compensation	13,631				7,894
Loss (gain) on put option	1,225				(323			)
(Gain) loss on investments, net	(1,586			)	374
Deferred income taxes	2,574				-
Tax benefit from exercise of stock options	(2,922			)	(1,144			)
Effect on cash of changes in operating assets and liabilities:
Accounts receivable	(87,833			)	(86,953			)
Distributor receivables	(17			)	(260			)
Inventories	(44,289			)	(2,452			)
Prepaid expenses and other current assets	640				(2,851			)
Prepaid income taxes	(2,444			)	9,737
Accounts payable	45,058				43,380
Accrued liabilities	25,260				12,518
Accrued promotional allowances	(24,609			)	(7,049			)
Accrued distributor terminations	(77			)	(393			)
Accrued compensation	(2,509			)	(1,807			)
Income taxes payable	(5,029			)	9,028
Deferred revenue	(2,942			)	(2,611			)
Net cash provided by operating activities	110,069				123,966

CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held-to-maturity investments	316,474				182,317
Sales of available-for-sale investments	33,391				22,657
Sales of trading investments	16,540				14,600
Purchases of held-to-maturity investments	(397,278			)	(228,249			)
Purchases of available-for-sale investments	(5,002			)	(11,874			)
Purchases of property and equipment	(19,880			)	(12,311			)
Proceeds from sale of property and equipment	226				289
Additions to intangibles	(2,503			)	(3,385			)
Decrease in other assets	485				1,025
Net cash used in investing activities	(57,547			)	(34,931			)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt	(1,091			)	(696			)
Tax benefit from exercise of stock options	2,922				1,144
Issuance of common stock	6,437				11,308
Purchases of common stock held in treasury	-				(38,862			)
Net cash provided by (used in) financing activities	8,268				(27,106			)

Effect of exchange rate changes on cash and cash equivalents	(954			)	1,426

NET INCREASE IN CASH AND CASH EQUIVALENTS	59,836				63,355
CASH AND CASH EQUIVALENTS, beginning of period	359,331				354,842
CASH AND CASH EQUIVALENTS, end of period		$	419,167			$	418,197

SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest		$	28			$	31
Income taxes		$	115,311			$	63,415

See accompanying notes to condensed consolidated financial statements.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTHS ENDED JUNE 30, 2012 AND 2011

(In Thousands) (Unaudited) (Continued)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS

The Company entered into capital leases for the acquisition of promotional vehicles of $1.1 million and $1.8 million for the six-months ended June 30, 2012 and 2011, respectively.

See accompanying notes to condensed consolidated financial statements.

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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 “Hansen Natural Corporation”) Annual Report on Form 10-K for the year ended December 31, 2011 (“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 Company’s 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 six-months ended June 30, 2012 and 2011 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.

As disclosed in the Company’s Form 10-K, management concluded that its presentation of accounts receivable, net of certain promotional allowances as of December 31, 2010, should be adjusted to present such receivables and accrued expenses on a gross basis with regard to those customers for which the Company does not allow net settlement. Such adjustment did not change total net cash provided by operating activities in the condensed consolidated statement of cash flows for the six-months ended June 30, 2011. However, the following line items within net cash flows from operating activities were adjusted for the six-months ended June 30, 2011 (cash used in operating activities in parentheses); (i) accounts receivable by ($25.7) million; (ii) accounts payable by $28.4 million; (iii) accrued liabilities by $4.4 million; and (iv) accrued promotional allowances by ($7.1) million. See Item 2, “Management Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for additional discussion of the Company’s promotional allowances.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. ASU 2011-05 became effective for the Company on January 1, 2012. The adoption of ASU 2011-05 did not have any impact on the Company’s financial position, results of operations or liquidity.

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 became effective for the Company on January 1, 2012. The adoption of ASU 2011-04 did not have any impact on the Company’s financial position, results of operations or liquidity.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

3. INVESTMENTS

The following table summarizes the Company’s investments at:

June 30, 2012

Amortized
Cost

Gross
Unrealized
Holding
Gains

Gross
Unrealized
Holding
Losses

Fair
Value

Continuous
Unrealized
Loss Position
less than 12
Months

Continuous
Unrealized
Loss Position
greater than 12
Months

Held-to-Maturity

Short-term:

U.S. Treasuries

15,325

–

15,325

–

Certificates of deposit

38,087

–

38,087

–

Municipal securities

343,100

–

124

342,976

124

–

U.S. government agency securities

23,992

–

23,992

–

Available-for-sale

Short-term:

