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MONSTER BEVERAGE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/08/2019 | 12:09 pm

Our Business



When this report uses the words "the Company", "we", "us", and "our", these
words refer to Monster Beverage Corporation and its subsidiaries, unless the
context otherwise requires. Based in Corona, California, Monster Beverage
Corporation
is a holding company and conducts no operating business except
through its consolidated subsidiaries. The Company's subsidiaries primarily
develop and market energy drinks.






Overview




We develop, market, sell and distribute energy drink beverages and concentrates
for energy drink beverages, primarily under the following brand names:






? Monster Energy® ? NOS®
? Monster Energy Ultra® ? Full Throttle®
? Monster Rehab® ? Burn®
? Monster MAXX® ? Mother®
? Java Monster® ? Nalu®
? Muscle Monster® ? Ultra Energy®
? Espresso Monster® ? Play® and Power Play(stylized)®
? Punch Monster® ? Relentless®
? Juice Monster® ? BPM®
? Monster Hydro® ? BU®
? Monster® HydroSport ? Gladiator®
? Caffé Monster® ? Samurai®
? Predator® ? Live+TM
? Reign Total Body FuelTM
? Monster Dragon TeaTM




We have three operating and reportable segments, (i) Monster Energy® Drinks
segment ("Monster Energy® Drinks"), which is primarily comprised of our Monster
Energy® drinks and Reign Total Body FuelTM high performance energy drinks,
(ii) Strategic Brands segment ("Strategic Brands"), which is comprised primarily
of the various energy drink brands acquired from The Coca-Cola Company ("TCCC")
in 2015 as well as our affordable energy brands, and (iii) Other segment
("Other"), which is comprised of certain products sold by American Fruits and
Flavors LLC
, a wholly-owned subsidiary, to independent third-party customers
(the "AFF Third-Party Products").



During the three-months ended September 30, 2019, we continued to expand our
existing energy drink portfolio and further develop our distribution markets.
During the three-months ended September 30, 2019, we introduced the following
products:



? BPM® Sour Twist


? BU® Island Punch



? Monster MAXX® Mango Matic



? Monster MAXX® Rad Red



? Monster MuleTM (U.S. national launch)



? Reign Total Body FuelTM Orange Dreamsicle







In the normal course of business, we discontinue certain products and/or product
lines. Those products or product lines discontinued in the three-months ended
September 30, 2019, either individually or in aggregate, did not have a material
adverse impact on our financial position, results of operations or liquidity.



Our net sales of $1.13 billion for the three-months ended September 30, 2019
represented record sales for our third fiscal quarter. Net sales for the
three-months ended September 30, 2019 were positively impacted by approximately
$31.6 million as a result

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of a price increase effective from November 1, 2018 in the United States ("the
U.S. Price Increase") and effective from February 1, 2019 in Canada (the "Canada
Price Increase"), on certain of our Monster Energy® brand energy drinks. Net
changes in foreign currency exchange rates had an unfavorable impact on net
sales of approximately $12.2 million for the three-months ended September 30,
2019
. Our comparative net sales of $1.02 billion for the three-months ended
September 30, 2018 were positively impacted by advance purchases of
approximately $16.0 million made by our customers in anticipation of the U.S.
Price Increase.



The vast majority of our net sales are derived from our Monster Energy® Drinks
segment. Net sales of our Monster Energy® Drinks segment were $1.06 billion for
the three-months ended September 30, 2019. Net sales of our Strategic Brands
segment were $66.3 million for the three-months ended September 30, 2019. Our
Monster Energy® Drinks segment represented 93.6% and 92.0% of our net sales for
the three-months ended September 30, 2019 and 2018, respectively. Our Strategic
Brands segment represented 5.9% and 7.3% of our net sales for the three-months
ended September 30, 2019 and 2018, respectively. Our Other segment represented
0.5% and 0.7% of our net sales for the three-months ended September 30, 2019 and
2018, respectively.



Our growth strategy includes expanding our international business. Net sales to
customers outside the United States were $379.8 million for the three-months
ended September 30, 2019, an increase of approximately $96.8 million, or 34.2%
higher than net sales to customers outside of the United States of $283.0
million
for the three-months ended September 30, 2018. Such sales were
approximately 34% and 28% of net sales for the three-months ended September



30,
2019 and 2018, respectively.



Our customers are primarily full service beverage bottlers/distributors, retail
grocery and specialty chains, wholesalers, club stores, mass merchandisers,
convenience chains, drug stores, foodservice customers and the military.
Percentages of our gross sales to our various customer types for the three- and
nine-months ended September 30, 2019 and 2018 are reflected below. Such
information includes sales made by us directly to the customer types concerned,
which include our full service beverage bottlers/distributors in the United
States
. Such full service beverage bottlers/distributors in turn sell certain of
our products to some of the same customer types listed below. We limit our
description of our customer types to include only our sales to our full service
bottlers/distributors without reference to such bottlers'/distributors' sales to
their own customers.




Three-Months Ended Nine-Months Ended
September 30, September 30,
2019 2018 2019 2018



U.S. full service bottlers/distributors 56 % 62 % 58 % 62 %
International full service
bottlers/distributors 35 % 30 % 33 % 30 %
Club stores and mass merchandisers 7 % 6 % 7 % 6 %
Retail grocery, specialty chains and
wholesalers 1 % 1 % 1 % 1 %
Other 1 % 1 % 1 % 1 %




Our customers include Coca-Cola Refreshments Canada Company (until September 27,
2018
), Coca-Cola Canada Bottling Limited (from September 28, 2018), Coca-Cola
Consolidated, Inc., Coca-Cola Bottling Company United, Inc., Reyes Coca-Cola
Bottling, LLC
, Great Lakes Coca-Cola Distribution, LLC, Coca-Cola Southwest
Beverages LLC
, The Coca-Cola Bottling Company of Northern New England, Inc.,
Swire Pacific Holdings, Inc. (USA), Liberty Coca-Cola Beverages, LLC, Coca-Cola
European Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire
Coca-Cola
(China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola ?çecek
and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Kalil
Bottling Group
(until March 5, 2019), Big Geyser, Inc. (until April 5, 2019),
Wal-Mart, Inc. (including Sam's Club) and Costco Wholesale Corporation. A
decision by any large customer to decrease amounts purchased from us or to cease
carrying our products could have a material negative effect on our financial
condition and consolidated results of operations.



Coca-Cola Consolidated, Inc. accounted for approximately 13% and 14% of our net
sales for the three-months ended September 30, 2019 and 2018, respectively.
Coca-Cola Consolidated, Inc. accounted for approximately 13% and 14% of our net
sales for the nine-months ended September 30, 2019 and 2018, respectively.



Reyes Coca-Cola Bottling accounted for approximately 12% and 13% of our net
sales for the three-months ended September 30, 2019 and 2018, respectively.
Reyes Coca-Cola Bottling accounted for approximately 12% and 13% of our net
sales for the nine-months ended September 30, 2019 and 2018, respectively.






