MONSTER BEVERAGE COR

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

08/06/2020 | 03:20pm

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.






The COVID - 19 Pandemic




The current COVID-19 pandemic has presented a substantial public health and
economic challenge around the world and is affecting our employees, communities
and business operations, as well as the global economy and financial markets.
The human and economic consequences of the COVID-19 pandemic as well as the
measures taken or that may be taken in the future by governments, and
consequently businesses (including the Company and its suppliers, full service
beverage bottlers/distributors ("bottlers/distributors"), co-packers and other
service providers) and the public at large to limit the COVID-19 pandemic, has
directly and indirectly impacted our business. The duration and severity of this
impact will depend on future developments that are highly uncertain and cannot
be accurately predicted, including new information that may emerge concerning
the COVID-19 pandemic, the actions taken to limit its spread and the economic
impact on local, regional, national and international markets. See the section
entitled "Risk Factors" in Item 1A of this Quarterly Report.




We have been actively addressing the COVID-19 pandemic with a global task force
team working to mitigate the potential impacts to our people and business.



Health and Safety of our Employees and Business Partners



From the beginning of the COVID-19 pandemic, our top priority has been the
health, safety and well-being of our employees. Early in March 2020, we
implemented global travel restrictions and work-from-home policies for employees
who are able to work remotely. For those employees who are unable to work
remotely, safety precautions have been instituted, which were developed and
adopted in line with guidance from public health authorities and professional
consultants. Currently, our offices have partially reopened in the U.S. and in
certain countries, and generally, our field sales teams are working with our
bottler/distributors and retailers subject to certain safety protocols. We are
incredibly proud of the teamwork exhibited by our employees, co-packers and
bottlers/distributors around the world who are ensuring the integrity of our
supply chain.



Customer Demand




The COVID-19 pandemic had an adverse impact on our net and gross sales for the
three- months ended June 30, 2020, due in part to certain of our
bottlers/distributors reducing their inventory levels. However, we did see a
sequential improvement in sales in the latter half of the quarter as certain
countries and states began to gradually re-open.



Since mid-March 2020, we have seen a shift in consumer channel preferences and
package configurations, including an increase in at-home consumption and a
decrease in immediate consumption. Our sales in the second quarter of 2020 were
initially adversely affected as a result of a decrease in foot traffic in the
convenience and gas channel (which is our largest channel) but improved
sequentially throughout the quarter. Our e-commerce, club store, mass
merchandiser and grocery and related business continued to increase over the
quarter, while our food service on-premise business, which is a small channel
for the Company, remained challenged. The duration of these trends and the
magnitude of such impacts on future periods cannot be precisely estimated at
this time, as they are affected by a number of factors (many of which are
outside our control).



A reduction in demand for our products or changes in consumer purchasing and
consumption patterns, as well as continued economic uncertainty as a result of
the COVID-19 pandemic, could adversely affect the financial conditions of
retailers and consumers, resulting in reduced or canceled orders for our
products, purchase returns and closings of retail or wholesale establishments or
other locations in which our products are sold.



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Our Distribution and Supply Chain






As of the date of this filing, we do not foresee a material impact on the
ability of our co-packers to manufacture and our bottlers/distributors to
distribute our products as a result of the COVID-19 pandemic. In addition, we
are not experiencing raw material or finished product shortages in our supply
chain. However, depending on the duration of any COVID-19 pandemic related
issues, we may experience material disruptions in our supply chain as the
pandemic continues.




Liquidity and Capital Resources



As of the date of this filing, we expect to maintain substantial liquidity as we
manage through the current environment as described in the "Liquidity and
Capital Resources" section below.






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 Super Fuel® ? Gladiator®
? Monster Dragon Tea®


? Samurai®
? Caffé Monster® ? Live+®
? Reign Total Body Fuel® ? Predator®
? Reign Inferno® Thermogenic Fuel ? Fury®




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 Fuel® 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 June 30, 2020, we continued to expand our existing
energy drink portfolio by adding additional products to our portfolio in a
number of countries and further developed our distribution markets. During the
three-months ended June 30, 2020, we introduced the following new product:






? Fury® Gold Strike




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
June 30, 2020, either individually or in aggregate, did not have a material
adverse impact on our financial position, results of operations or liquidity.