Variable rate demand notes

30,559

–

30,559

–

Long-term:

Auction rate securities

3,310

–

3,310

–

Total

454,373

–

124

454,249

124

–

Trading

Short-term:

Auction rate securities

–

Long-term:

Auction rate securities

17,563

Total

471,812

December 31, 2011	Amortized Cost			Gross Unrealized Holding Gains			Gross Unrealized Holding Losses			Fair Value			Continuous Unrealized Loss Position less than 12 Months			Continuous Unrealized Loss Position greater than 12 Months
Held-to-Maturity
Short-term:
U.S. Treasuries		$	8,034		$	5		$	—		$	8,039		$	—		$	—
Certificates of deposit	29,034			1			—			29,035			—			—
Corporate bonds	2,022			—			—			2,022			—			—
Municipal securities	284,605			—			64			284,541			64			—
U.S. government agency securities	16,005			2			—			16,007			—			—
Available-for-sale
Short-term:
Variable rate demand notes	58,924			—			—			58,924			—			—
Long-term:
Auction rate securities	3,320			—			—			3,320			—			—
Total		$	401,944		$	8		$	64	401,888				$	64		$	—
Trading
Short-term:
Auction rate securities										12,658
Long-term:
Auction rate securities										19,874
Total											$	434,420

During the three- and six-months ended June 30, 2012 and the year ended December 31, 2011, realized gains or losses recognized on the sale of investments were not significant.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The Company recognized a net (loss) gain through earnings on its trading securities as follows:

	Three-Months Ended June 30,								Six-Months Ended June 30,
	2012				2011				2012			2011
(Loss) on transfer from available-for-sale to trading		$	-			$	(2,439	)		$	-		$	(2,439	)
Gain on trading securities sold	54				1,919				1,088			2,046
(Loss) gain on trading securities held	(255			)	(133			)	498			19
(Loss) gain on trading securites		$	(201	)		$	(653	)		$	1,586		$	(374	)

The Company’s investments at June 30, 2012 and December 31, 2011 in U.S. Treasuries, certificates of deposit, corporate bonds, municipal securities, U.S. government agency securities and variable rate demand notes (“VRDNs”) carry investment grade credit ratings. VRDNs are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. While they are classified as marketable investment securities, the put option allows the VRDNs to be liquidated at par on a same day, or more generally on a seven day, settlement basis. A portion of the Company’s investments at June 30, 2012 and December 31, 2011 in municipal, educational or other public body securities with an auction reset feature (“auction rate securities”) also carry investment grade credit ratings.

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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 underlying contractual maturities of the Company’s investments at:

	June 30, 2012						December 31, 2011

	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Less than 1 year:
U.S. Treasuries		$	15,325		$	15,325		$	8,034		$	8,039
Certificates of deposit	38,087			38,087			29,034			29,035
Corporate bonds	-			-			2,022			2,022
Municipal securities	343,100			342,976			284,605			284,541
U.S. government agency securities	23,992			23,992			16,005			16,007
Due 1 - 10 years:
Variable rate demand notes	900			900			5,775			5,775
Due 11 - 20 years:
Variable rate demand notes	6,801			6,801			12,716			12,716
Auction rate securities	4,571			4,571			5,158			5,158
Due 21 - 30 years:
Variable rate demand notes	15,082			15,082			27,902			27,902
Auction rate securities	16,302			16,302			25,134			25,134
Due 31 - 40 years:
Variable rate demand notes	7,776			7,776			12,532			12,532
Auction rate securities	-			-			5,559			5,559
Total		$	471,936		$	471,812		$	434,476		$	434,420

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 to sell 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.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The following tables present the Company’s held-to-maturity investments at amortized cost as well as the fair value of the Company’s financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:

June 30, 2012	Level 1		Level 2		Level 3		Total
Cash	$	67,428	$	-	$	-	$	67,428
Money market funds	285,198		-		-		285,198
U.S. Treasuries	15,325		-		-		15,325
Certificates of deposit	-		63,282		-		63,282
Municipal securities	-		384,446		-		384,446
U.S. government agency securities	-		23,992		-		23,992
Variable rate demand notes	-		30,559		-		30,559
Auction rate securities	-		-		20,873		20,873
Put option related to auction rate securities	-		-		1,816		1,816
Total	$	367,951	$	502,279	$	22,689	$	892,919