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Coca-Cola European Partners accounted for approximately 10% and 9% of our net
sales for the three-months ended September 30, 2019 and 2018, respectively.
Coca-Cola European Partners accounted for approximately 10% and 9% of our net
sales for the nine-months ended September 30, 2019 and 2018, respectively.






Results of Operations




The following table sets forth key statistics for the three- and nine-months
ended September 30, 2019 and 2018.







Three-Months Ended Percentage Nine-Months Ended Percentage
(In thousands, except per share
amounts) September 30, Change September 30, Change
2019 2018 19 vs. 18 2019 2018 19 vs. 18
Net sales1 $ 1,133,577 $ 1,016,160 11.6 % $ 3,183,613 $ 2,882,953 10.4 %
Cost of sales 460,575 408,501 12.7 % 1,275,796 1,139,780 11.9 %
Gross profit*1 673,002 607,659 10.8 % 1,907,817 1,743,173 9.4 %
Gross profit as a percentage of
net sales 59.4 % 59.8 % 59.9 % 60.5 %

Operating expenses2 277,559 268,086 3.5 % 821,923 766,065 7.3 %



Operating expenses as a
percentage of net sales 24.5 % 26.4 % 25.8 % 26.6 %

Operating income1,2 395,443 339,573 16.5 % 1,085,894 977,108 11.1 %
Operating income as a
percentage of net sales 34.9 % 33.4 %



34.1 % 33.9 %



Interest and other income, net 3,121 2,988 4.5



% 8,835 5,269 67.7 %




Income before provision for
income taxes1,2 398,564 342,561 16.3



% 1,094,729 982,377 11.4 %



Provision for income taxes 99,641 74,828 33.2 % 241,848 228,480 5.9 %

Income taxes as a percentage of
income before taxes 25.0 % 21.8 % 22.1 % 23.3 %

Net income1,2 $ 298,923 $ 267,733 11.6 % $ 852,881 $ 753,897 13.1 %
Net income as a percentage of
net sales 26.4 % 26.3 %



26.8 % 26.2 %




Net income per common share:
Basic $ 0.55 $ 0.48 13.3 % $ 1.57 $ 1.35 16.4 %
Diluted $ 0.55 $ 0.48 14.0 % $ 1.56 $ 1.33 16.9 %

Case sales (in thousands)
(in 192-ounce case equivalents) 121,854 111,038 9.7



% 342,734 313,410 9.4 %




¹Includes $10.7 million and $11.1 million for the three-months ended September
30, 2019
and 2018, respectively, related to the recognition of deferred revenue.
Includes $35.6 million and $33.3 million for the nine-months ended September 30,
2019
and 2018, respectively, related to the recognition of deferred revenue.



2Includes $0.0 million and $14.1 million for the three-months ended September
30, 2019
and 2018, respectively, of distributor termination costs. Includes
$11.0 million and $26.6 million for the nine-months ended September 30, 2019 and
2018, respectively, of distributor termination costs.




*Gross profit may not be comparable to that of other entities since some
entities include all costs associated with their distribution process in cost of
sales, whereas others exclude certain costs and instead include such costs
within another line item such as operating expenses. We include out-bound
freight and warehouse costs in operating expenses rather than in cost of sales.



Results of Operations for the Three-Months Ended September 30, 2019 Compared to
the Three-Months Ended September 30, 2018.






Net Sales. Net sales were $1.13 billion for the three-months ended September 30,
2019
, an increase of approximately $117.4 million, or 11.6% higher than net
sales of $1.02 billion for the three-months ended September 30, 2018. Net sales
for the three-months ended September 30, 2019 were positively impacted by
approximately $31.6 million as a result of the U.S. Price Increase and the
Canada Price Increase, on certain of our Monster Energy® brand energy drinks.
The comparative net sales for the three-months ended September 30, 2018 were
positively impacted by advance purchases made by our customers in anticipation
of the U.S. Price Increase. We estimate net sales for the three-months ended
September 30, 2018 were increased by approximately $16.0 million as a result of
such advance purchases. Net changes in foreign currency exchange rates had an
unfavorable impact on net sales of approximately $12.2 million for the
three-months ended September 30, 2019.



Net sales for the Monster Energy® Drinks segment were $1.06 billion for the
three-months ended September 30, 2019, an increase of approximately $126.2
million
, or 13.5% higher than net sales of $935.1 million for the three-months
ended September 30,

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2018. Net sales for the Monster Energy® Drinks segment increased primarily due
to (i) sales of our Reign Total Body FuelTM high performance energy drinks,
introduced in the first quarter of 2019, (ii) the price increases described
above and (iii) increased worldwide sales by volume of our Monster Energy® brand
energy drinks as a result of increased consumer demand. Net changes in foreign
currency exchange rates had an unfavorable impact on net sales for the Monster
Energy® Drinks segment of approximately $10.8 million for the three-months



ended
September 30, 2019.




Net sales for the Strategic Brands segment were $66.3 million for the
three-months ended September 30, 2019, a decrease of approximately $8.1 million,
or 10.9% lower than net sales of $74.4 million for the three-months ended
September 30, 2018. Net changes in foreign currency exchange rates had an
unfavorable impact on net sales for the Strategic Brands segment of
approximately $1.4 million for the three-months ended September 30, 2019.






Net sales for the Other segment were $5.9 million for the three-months ended
September 30, 2019, a decrease of approximately $0.7 million, or 10.8% lower
than net sales of $6.6 million for the three-months ended September 30, 2018.



Case sales, in 192-ounce case equivalents, were 121.9 million cases for the
three-months ended September 30, 2019, an increase of approximately 10.8 million
cases or 9.7% higher than case sales of 111.0 million cases for the three-months
ended September 30, 2018. The overall average net sales per case (excluding net
sales of AFF Third-Party Products of $5.9 million and $6.6 million for the
three-months ended September 30, 2019 and 2018, respectively, as these sales do
not have unit case equivalents) increased to $9.25 for the three-months ended
September 30, 2019, which was 1.8% higher than the average net sales per case of
$9.09 for the three-months ended September 30, 2018.



Gross Profit. Gross profit was $673.0 million for the three-months ended
September 30, 2019, an increase of approximately $65.3 million, or 10.8% higher
than the gross profit of $607.7 million for the three-months ended September 30,
2018
. The increase in gross profit dollars was primarily the result of the
$126.2 million increase in net sales of our Monster Energy® Drinks segment for
the three-months ended September 30, 2019.



Gross profit as a percentage of net sales decreased to 59.4% for the
three-months ended September 30, 2019 from 59.8% for the three-months ended
September 30, 2018. The decrease for the three-months ended September 30, 2019
was primarily the result of geographical and product sales mix. Such decrease
was partially offset by the sales price increases discussed above as well as
reduced input costs.