Certain of our 2020 launches were negatively impacted by the COVID-19 pandemic
and we did not achieve planned distribution levels for these launches, in part
due to certain retailers postponing implementation of their new planned spring
schematics, which included our innovation products. We are executing plans with
our bottlers/distributors to reprioritize recent innovation launches to maximize
their distribution, particularly in the convenience and gas channel.



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Net sales for the three-months ended June 30, 2020 were $1.09 billion. Net
changes in foreign currency exchange rates had an unfavorable impact on net
sales of approximately $18.2 million for the three- months ended June 30, 2020.






The vast majority of our net sales are derived from our Monster Energy® Drinks
segment. Net sales of our Monster Energy® Drinks segment were $1.03 billion for
the three-months ended June 30, 2020. Net sales of our Strategic Brands segment
were $59.6 million for the three-months ended June 30, 2020. Our Monster Energy®
Drinks segment represented 93.9% and 92.3% of our net sales for the three-months
ended June 30, 2020 and 2019, respectively. Our Strategic Brands segment
represented 5.4% and 7.2% of our net sales for the three-months ended June 30,
2020
and 2019, respectively. Our Other segment represented 0.7% and 0.5% of our
net sales for the three-months ended June 30, 2020 and 2019, respectively.



Our growth strategy includes expanding our international business. Net sales to
customers outside the United States were $328.3 million for the three-months
ended June 30, 2020, a decrease of approximately $15.0 million, or 4.4% lower
than net sales to customers outside of the United States of $343.3 million for
the three-months ended June 30, 2019. Such sales were approximately 30% and 31%
of net sales for the three-months ended June 30, 2020 and 2019, respectively.
The COVID-19 pandemic had a material adverse impact on net sales to customers
outside the U.S., primarily in EMEA, for the three-months ended June 30, 2020.
In addition, to a lesser extent, the trading dispute between certain TCCC
bottlers and a European buying group primarily in Western Europe resulted in the
temporary delisting of certain TCCC and Company products, which had an adverse
impact on net sales in EMEA for the three-months ended June 30, 2020.



Our customers are primarily 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 six-months ended June 30, 2020
and 2019 are reflected below. Such information includes sales made by us
directly to the customer types concerned, which include our
bottlers/distributors in the United States. Such 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 Six-Months Ended
June 30, June 30,
2020 2019 2020 2019



U.S. full service bottlers/distributors 58 % 58 % 56 % 58 %
International full service
bottlers/distributors 31 % 33 % 33 % 33 %
Club stores and mass merchandisers 9 % 7 % 9 % 7 %
Retail grocery, specialty chains and
wholesalers 1 % 1 % 1 % 1 %
Other 1 % 1 % 1 % 1 %




Our customers include Coca-Cola Canada Bottling Limited, 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., Wal-Mart,
Inc.
(including Sam's Club), Costco Wholesale Corporation and Amazon.com, Inc. A
decision by any large customer to decrease amounts purchased from us or to cease
carrying our products could have a material adverse effect on our financial
condition and consolidated results of operations.



Coca-Cola Consolidated, Inc. accounted for approximately 13% of the Company's
net sales for both the three- months ended June 30, 2020 and 2019. Coca-Cola
Consolidated, Inc. accounted for approximately 12% and 13% of the Company's net
sales for the six-months ended June 30, 2020 and 2019, respectively.



Reyes Coca-Cola Bottling, LLC accounted for approximately 11% of the Company's
net sales for both the three- months ended June 30, 2020 and 2019. Reyes
Coca-Cola Bottling, LLC
accounted for approximately 11% of the Company's net
sales for both the six-months ended June 30, 2020 and 2019.



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Coca-Cola European Partners accounted for approximately 8% and 10% of the
Company's net sales for the three- months ended June 30, 2020 and 2019,
respectively. Coca-Cola European Partners accounted for approximately 9% and 10%
of the Company's net sales for the six-months ended June 30, 2020 and 2019,
respectively.






Results of Operations




The following table sets forth key statistics for the three- and six-months
ended June 30, 2020 and 2019.