Amounts included in:
Cash and cash equivalents	$	352,626	$	66,541	$	-	$	419,167
Short-term investments	15,325		435,738		-		451,063
Investments	-		-		20,873		20,873
Other assets	-		-		1,816		1,816
Total	$	367,951	$	502,279	$	22,689	$	892,919

December 31, 2011	Level 1		Level 2		Level 3		Total
Cash	$	81,879	$	-	$	-	$	81,879
Money market funds	230,029		-		-		230,029
U.S. Treasuries	8,034		-		-		8,034
Certificates of deposit	-		69,078		-		69,078
Corporate bonds	-		2,022		-		2,022
Municipal securities	-		291,984		-		291,984
U.S. government agency securities	-		16,005		-		16,005
Variable rate demand notes	-		58,924		-		58,924
Auction rate securities	-		-		35,852		35,852
Put options related to auction rate securities	-		-		3,041		3,041
Total	$	319,942	$	438,013	$	38,893	$	796,848

Amounts included in:
Cash and cash equivalents	$	311,908	$	47,423	$	-	$	359,331
Short-term investments	8,034		390,590		12,658		411,282
Investments	-		-		23,194		23,194
Prepaid expenses and other current assets	-		-		873		873
Other assets	-		-		2,168		2,168
Total	$	319,942	$	438,013	$	38,893	$	796,848

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The majority of the Company’s short-term investments are classified within Level 1 or Level 2 of the fair value hierarchy. The Company’s valuation of its Level 1 investments, which include money market funds and U.S. Treasuries, is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments, which include certificates of deposit, corporate bonds, municipal securities, U.S. government agency securities and VRDNs, is based on other observable inputs, specifically a valuation model which utilized vendor pricing for similar securities. There were no transfers between Level 1 and Level 2 measurements during the three- and six-months ended June 30, 2012, and there were no changes in the Company’s valuation techniques.

The Company’s Level 3 assets are comprised of auction rate securities and put options. The Company’s 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 Company’s valuation techniques of its Level 3 assets during the three- and six-months ended June 30, 2012.

The following table presents quantitative information related to the significant unobservable inputs utilized in the Company’s Level 3 recurring fair value measurements as of June 30, 2012.

	Valuation Technique	Unobservable Input	Range (Weighted Average)
Auction Rate Securities:
Trading	Discounted cash flow	Maximum rate probability	0.35%-1.62% (0.89%)
		Principal returned probability	86.51%-95.54% (87.55%)
		Default probability	3.98%-12.14% (11.57%)
		Liquidity risk	3.50%-3.50% (3.50%)
		Recovery rate	60-60 (60)
Auction Rate Securities:
Available-for-sale	Market comparable bonds	Market price	54-64 (60)

Put Options	Discounted cash flow	Counterparty risk	1.92%-2.69% (2.31%)

At June 30, 2012, the Company held auction rate securities with a face value of $28.3 million (amortized cost basis of $20.9 million). A Level 3 valuation was performed on the Company’s auction rate securities as of June 30, 2012 resulting in a fair value of $3.3 million for the Company’s available-for-sale auction rate securities (after a $5.0 million impairment) and $17.6 million for the Company’s trading auction rate securities (after a $2.4 million impairment), which are included in long-term investments.

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(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

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 six-months ended June 30, 2012, $0.8 million of 2011 ARS Securities were redeemed through normal market channels ($3.7 million of par value 2011 ARS Securities were redeemed at par through normal market channels during the year ended December 31, 2011). 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 June 30, 2012, the Company recorded $1.8 million as the fair market value of the 2011 Put Option, included in other assets in the condensed consolidated balance sheet.

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 Company’s rights under the 2010 ARS Agreement (as of December 31, 2011, $38.5 million of par value 2010 ARS Securities had been redeemed at par through the exercise of the 2010 Put Option as well as through normal market channels).

The Company holds additional auction rate securities that do not have a related put option. These auction rate securities continue to be classified as available-for-sale securities. The Company intends to retain such investments until the earlier of the recovery in market value or maturity.