Operating Expenses. Total operating expenses were $277.6 million for the
three-months ended September 30, 2019, an increase of approximately $9.5
million
, or 3.5% higher than total operating expenses of $268.1 million for the
three-months ended September 30, 2018. The increase in operating expenses was
primarily due to increased payroll expenses of $10.4 million (of which $1.9
million
was related to an increase in stock-based compensation), increased
expenditures of $6.1 million for other marketing expenses and increased
expenditures of $3.5 million for sponsorships and endorsements. The increase in
operating expenses was partially offset by decreased expenditures of $14.1
million
related to the costs associated with distributor terminations and
decreased out-bound freight and warehouse costs of $4.7 million.



Operating Income. Operating income was $395.4 million for the three-months
ended September 30, 2019, an increase of approximately $55.9 million, or 16.5%
higher than operating income of $339.6 million for the three-months ended
September 30, 2018. Operating income as a percentage of net sales increased to
34.9% for the three-months ended September 30, 2019 from 33.4% for the
three-months ended September 30, 2018. Operating income was $72.6 million and
$43.8 million for the three-months ended September 30, 2019 and 2018,
respectively, in connection with our operations in Europe, Middle East and
Africa ("EMEA"), Asia Pacific and South America.



Operating income* for the Monster Energy® Drinks segment was $433.8 million for
the three-months ended September 30, 2019, an increase of approximately $74.8
million
, or 20.8% higher than operating income of $359.1 million for the
three-months ended September 30, 2018. The increase in operating income for the
Monster Energy® Drinks segment was primarily the result of the $126.2 million
increase in net sales of our Monster Energy® Drinks segment for the three-months
ended September 30, 2019.



Operating income* for the Strategic Brands segment was $35.1 million for the
three-months ended September 30, 2019, a decrease of approximately $6.6 million,
or 15.7% lower than operating income of $41.7 million for the three-months



ended
September 30, 2018.



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Operating income* for the Other segment was $1.0 million for the three-months
ended September 30, 2019, a decrease of approximately $0.7 million, or 42.3%
lower than operating income of $1.7 million for the three-months ended September
30, 2018
.




*Exclusive of corporate and unallocated expenses.






Interest and Other Income, net. Interest and other non-operating income, net,
was $3.1 million for the three-months ended September 30, 2019, as compared to
interest and other non-operating income, net, of $3.0 million for the
three-months ended September 30, 2018. Foreign currency transaction losses were
$2.8 million and $0.3 million for the three-months ended September 30, 2019 and
2018, respectively. Interest income was $6.1 million and $3.4 million for the
three-months ended September 30, 2019 and 2018, respectively.



Provision for Income Taxes. Provision for income taxes was $99.6 million for
the three-months ended September 30, 2019, an increase of $24.8 million, or
33.2% higher than the provision for income taxes of $74.8 million for the
three-months ended September 30, 2018. The effective combined federal, state and
foreign tax rate increased to 25.0% from 21.8% for the three-months ended
September 30, 2019 and 2018, respectively. The increase in the effective tax
rate was primarily attributable to increased income taxes in certain foreign
jurisdictions as well as a decrease in the equity compensation deduction. In
addition, the comparative effective tax rate for the three-months ended
September 30, 2018 included a non-recurring tax benefit.



Net Income. Net income was $298.9 million for the three-months ended September
30, 2019
, an increase of $31.2 million, or 11.7% higher than net income of
$267.7 million for the three-months ended September 30, 2018. The increase in
net income was primarily due to the $65.3 million increase in gross profit. The
increase in net income was partially offset by an increase in the provision for
income taxes of $24.8 million and an increase in operating expenses of $9.5
million
.




Results of Operations for the Nine-Months Ended September 30, 2019 Compared to
the Nine-Months Ended September 30, 2018.



Net Sales. Net sales were $3.18 billion for the nine-months ended September 30,
2019
, an increase of approximately $300.7 million, or 10.4% higher than net
sales of $2.88 billion for the nine-months ended September 30, 2018. Net sales
for the nine-months ended September 30, 2019 were positively impacted by
approximately $89.2 million as a result of the U.S. Price Increase and the
Canada Price Increase, on certain of our Monster Energy® brand energy drinks.
Net changes in foreign currency exchange rates had an unfavorable impact on net
sales of approximately $60.1 million for the nine-months ended September 30,
2019
.



Net sales for the Monster Energy® Drinks segment were $2.95 billion for the
nine-months ended September 30, 2019, an increase of approximately $305.8
million
, or 11.6% higher than net sales of $2.65 billion for the nine-months
ended September 30, 2018. Net sales for the Monster Energy® Drinks segment
increased primarily due to (i) sales of our Reign Total Body FuelTM high
performance energy drinks, introduced in the first quarter of 2019, (ii) the
price increases described above, and (iii) increased worldwide sales by volume
of our Monster Energy® brand energy drinks as a result of increased consumer
demand. Net changes in foreign currency exchange rates had an unfavorable impact
on net sales for the Monster Energy® Drinks segment of approximately $51.1
million
for the nine-months ended September 30, 2019.




Net sales for the Strategic Brands segment were $215.8 million for the
nine-months ended September 30, 2019, a decrease of approximately $4.2 million,
or 1.9% lower than net sales of $220.0 million for the nine-months ended
September 30, 2018. Net changes in foreign currency exchange rates had an
unfavorable impact on net sales for the Strategic Brands segment of
approximately $9.0 million for the nine-months ended September 30, 2019.






Net sales for the Other segment were $17.0 million for the nine-months ended
September 30, 2019, a decrease of approximately $0.9 million, or 4.9% lower than
net sales of $17.9 million for the nine-months ended September 30, 2018.



Case sales, in 192-ounce case equivalents, were 342.7 million cases for the
nine-months ended September 30, 2019, an increase of approximately 29.3 million
cases or 9.4% higher than case sales of 313.4 million cases for the nine-months
ended September 30, 2018. The overall average net sales per case (excluding net
sales of AFF Third-Party Products of $17.0 million and $17.9 million for the
nine-months ended September 30, 2019 and 2018, respectively, as these sales do
not have unit case equivalents) increased to $9.24 for the nine-months ended
September 30, 2019, which was 1.1% higher than the average net sales per case of
$9.14 for the nine-months ended September 30, 2018. The increase in the average
net sales per case was primarily attributable to a price increase effective



from

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November 1, 2018 in the United States and effective from February 1, 2019 in
Canada, on certain of our Monster Energy® brand energy drinks.






Gross Profit. Gross profit was $1.91 billion for the nine-months ended
September 30, 2019, an increase of approximately $164.6 million, or 9.4% higher
than the gross profit of $1.74 billion for the nine-months ended September 30,
2018
. The increase in gross profit dollars was primarily the result of the
$305.8 million increase in net sales of our Monster Energy® Drinks segment for
the nine-months ended September 30, 2019.