Three-Months



Ended Percentage Six-Months Ended Percentage
(In thousands, except per share amounts)


June 30, Change June 30, Change
2020 2019 20 vs. 19 2020 2019 20 vs. 19
Net sales1 $ 1,093,896 $ 1,104,045 (0.9) % $ 2,155,993 $ 2,050,037 5.2 %
Cost of sales 434,427 442,762 (1.9) % 859,329 815,221 5.4 %
Gross profit*1 659,469 661,283 (0.3) % 1,296,664 1,234,816 5.0 %
Gross profit as a percentage of net sales 60.3 % 59.9 % 60.1 % 60.2 %

Operating expenses2 252,205


282,293 (10.7) % 524,412 544,364 (3.7) %
Operating expenses as a percentage of net sales


23.1 % 25.6 % 24.3 % 26.6 %

Operating income1,2 407,264 378,990 7.5 % 772,252 690,452 11.8 %
Operating income as a percentage of net sales 37.2 % 34.3 % 35.8 % 33.7 %

Interest and other (expense) income, net (1,100%)



2,973 (160.4) % (923) 5,714 (116.2) %




Income before provision for income taxes1,2 405,468 381,963 6.2 % 771,329 696,166 10.8 %

Provision for income taxes 94,099 89,490 5.2 % 181,125 142,208 27.4 %

Income taxes as a percentage of income before taxes 23.2 % 23.4 % 23.5 % 20.4 %

Net income1,2 $ 311,369 $ 292,473 6.5 % $ 590,204 $ 553,958 6.5 %
Net income as a percentage of net sales 28.5 % 26.5 % 27.4 % 27.0 %

Net income per common share:
Basic $ 0.59 $ 0.54 9.9 % $ 1.11 $ 1.02 8.9 %
Diluted $ 0.59 $ 0.53 9.9 % $ 1.10 $ 1.01 9.0 %

Case sales (in thousands)
(in 192-ounce case equivalents) 116,960 119,595 (2.2) % 232,559 220,879 5.3 %




1Includes $10.5 million and $10.6 million for the three-months ended June 30,
2020
and 2019, respectively, related to the recognition of deferred revenue.
Includes $21.1 million and $24.8 million for the six- months ended June 30, 2020
and 2019, respectively, related to the recognition of deferred revenue.



2Includes $0.2 million and $0.3 million for the three-months ended June 30, 2020
and 2019, respectively, of distributor termination costs. Includes $0.2 million
and $11.0 million for the six- months ended June 30, 2020 and 2019,
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 June 30, 2020 Compared to the
Three-Months Ended June 30, 2019.



Net Sales. Net sales were $1.09 billion for the three-months ended June 30,
2020
, a decrease of approximately $10.1 million, or 0.9% lower than net sales of
$1.10 billion for the three-months ended June 30, 2019. The COVID-19 pandemic
had an adverse impact on net sales for the three-months ended June 30, 2020. Net
changes in foreign currency exchange rates had an unfavorable impact on net
sales of approximately $18.2 million for the three-months ended June 30, 2020.



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Net sales for the Monster Energy® Drinks segment were $1.03 billion for the
three-months ended June 30, 2020, an increase of approximately $8.6 million, or
0.8% higher than net sales of $1.02 billion for the three-months ended June 30,
2019
. The COVID-19 pandemic had an adverse impact on net sales of the Monster
Energy® Drinks segment for the three-months ended June 30, 2020. Net changes in
foreign currency exchange rates had an unfavorable impact on net sales for the
Monster Energy® Drinks segment of approximately $16.8 million for the
three-months ended June 30, 2020.



Net sales for the Strategic Brands segment were $59.6 million for the
three-months ended June 30, 2020, a decrease of approximately $19.6 million, or
24.7% lower than net sales of $79.1 million for the three-months ended June 30,
2019
. The COVID-19 pandemic had a material adverse impact on net sales of the
Strategic Brands segment for the three-months ended June 30, 2020. The COVID-19
pandemic's impact was more pronounced in the Strategic Brands segment,
particularly in EMEA, as our larger revenue generating countries for this
segment experienced extended lockdowns. 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 June 30, 2020.



Net sales for the Other segment were $6.6 million for the three-months ended
June 30, 2020, an increase of approximately $0.9 million, or 14.7% higher than
net sales of $5.8 million for the three-months ended June 30, 2019.