The net effect of (i) the revaluation of the 2011 Put Option and the 2010 Put Option as of June 30, 2012; (ii) the revaluation of the Company’s trading auction rate securities as of June 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 (loss) gain of ($0.03) million and $0.4 million, which is included in other (expense) income for the three- and six-months ended June 30, 2012, respectively. The net effect of (i) the acquisition of the 2011 Put Option during the second fiscal quarter of 2011; (ii) the revaluation of the 2011 Put Option and the 2010 Put Option as of June 30, 2011; (iii) the transfer from available-for-sale to trading of the 2011 ARS Securities during the second fiscal quarter of 2011; (iv) the revaluation of the Company’s trading auction rate securities as of June 30, 2011; (v) the redemption at par of certain 2010 ARS Securities, including those redeemed through the exercise of the 2010 Put Option; and (vi) a recognized gain resulting from the redemption at par of a previously other-than-temporary impaired security during the first fiscal quarter of 2011, resulted in a (loss) of ($0.3) million and ($0.1) million included in other (expense) income for the three- and six-months ended June 30, 2011, respectively.

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(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The following table provides a summary reconciliation of the Company’s financial assets that are recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Three-Months Ended June 30, 2012							Three-Months Ended June 30, 2011
	Auction Rate Securities				Put Options			Auction Rate Securities				Put Options
Opening Balance		$	21,864			$	1,649		$	67,644			$	3,788
Transfers into Level 3	-				-			-				-
Transfers out of Level 3	-				-			-				-
Total (losses) gains for the period:
Included in earnings	(201			)	167			(652			)	303
Included in other comprehensive income	-				-			2,244				-
Settlements	(790			)	-			(13,600			)	-
Closing Balance		$	20,873			$	1,816		$	55,636			$	4,091

	Six-Months Ended June 30, 2012								Six-Months Ended June 30, 2011
	Auction Rate Securities				Put Options				Auction Rate Securities				Put Options
Opening Balance		$	35,852			$	3,041			$	68,252			$	3,768
Transfers into Level 3	-				-				-				-
Transfers out of Level 3	-				-				-				-
Total gains (losses) for the period:
Included in earnings	1,586				(1,225			)	(374			)	323
Included in other comprehensive income	-				-				2,408				-
Settlements	(16,565			)	-				(14,650			)	-
Closing Balance		$	20,873			$	1,816			$	55,636			$	4,091

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(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

5. INVENTORIES

Inventories consist of the following at:

	June 30, 2012			December 31, 2011
Raw materials		$	57,044		$	51,103
Finished goods	142,009			104,510
		$	199,053		$	155,613

6. PROPERTY AND EQUIPMENT, Net

Property and equipment consist of the following at:

	June 30, 2012				December 31, 2011
Land		$	3,923			$	3,626
Leasehold improvements	2,264				2,132
Furniture and fixtures	2,086				2,000
Office and computer equipment	7,415				6,727
Computer software	9,344				9,303
Equipment	40,247				33,286
Buildings	12,542				3,211
Vehicles	24,447				21,827
	102,268				82,112
Less: accumulated depreciation and amortization	(46,324			)	(36,961			)
		$	55,944			$	45,151

7. INTANGIBLES, Net

Intangibles consist of the following at:

	June 30, 2012				December 31, 2011
Amortizing intangibles		$	1,059			$	1,059
Accumulated amortization	(528			)	(504			)
	531				555
Non-amortizing intangibles	50,344				47,841
		$	50,875			$	48,396

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 June 30, 2012 and 2011, respectively. Amortization expense was $0.02 million for both the six-months ended June 30, 2012 and 2011, respectively.

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(Tabular Dollars in Thousands, Except Per Share Amounts) (Unaudited)

8. DISTRIBUTION AGREEMENTS

Amounts received pursuant to new and/or amended distribution agreements entered into with certain distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, 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 $1.9 million and $2.1 million for the three-months ended June 30, 2012 and 2011, respectively. Revenue recognized was $4.4 million and $3.9 million for the six-months ended June 30, 2012 and 2011, respectively.

9. COMMITMENTS AND CONTINGENCIES

The Company has purchase commitments aggregating approximately $50.4 million at June 30, 2012, which represent 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.

The Company has contractual obligations aggregating approximately $88.8 million at June 30, 2012, which are related primarily to sponsorships and other marketing activities.

The Company has operating lease commitments aggregating approximately $16.6 million at June 30, 2012, which are related primarily to warehouse and office space.

In March 2012, the Company acquired an approximately 75,425 square foot, free standing, three-story office building, including the real property thereunder and improvements thereon, located in Corona, CA for a purchase price of $9.7 million. The Company intends to complete the necessary improvements thereon and occupy the building as the Company’s new corporate headquarters at some time in the future.