Gross profit as a percentage of net sales decreased to 59.9% for the nine-months
ended September 30, 2019 from 60.5% for the nine-months ended September 30,
2018
. The decrease for the nine-months ended September 30, 2019 was primarily
the result of geographical and product sales mix. Such decrease was partially
offset by the sales price increases discussed above.



Operating Expenses. Total operating expenses were $821.9 million for the
nine-months ended September 30, 2019, an increase of approximately $55.9
million
, or 7.3% higher than total operating expenses of $766.1 million for the
nine-months ended September 30, 2018. The increase in operating expenses was
primarily due to increased payroll expenses of $26.4 million (of which $4.5
million
was related to an increase in stock-based compensation), increased
expenditures of $13.0 million for professional service fees, including legal and
accounting costs, increased expenditures of $10.4 million for sponsorships and
endorsements, and increased expenditures of $10.8 million in other marketing
expenses. The increase in operating expenses was partially offset by decreased
expenditures of $15.6 million related to the costs associated with distributor
terminations.



Operating Income. Operating income was $1.09 billion for the nine-months ended
September 30, 2019, an increase of approximately $108.8 million, or 11.1% higher
than operating income of $977.1 million for the nine-months ended September 30,
2018
. Operating income as a percentage of net sales increased to 34.1% for the
nine-months ended September 30, 2019 from 33.9% for the nine-months ended
September 30, 2018. Operating income was $180.1 million and $135.0 million for
the nine-months ended September 30, 2019 and 2018, respectively, in connection
with our operations in Europe, Middle East and Africa ("EMEA"), Asia Pacific and
South America.




Operating income* for the Monster Energy® Drinks segment was $1.19 billion for
the nine-months ended September 30, 2019, an increase of approximately $153.8
million
, or 14.9% higher than operating income of $1.03 billion for the
nine-months ended September 30, 2018. The increase in operating income for the
Monster Energy® Drinks segment was primarily the result of the $305.8 million
increase in net sales of our Monster Energy® Drinks segment for the nine-months
ended September 30, 2019.



Operating income* for the Strategic Brands segment was $130.8 million for the
nine-months ended September 30, 2019, a decrease of approximately $4.3 million,
or 3.2% lower than operating income of $135.1 million for the nine-months ended
September 30, 2018.



Operating income* for the Other segment was $3.0 million for the nine-months
ended September 30, 2019, a decrease of approximately $1.5 million, or 33.3%
lower than operating income of $4.5 million for the nine-months ended September
30, 2018
.




*Exclusive of corporate and unallocated expenses.






Interest and Other Income, net. Interest and other non-operating income, net,
was $8.8 million for the nine-months ended September 30, 2019, as compared to
interest and other non-operating income, net, of $5.3 million for the
nine-months ended September 30, 2018. Foreign currency transaction losses were
$3.9 million and $3.6 million for the nine-months ended September 30, 2019 and
2018, respectively. Interest income was $13.5 million and $9.1 million for the
nine-months ended September 30, 2019 and 2018, respectively.



Provision for Income Taxes. Provision for income taxes was $241.8 million for
the nine-months ended September 30, 2019, an increase of $13.4 million, or 5.9%
higher than the provision for income taxes of $228.5 million for the nine-months
ended September 30, 2018. The effective combined federal, state and foreign tax
rate decreased to 22.1% from 23.3% for the nine-months ended September 30, 2019
and 2018, respectively. The decrease in effective tax rate was primarily
attributable to an increase in equity compensation deductions. The decrease in
the provision for income taxes was partially offset by increased income taxes in
certain foreign jurisdictions. In addition, the comparative effective tax rate
for the nine-months ended September 30, 2018 included a non-recurring tax
benefit.



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Net Income. Net income was $852.9 million for the nine-months ended September
30, 2019
, an increase of $99.0 million, or 13.1% higher than net income of
$753.9 million for the nine-months ended September 30, 2018. The increase in net
income was primarily due to the $164.6 million increase in gross profit. The
increase in net income was partially offset by the increase in operating
expenses of $55.9 million and an increase in the provision for income taxes



of
$13.4 million.




Non-GAAP Financial Measures






Gross Sales**. Gross sales were $1.32 billion for the three-months ended
September 30, 2019, an increase of approximately $133.8 million, or 11.3% higher
than gross sales of $1.18 billion for the three-months ended September 30, 2018.
Gross sales for the three-months ended September 30, 2019 were positively
impacted by approximately $31.6 million as a result of the U.S. Price Increase
and the Canada Price Increase, on certain of our Monster Energy® brand energy
drinks. The comparative gross sales for the three-months ended September 30,
2018
were positively impacted by advance purchases made by our customers in
anticipation of the U.S. Price Increase. We estimate gross sales for the
three-months ended September 30, 2018 were increased by approximately $18.0
million
as a result of such advance purchases. Net changes in foreign currency
exchange rates had an unfavorable impact on gross sales of approximately $15.1
million
for the three-months ended September 30, 2019.



Gross sales for the Monster Energy® Drinks segment were $1.24 billion for the
three-months ended September 30, 2019, an increase of approximately $143.3
million
, or 13.1% higher than gross sales of $1.09 billion for the three-months
ended September 30, 2018. Gross sales for the Monster Energy® Drinks segment
increased primarily due to (i) sales of our Reign Total Body FuelTM high
performance energy drinks, introduced in the first quarter of 2019, (ii) the
price increases described above and (iii) increased worldwide sales by volume of
our Monster Energy® brand energy drinks as a result of increased consumer
demand. Net changes in foreign currency exchange rates had an unfavorable impact
on gross sales for the Monster Energy® Drinks segment of approximately $13.7
million
for the three-months ended September 30, 2019.



Gross sales of our Strategic Brands segment were $76.7 million for the
three-months ended September 30, 2019, a decrease of $8.8 million, or 10.3%
lower than gross sales of $85.5 million for the three-months ended September 30,
2018
. Net changes in foreign currency exchange rates had an unfavorable impact
on gross sales in the Strategic Brands segment of approximately $1.4 million for
the three-months ended September 30, 2019.



Gross sales of our Other segment were $5.9 million for the three-months ended
September 30, 2019, a decrease of $0.7 million, or 10.8% lower than gross sales
of $6.6 million for the three-months ended September 30, 2018.



Promotional allowances, commissions and other expenses, as described in the
footnote below, were $184.7 million for the three-months ended September 30,
2019
, an increase of $16.4 million, or 9.7% higher than promotional allowances,
commissions and other expenses of $168.3 million for the three-months ended
September 30, 2018. Promotional allowances, commissions and other expenses as a
percentage of gross sales decreased to 14.0% from 14.2% for the three-months
ended September 30, 2019 and 2018, respectively.



Gross Sales**. Gross sales were $3.70 billion for the nine-months ended
September 30, 2019, an increase of approximately $328.8 million, or 9.8% higher
than gross sales of $3.37 billion for the nine-months ended September 30, 2018.
Gross sales for the nine-months ended September 30, 2019 were positively
impacted by approximately $89.2 million as a result of U.S. Price Increase and
the Canada Price Increase, on certain of our Monster Energy® brand energy
drinks. Net changes in foreign currency exchange rates had an unfavorable impact
on gross sales of approximately $71.7 million for the nine-months ended
September 30, 2019.



Gross sales for the Monster Energy® Drinks segment were $3.43 billion for the
nine-months ended September 30, 2019, an increase of approximately $336.8
million
, or 10.9% higher than gross sales of $3.09 billion for the nine-months
ended September 30, 2018. Gross sales for the Monster Energy® Drinks segment
increased primarily due to (i) sales of our Reign Total Body FuelTM high
performance energy drinks, introduced in the first quarter of 2019, (ii) the
price increases described above, and (iii) increased sales by volume of our
Monster Energy® brand energy drinks as a result of increased domestic and
international consumer demand. Net changes in foreign currency exchange rates
had an unfavorable impact on gross sales for the Monster Energy® Drinks segment
of approximately $62.7 million for the nine-months ended September 30, 2019.



Gross sales of our Strategic Brands segment were $246.6 million for the
nine-months ended September 30, 2019, a decrease of $7.2 million, or 2.8% lower
than gross sales of $253.8 million for the nine-months ended September 30,



2018.
Net changes in foreign

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currency exchange rates had an unfavorable impact on gross sales in the
Strategic Brands segment of approximately $9.0 million for the nine-months ended
September 30, 2019.






Gross sales of our Other segment were $17.0 million for the nine-months ended
September 30, 2019, a decrease of $0.9 million, or 4.9% lower than gross sales
of $17.9 million for the nine-months ended September 30, 2018.



Promotional allowances, commissions and other expenses, as described in the
footnote below, were $511.5 million for the nine-months ended September 30,
2019
, an increase of $28.1 million, or 5.8% higher than promotional allowances,
commissions and other expenses of $483.4 million for the nine-months ended
September 30, 2018. Promotional allowances, commissions and other expenses as a
percentage of gross sales decreased to 13.8% from 14.4% for the nine-months
ended September 30, 2019 and 2018, respectively.



**Gross sales are used internally by management as an indicator of and to
monitor operating performance, including sales performance of particular
products, salesperson performance, product growth or declines and overall
Company performance. The use of gross sales allows evaluation of sales
performance before the effect of any promotional items, which can mask certain
performance issues. We therefore believe that the presentation of gross sales
provides a useful measure of our operating performance. The use of gross sales
is not a measure that is recognized under GAAP and should not be considered as
an alternative to net sales, which is determined in accordance with GAAP, and
should not be used alone as an indicator of operating performance in place of
net sales. Additionally, gross sales may not be comparable to similarly titled
measures used by other companies, as gross sales has been defined by our
internal reporting practices. In addition, gross sales may not be realized in
the form of cash receipts as promotional payments and allowances may be deducted
from payments received from certain customers.




The following table reconciles the non-GAAP financial measure of gross sales
with the most directly comparable GAAP financial measure of net sales:







Three-Months Ended Percentage Nine-Months Ended Percentage
September 30, Change September 30, Change
(In thousands) 2019 2018 19 vs. 18 2019 2018 19 vs. 18
Gross sales, net of
discounts and
returns $ 1,318,267 $ 1,184,444 11.3 % $



3,695,128 $ 3,366,334 9.8 %
Less: Promotional
allowances,
commissions and
other expenses*** 184,690 168,284 9.7 % 511,515 483,381 5.8 %
Net Sales $ 1,133,577 $ 1,016,160 11.6 % $ 3,183,613 $ 2,882,953 10.4 %





***Although the expenditures described in this line item are determined in
accordance with GAAP and meet GAAP requirements, the presentation thereof does
not conform to GAAP presentation requirements. Additionally, our definition of
promotional and other allowances may not be comparable to similar items
presented by other companies. Promotional and other allowances primarily include
consideration given to our bottlers/distributors or retail customers including,
but not limited to the following: (i) discounts granted off list prices to
support price promotions to end-consumers by retailers; (ii) reimbursements
given to our bottlers/distributors for agreed portions of their promotional
spend with retailers, including slotting, shelf space allowances and other fees
for both new and existing products; (iii) our agreed share of fees given to
bottlers/distributors and/or directly to retailers for advertising, in-store
marketing and promotional activities; (iv) our agreed share of slotting, shelf
space allowances and other fees given directly to retailers, club stores and/or
wholesalers; (v) incentives given to our bottlers/distributors and/or retailers
for achieving or exceeding certain predetermined sales goals; (vi) discounted or
free products; (vii) contractual fees given to our bottlers/distributors related
to sales made by us direct to certain customers that fall within the
bottlers'/distributors' sales territories; and (viii) certain commissions paid
based on sales to our bottlers/distributors. The presentation of promotional and
other allowances facilitates an evaluation of their impact on the determination
of net sales and the spending levels incurred or correlated with such sales.
Promotional and other allowances constitute a material portion of our marketing
activities. Our promotional allowance programs with our numerous
bottlers/distributors and/or retailers are executed through separate agreements
in the ordinary course of business. These agreements generally provide for one
or more of the arrangements described above and are of varying durations,
ranging from one week to one year. The primary drivers of our promotional and
other allowance activities for the three- and nine-months ended September 30,
2019
and 2018 were (i) to increase sales volume and trial, (ii) to address
market conditions, and (iii) to secure shelf and display space at retail.


Sales






The table below discloses selected quarterly data regarding sales for the three-
and nine-months ended September 30, 2019 and 2018, respectively. Data from any
one or more quarters or periods is not necessarily indicative of annual results
or continuing trends.




Sales of beverages are expressed in unit case volume. A "unit case" means a unit
of measurement equal to 192 U.S. fluid ounces of finished beverage (24
eight-ounce servings). Unit case volume means the number of unit cases (or unit
case equivalents) of finished products or concentrates as if converted into
finished products sold by us.



Our quarterly results of operations reflect seasonal trends that are primarily
the result of increased demand in the warmer months of the year. It has been our
experience that beverage sales tend to be lower during the first and fourth



quarters of each calendar

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year. However, our experience with our energy drink products suggests they may
be less seasonal than the seasonality of traditional beverages. In addition, our
continued growth internationally may further reduce the impact of seasonality on
our business. Quarterly fluctuations may also be affected by other factors
including the introduction of new products, the opening of new markets where
temperature fluctuations are more pronounced, the addition of new bottlers,
customers and distributors, changes in the sales mix of our products and changes
in advertising and promotional expenses.