Litigation — In September 2006, Christopher Chavez purporting to act on behalf of himself and a certain class of consumers filed an action in the Superior Court of the State of California, County of San Francisco, against the Company and its subsidiaries for unfair business practices, false advertising, violation of California Consumers Legal Remedies Act (“CLRA”), fraud, deceit and/or misrepresentation alleging that the Company misleadingly labels its Blue Sky® beverages as manufactured and canned/bottled wholly in Santa Fe, New Mexico. Defendants removed this Superior Court action to the United States District Court for the Northern District of California (the “District Court”) under the Class Action Fairness Act and filed motions for dismissal or transfer. On June 11, 2007, the District Court granted the Company’s motion to dismiss Chavez’s complaint with prejudice. On June 23, 2009, the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”) filed a memorandum opinion reversing the decision of the District Court and remanded the case to the District Court for further proceedings. The Company filed a motion to dismiss the CLRA claims; the plaintiff filed a motion for a decision on a preemption issue; and the plaintiff filed a motion for class certification. On June 18, 2010, the District Court entered an order certifying the class, ruled that there was no preemption by federal law, and denied the Company’s motion to dismiss. The class that the District Court certified initially consists of all persons who purchased any

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beverage bearing the Blue Sky mark or brand in the United States at any time between May 16, 2002 and June 30, 2006. On September 9, 2010, the District Court approved the form of the class notice and its distribution plan; and set an opt-out date of December 10, 2010. On January 27, 2012, the parties entered into a settlement agreement on terms acceptable to the Company. On June 1, 2012, the District Court granted final approval of the settlement and entered judgment. On June 26, 2012, an objector to the settlement filed a notice appealing the District Court’s judgment, which is now pending in the Ninth Circuit Court of Appeals. The Company does not believe that the settlement or the pending appeal will have a material adverse effect on the Company’s financial position or results of operations.

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 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 plaintiff’s 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 plaintiff’s 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 Company’s 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 plaintiff’s complaint is without merit and plans a vigorous defense.

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.

On July 14, 2009, the District Court entered an order consolidating the actions and appointing lead counsel and the Structural Ironworkers Local Union #1 Pension Fund as lead plaintiff. On August 28, 2009, lead plaintiff filed a Consolidated Complaint for Violations of Federal Securities Laws (the “Consolidated Class Action Complaint”). The Consolidated Class Action Complaint purported to be brought on behalf of a class of purchasers of the Company’s 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 Company’s 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 Company’s 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.

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On November 16, 2009, the defendants filed their motion to dismiss the Consolidated Class Action Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), as well as the Private Securities Litigation Reform Act. On July 12, 2010, following a hearing, the District Court granted the defendants’ motion to dismiss the Consolidated Class Action Complaint, with leave to amend, on the grounds, among others, that it failed to specify which statements plaintiff claimed were false or misleading, failed adequately to allege that certain statements were actionable or false or misleading, and failed adequately to demonstrate that defendants acted with scienter.

On August 27, 2010, plaintiff filed a Consolidated Amended Class Action Complaint for Violations of Federal Securities Laws (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 Company’s reported sales results and certain other statements made by the defendants. In addition, it no longer names Thomas J. Kelly as a defendant. The Amended Class Action Complaint continues to allege violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks an unspecified amount of damages.

Defendants filed a motion to dismiss the Amended Class Action Complaint on November 8, 2010. At a hearing on defendants’ motion to dismiss the Amended Class Action Complaint held on May 12, 2011, the District Court issued a tentative ruling that would grant the motion to dismiss as to certain of plaintiff’s claims, but would deny the motion to dismiss with regard to the majority of plaintiff’s claims. The District Court has not, however, issued a final ruling. The District Court held an additional hearing on the motion to dismiss on May 25, 2011, and has received supplemental submissions from the parties. Defendants’ motion to dismiss remains sub judice.

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 Company’s 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 Company’s business, financial condition or results of operations.

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In addition to the above matters, the Company is subject to litigation from time to time in the normal course of business, including claims from terminated distributors. Although it is not possible to predict the outcome of such litigation, based on the facts known to the Company and after consultation with counsel, management believes that such litigation in the aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.

10. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

		June 30, 2012					December 31, 2011
Foreign currency translation adjustments			$	(1,820	)			$	(1,547