Three-Months Ended Nine-Months Ended
September 30, September 30,
(In thousands, except average net
sales per case) 2019 2018 2019 2018
Net sales $ 1,133,577 $ 1,016,160 $ 3,183,613 $ 2,882,953
Less: AFF third-party sales (5,860) (6,573)



(16,973) (17,853)
Adjusted net sales1 $ 1,127,717 $ 1,009,587 $ 3,166,640 $ 2,865,100
Case sales by segment:
Monster Energy® Drinks 103,987 91,806 286,284 257,746
Strategic Brands 17,867 19,232 56,450 55,664
Other - - - -
Total case sales 121,854 111,038 342,734 313,410



Average net sales per case $ 9.25 $ 9.09 $



9.24 $ 9.14





1Excludes Other segment net sales of $5.9 million and $6.6 million for the
three-months ended September 30, 2019 and 2018, respectively, comprised of net
sales of AFF Third-Party Products to independent third-party customers, as these
sales do not have unit case equivalents. Excludes Other segment net sales of
$17.0 million and $17.9 million for the nine-months ended September 30, 2019 and
2018, respectively, comprised of net sales of AFF Third-Party Products to
independent third-party customers, as these sales do not have unit case
equivalents.



See Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Our Business" for additional information related to



the
increase in sales.




Liquidity and Capital Resources






Cash flows provided by operating activities. Cash provided by operating
activities was $821.1 million for the nine-months ended September 30, 2019, as
compared with cash provided by operating activities of $821.4 million for the
nine-months ended September 30, 2018.



For the nine-months ended September 30, 2019, cash provided by operating
activities was primarily attributable to net income earned of $852.9 million and
adjustments for certain non-cash expenses, consisting of $47.8 million of
depreciation and amortization and $46.9 million of stock-based compensation. For
the nine-months ended September 30, 2019, cash provided by operating activities
also increased due to a $69.5 million increase in accounts payable, a $55.8
million
increase in accrued promotional allowances, a $10.3 million increase in
income taxes payable, a $6.2 million decrease in prepaid income taxes and a $5.8
million
decrease in distributor receivables. For the nine-months ended September
30, 2019
, cash used in operating activities was primarily attributable to a
$179.8 million increase in accounts receivable, a $44.9 million increase in
inventories, a $19.6 million decrease in deferred revenue, a $16.1 million
increase in prepaid expenses and other assets, a $9.6 million decrease in
accrued liabilities and a $3.9 million decrease in accrued compensation.



For the nine-months ended September 30, 2018, cash provided by operating
activities was primarily attributable to net income earned of $753.9 million and
adjustments for certain non-cash expenses, consisting of $42.4 million of
stock-based compensation and $42.5 million of depreciation and other
amortization. For the nine-months ended September 30, 2018, cash provided by
operating activities also increased due to a $96.5 million decrease in prepaid
income taxes, a $48.7 million increase in accrued promotional allowances, a
$39.6 million increase in accounts payable, a $16.5 million increase in accrued
liabilities, a $7.8 million decrease in distributor receivables and a $1.6
million
increase in other liabilities. For the nine-months ended September 30,
2018
, cash used in operating activities was primarily attributable to a $181.7
million
increase in accounts receivable, a $16.5 million increase in prepaid

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expenses and other assets, a $13.9 million decrease in deferred revenue, a $10.3
million
increase in inventories, a $4.4 million decrease in accrued compensation
and a $1.4 million decrease in income taxes payable.



Cash flows (used in) provided by investing activities. Cash used in investing
activities was $328.2 million for the nine-months ended September 30, 2019 as
compared to cash provided by investing activities of $154.1 million for the
nine-months ended September 30, 2018.



For both the nine-months ended September 30, 2019 and 2018, cash provided by
investing activities was primarily attributable to sales of available-for-sale
investments. For both the nine-months ended September 30, 2019 and 2018, cash
used in investing activities was primarily attributable to purchases of
available-for-sale investments. For both the nine-months ended September 30,
2019
and 2018, cash used in investing activities also included the acquisitions
of fixed assets consisting of vans and promotional vehicles, coolers and other
equipment to support our marketing and promotional activities, production
equipment, furniture and fixtures, office and computer equipment, computer
software, equipment used for sales and administrative activities, certain
leasehold improvements, as well as acquisitions of and/or improvements to real
property. We expect to continue to use a portion of our cash in excess of our
requirements for operations for purchasing short-term and long-term investments,
leasehold improvements, the acquisition of capital equipment (specifically,
vans, trucks and promotional vehicles, coolers, other promotional equipment,
merchandise displays, warehousing racks as well as items of production equipment
required to produce certain of our existing and/or new products) to develop our
brand in international markets and for other corporate purposes. From time to
time, we may also use cash to purchase additional real property related to our
beverage business and/or acquire compatible businesses.



Cash flows used in financing activities. Cash used in financing activities was
$405.3 million for the nine-months ended September 30, 2019 as compared to cash
used in financing activities of $782.2 million for the nine-months ended
September 30, 2018. The cash used in financing activities for both the
nine-months ended September 30, 2019 and 2018 was primarily the result of the
repurchases of our common stock. The cash provided by financing activities for
both the nine-months ended September 30, 2019, and 2018 was primarily
attributable to the issuance of our common stock under our stock-based
compensation plans.



Purchases of inventories, increases in accounts receivable and other assets,
acquisition of property and equipment (including real property, personal
property and coolers), leasehold improvements, advances for or the purchase of
equipment for our bottlers, acquisition and maintenance of trademarks, payments
of accounts payable, income taxes payable and purchases of our common stock are
expected to remain our principal recurring use of cash.



Cash and cash equivalents, short-term and long-term investments. At September
30, 2019
, we had $717.6 million in cash and cash equivalents, $587.4 million in
short-term investments and $14.4 million in long-term investments. We have
historically invested these amounts in U.S. treasuries, U.S. government agency
securities and municipal securities, commercial paper, certificates of deposit,
variable rate demand notes and money market funds meeting certain criteria. We
maintain our investments for cash management purposes and not for purposes of
speculation. Our risk management policies emphasize credit quality (primarily
based on short-term ratings by nationally recognized statistical organizations)
in selecting and maintaining our investments. We regularly assess market risk of
our investments and believe our current policies and investment practices
adequately limit those risks. However, certain of these investments are subject
to general credit, liquidity, market and interest rate risks. These market risks
associated with our investment portfolio may have an adverse effect on our
future results of operations, liquidity and financial condition.



Of our $717.6 million of cash and cash equivalents held at September 30, 2019,
$420.8 million was held by our foreign subsidiaries. No short-term or long-term
investments were held by our foreign subsidiaries at September 30, 2019.



We believe that cash available from operations, including our cash resources and
access to credit, will be sufficient for our working capital needs, including
purchase commitments for raw materials and inventory, increases in accounts
receivable, payments of tax liabilities, expansion and development needs,
purchases of capital assets, purchases of equipment, purchases of real property
and purchases of shares of our common stock, through at least the next 12
months. Based on our current plans, at this time we estimate that capital
expenditures are likely to be less than $150.0 million through September 30,
2020
. However, future business opportunities may cause a change in this
estimate.




The following represents a summary of the Company's contractual commitments and
related scheduled maturities as of September 30, 2019:






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Payments due by period (in thousands)
Less than 1-3 3-5 More than
Obligations Total 1 year years years 5 years

Contractual Obligations1 $ 171,556 $ 97,659 $ 67,097 $ 6,800 $ -
Finance Leases 1,865 1,865 - - -
Operating Leases 26,361 3,771 5,476 3,648 13,466
Purchase Commitments2 29,258 29,258 - - -
$ 229,040 $ 132,553 $ 72,573 $ 10,448 $ 13,466





1Contractual obligations include our obligations related to sponsorships and
other commitments.



2Purchase commitments include obligations made by us and our subsidiaries to
various suppliers for raw materials used in the production of our products.
These obligations vary in terms, but are generally satisfied within one year.






In addition, approximately $6.2 million of unrecognized tax benefits have been
recorded as liabilities as of September 30, 2019. It is expected that the amount
of unrecognized tax benefits will not significantly change within the next 12
months. As of September 30, 2019, we had $1.4 million of accrued interest and
penalties related to unrecognized tax benefits.



Critical Accounting Policies



There have been no material changes to our critical accounting policies from the
information provided in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2018 ("Form 10-K").




Recent Accounting Pronouncements






The information required by this Item is incorporated herein by reference to the
Notes to Condensed Consolidated Financial Statements - Note 2. Recent Accounting
Pronouncements, in Part I, Item 1, of this Quarterly Report on Form 10-Q.



Inflation




We believe inflation did not have a significant impact on our results of
operations for the periods presented.






Forward-Looking Statements



Certain statements made in this report may constitute forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended) (the
"Exchange Act") regarding the expectations of management with respect to
revenues, profitability, adequacy of funds from operations and our existing
credit facility, among other things. All statements containing a projection of
revenues, income (loss), earnings (loss) per share, capital expenditures,
dividends, capital structure or other financial items, a statement of
management's plans and objectives for future operations, or a statement of
future economic performance contained in management's discussion and analysis of
financial condition and results of operations, including statements related to
new products, volume growth and statements encompassing general optimism about
future operating results and non-historical information, are forward-looking
statements within the meaning of the Exchange Act. Without limiting the
foregoing, the words "believes," "thinks," "anticipates," "plans," "expects,"
and similar expressions are intended to identify forward-looking statements.



Management cautions that these statements are qualified by their terms and/or
important factors, many of which are outside our control, and involve a number
of risks, uncertainties and other factors, that could cause actual results and
events to differ materially from the statements made including, but not limited
to, the following:




We have extensive commercial arrangements with TCCC and, as a result, our



? future performance is substantially dependent on the success of our



relationship with TCCC;



? The impact of TCCC's bottlers/distributors distributing Coca-Cola brand energy



drinks;



? The effect of TCCC being one of our significant shareholders and the potential



divergence of TCCC's interests from those of our other shareholders;


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The effect of TCCC's refranchising initiative to transition from a TCCC owned



? system to an independent bottling system, including our ability to maintain



relationships with TCCC system bottlers/distributors and manage their ongoing



commitment to focus on our products;



The possible slowing of and/or decline in the sales growth rates of the



? domestic and international energy drink categories and/or the U.S. convenience



store market generally;



Disruption in distribution or sales and/or decline in sales due to the



? termination and/or appointment of existing and/or new domestic and/or



international distributors;



? Lack of anticipated demand for our products in domestic and/or international



markets;



? Fluctuations in the inventory levels of our bottlers/distributors, planned or



otherwise, and the resultant impact on our revenues;



Unfavorable regulations, including taxation requirements, age restrictions



? imposed on the sale, purchase, or consumption of our products, marketing



restrictions, product registration requirements, tariffs, trade restrictions,



container size limitations and/or ingredient restrictions;



The effect of inquiries from, and/or actions by, state attorneys general, the



Federal Trade Commission (the "FTC"), the Food and Drug Administration (the



"FDA"), municipalities, city attorneys, other government agencies,



quasi-government agencies, government officials (including members of U.S.



? Congress) and/or analogous central and local agencies and other authorities in



the foreign countries in which our products are manufactured and/or



distributed, into the advertising, marketing, promotion, ingredients, sale



and/or consumption of our energy drink products, including voluntary and/or



required changes to our business practices;



Our ability to comply with regulations and evolving industry standards



? regarding consumer privacy and data use and security, including with respect to



the General Data Protection Regulation approved by the European Union;



? Our ability to achieve profitability from certain of our operations outside the



United States;



Our ability to manage legal and regulatory requirements in foreign



? jurisdictions, potential difficulties in staffing and managing foreign



operations and potentially higher incidence of fraud or corruption and credit



risk of foreign customers and/or distributors;



? Our ability to produce our products in international markets in which they are



sold, thereby reducing freight costs and/or product damages;



? Our ability to absorb, reduce, or pass on to our bottlers/distributors



increases in freight costs;



? Our ability to effectively manage our inventories and/or our accounts



receivables;



Our foreign currency exchange rate risk with respect to our sales, expenses,



? profits, assets and liabilities denominated in currencies other than the U.S.



dollar, which will continue to increase as foreign sales increase;



? The impact of Brexit on our business in the United Kingdom and in Continental



Europe;



? Changes in accounting standards may affect our reported profitability;



? Implications of the Tax Reform Act;



Any proceedings which may be brought against us by the Securities and Exchange



? Commission (the "SEC"), the FDA, the FTC or other governmental agencies or



bodies;



The outcome and/or possibility of future shareholder derivative actions or



? shareholder securities litigation that may be filed against us and/or against



certain of our officers and directors, and the possibility of other private



shareholder litigation;



The outcome of product liability or consumer fraud litigation and/or class



action litigation (or its analog in foreign jurisdictions) regarding the safety



? of our products and/or the ingredients in and/or claims made in connection with



our products and/or alleging false advertising, marketing and/or promotion, and



the possibility of future product liability and/or class action lawsuits;



? The outcome of any other litigation;



? Unfavorable resolution of tax matters;



? Uncertainty and volatility in the domestic and global economies, including risk



of counterparty default or failure;



? Our ability to address any significant deficiencies or material weakness in our



internal controls over financial reporting;



? Our ability to continue to generate sufficient cash flows to support our



expansion plans and general operating activities;



Decreased demand for our products resulting from changes in consumer



? preferences, obesity and other perceived health concerns, including concerns



relating to certain ingredients in our products or packaging, product safety



concerns and/or from decreased consumer discretionary spending power;



Adverse publicity surrounding obesity and health concerns related to our



? products, water usage, environmental impact, human rights and labor and



workplace laws;



? Changes in demand that are weather related and/or for other reasons, including



changes in product category consumption;





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Changes in cost and availability of certain key ingredients, as well as



? disruptions to the supply chain, as a result of climate change and extreme



weather conditions;



The impact on our business of competitive products and pricing pressures and



our ability to gain or maintain our share of sales in the marketplace as a



? result of actions by competitors, including unsubstantiated and/or misleading



claims, false advertising claims and tortious interference, as well as



competitors selling misbranded products;



The impact on our business of trademark and trade dress infringement



? proceedings brought against us relating to our Reign Total Body FuelTM high



performance energy drinks;



? Our ability to introduce new products;



? Our ability to implement and/or maintain price increases;



? An inability to achieve volume growth through product and packaging



initiatives;



Our ability to sustain the current level of sales and/or achieve growth for our



? Monster Energy® brand energy drinks and/or our other products, including the



Strategic Brands acquired from TCCC;



The impact of criticism of our energy drink products and/or the energy drink



market generally and/or legislation enacted (whether as a result of such



criticism or otherwise) that restricts the marketing or sale of energy drinks



? (including prohibiting the sale of energy drinks at certain establishments or



pursuant to certain governmental programs), limits caffeine content in



beverages, requires certain product labeling disclosures and/or warnings,



imposes excise and/or sales taxes, limits product sizes and/or imposes age



restrictions for the sale of energy drinks;



Our ability to comply with and/or resulting lower consumer demand for energy



drinks due to proposed and/or future U.S. federal, state and local laws and



regulations and/or proposed or existing laws and regulations in certain foreign



jurisdictions and/or any changes therein, including changes in taxation



requirements (including tax rate changes, new tax laws, new and/or increased



excise, sales and/or other taxes on our products and revised tax law



interpretations) and environmental laws, as well as the Federal Food, Drug, and



Cosmetic Act and regulations or rules made thereunder or in connection



? therewith by the FDA, as well as changes in any other food, drug or similar



laws in the United States and internationally, especially those changes that



may restrict the sale of energy drinks (including prohibiting the sale of



energy drinks at certain establishments or pursuant to certain governmental



programs), limit caffeine content in beverages, require certain product



labeling disclosures and/or warnings, impose excise taxes, impose sugar taxes,



limit product sizes, or impose age restrictions for the sale of energy drinks,



as well as laws and regulations or rules made or enforced by the Bureau of



Alcohol, Tobacco, Firearms and Explosives and/or the FTC or their foreign



counterparts;



Our ability to satisfy all criteria set forth in any model energy drink



guidelines, including, without limitation, those adopted by the American



? Beverage Association, of which the Company is a member, and/or any



international beverage association and the impact on the Company of such



guidelines;



? Disruptions in the timely import or export of our products and/or ingredients



due to port strikes and related labor issues;



? The effect of unfavorable or adverse public relations, press, articles,



comments and/or media attention;



Changes in the cost, quality and availability of containers, packaging



materials, aluminum, the Midwest and other premiums, raw materials and other



? ingredients and juice concentrates, and our ability to obtain and/or maintain



favorable supply arrangements and relationships and procure timely and/or



sufficient production of all or any of our products to meet customer demand;



Any shortages that may be experienced in the procurement of containers and/or



? other raw materials including, without limitation, aluminum cans generally, PET



containers used for our Monster Hydro® energy drinks and 24-ounce aluminum cap



cans;



? The impact on our cost of sales of corporate activity among the limited number



of suppliers from whom we purchase certain raw materials;



Our ability to pass on to our customers all or a portion of any increases in



? the costs of raw materials, ingredients, commodities and/or other cost inputs



affecting our business;



Our ability to achieve both internal domestic and international forecasts,



which may be based on projected volumes and sales of many product types and/or



? new products, certain of which are more profitable than others; there can be no



assurance that we will achieve projected levels of sales as well as forecasted



product and/or geographic mixes;



Our ability to penetrate new domestic and/or international markets and/or gain



? approval or mitigate the delay in securing approval for the sale of our



products in various countries;



? Economic or political instability in one or more of our international markets;



The effectiveness of sales and/or marketing efforts by us and/or by the full



? service bottlers/distributors of our products, most of whom distribute products



that may be regarded as competitive with our products;


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Unilateral decisions by full service bottlers/distributors, convenience chains,



grocery chains, mass merchandisers, specialty chain stores, club stores and



? other customers to discontinue carrying all or any of our products that they



are carrying at any time, restrict the range of our products they carry and/or



devote less resources to the sale of our products;



? The effects of retailer consolidation on our business;



? The costs and/or effectiveness, now or in the future, of our advertising,



marketing and promotional strategies;



? The success of our sports marketing endeavors both domestically and



internationally;



? Unforeseen economic and political changes and local or international



catastrophic events;



? Possible recalls of our products and/or defective production;



Our ability to make suitable arrangements and/or procure sufficient capacity



? for the co-packing of any of our products both domestically and



internationally, the timely replacement of discontinued co-packing arrangements



and/or limitations on co-packing availability, including for retort production;



? Our ability to make suitable arrangements for the timely procurement of



non-defective raw materials;



Our inability to protect and/or the loss of our intellectual property rights



? and/or our inability to use our trademarks, trade names or designs and/or trade



dress in certain countries;



Volatility of stock prices which may restrict stock sales, stock purchases or



? other opportunities as well as negatively impact the motivation of equity award



grantees;



Provisions in our organizational documents and/or control by insiders which may



? prevent changes in control even if such changes would be beneficial to other



stockholders;



? The failure of our bottlers and/or contract packers to manufacture our products



on a timely basis or at all;



? Exposure to significant liabilities due to litigation, legal or regulatory



proceedings;



Any disruption in and/or lack of effectiveness of our information technology



? systems, including a breach of cyber security, that disrupts our business or



negatively impacts customer relationships; and



? Recruitment and retention of senior management, other key employees and our



employee base in general.





The foregoing list of important factors and other risks detailed from time to
time in our reports filed with the SEC is not exhaustive. See the section
entitled "Risk Factors" in our Form 10-K for a more complete discussion of these
risks and uncertainties and for other risks and uncertainties. Those factors and
the other risk factors described therein are not necessarily all of the
important factors that could cause actual results or developments to differ
materially from those expressed in any of our forward-looking statements. Other
unknown or unpredictable factors also could harm our results. Consequently, our
actual results could be materially different from the results described or
anticipated by our forward-looking statements, due to the inherent uncertainty
of estimates, forecasts and projections and may be better or worse than
anticipated. Given these uncertainties, you should not rely on forward-looking
statements. Forward-looking statements represent our estimates and assumptions
only as of the date that they were made. We expressly disclaim any duty to
provide updates to forward-looking statements, and the estimates and assumptions
associated with them, after the date of this report, in order to reflect changes
in circumstances or expectations or the occurrence of unanticipated events
except to the extent required by applicable securities laws.

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