Case sales, in 192-ounce case equivalents, were 117.0 million cases for the
three-months ended June 30, 2020, a decrease of approximately 2.6 million cases
or 2.2% lower than case sales of 119.6 million cases for the three-months ended
June 30, 2019. The overall average net sales per case (excluding net sales of
AFF Third-Party Products of $6.6 million and $5.8 million for the three-months
ended June 30, 2020 and 2019, respectively, as these sales do not have unit case
equivalents) increased to $9.30 for the three-months ended June 30, 2020, which
was 1.2% higher than the average net sales per case of $9.18 for the
three-months ended June 30, 2019. The increase in the average net sales per case
was primarily the result of the decrease in net sales of the Strategic Brands
segment, which has a lower net sales price per case than the Monster Energy®
Drinks segment.



Gross Profit. Gross profit was $659.5 million for the three-months ended June
30, 2020
, a decrease of approximately $1.8 million, or 0.3% lower than the gross
profit of $661.3 million for the three-months ended June 30, 2019. The decrease
in gross profit dollars was primarily the result of the $10.1 million decrease
in net sales for the three-months ended June 30, 2020.



Gross profit as a percentage of net sales increased to 60.3% for the
three-months ended June 30, 2020 from 59.9% for the three-months ended June 30,
2019
. The increase for the three-months ended June 30, 2020 was primarily the
result of product and geographical sales mix as well as reduced input costs.



Operating Expenses. Total operating expenses were $252.2 million for the
three-months ended June 30, 2020, a decrease of approximately $30.1 million, or
10.7% lower than total operating expenses of $282.3 million for the three-months
ended June 30, 2019. The decrease in operating expenses was primarily due to
decreased expenditures of $19.8 million for sponsorship and endorsements and
decreased expenditures of $10.1 million for travel and entertainment, each
largely as a consequence of the COVID-19 pandemic. The costs for certain
postponed or rescheduled events have been, or may be, deferred to future
periods. Due to the uncertainty surrounding the COVID-19 pandemic, we are unable
to estimate in which future periods, if any, such deferred sponsorship and
endorsement costs will be recognized. The decrease in operating expenses was
partially offset by increased payroll expenses of $8.4 million (of which $0.4
million
was related to an increase in stock-based compensation).



Operating Income. Operating income was $407.3 million for the three-months ended
June 30, 2020, an increase of approximately $28.3 million, or 7.5% higher than
operating income of $379.0 million for the three-months ended June 30, 2019.
Operating income as a percentage of net sales increased to 37.2% for the
three-months ended June 30, 2020 from 34.3% for the three-months ended June 30,
2019
. Operating income was $61.1 million and $54.8 million for the three-months
ended June 30, 2020 and 2019, respectively, for our operations in Europe, Middle
East
and Africa ("EMEA"), Asia Pacific and South America.



Operating income for the Monster Energy® Drinks segment, exclusive of corporate
and unallocated expenses, was $453.4 million for the three-months ended June 30,
2020
, an increase of approximately $42.6 million, or 10.4% higher than operating
income of $410.8 million for the three-months ended June 30, 2019. The increase
in operating income for the Monster Energy® Drinks segment was primarily the
result of the $29.3 million decrease in operating expenses for the three-months
ended June 30, 2020.



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Operating income for the Strategic Brands segment, exclusive of corporate and
unallocated expenses, was $37.7 million for the three-months ended June 30,
2020
, a decrease of approximately $12.4 million, or 24.7% lower than operating
income of $50.1 million for the three-months ended June 30, 2019. The decrease
in operating income for the three-months ended June 30, 2020 was primarily the
result of a decrease in net sales related to the COVID-19 pandemic.



Operating income for the Other segment, exclusive of corporate and unallocated
expenses, was $1.6 million for the three-months ended June 30, 2020, an increase
of approximately $0.5 million, or 45.3% higher than operating income of $1.1
million
for the three-months ended June 30, 2019.



Interest and Other (Expense) Income, net. Interest and other non-operating
(expense) income, net, was ($1.8) million for the three-months ended June 30,
2020
, as compared to interest and other non-operating (expense) income, net, of
$3.0 million for the three-months ended June 30, 2019. Foreign currency
transaction losses were $1.5 million and $0.9 million for the three-months ended
June 30, 2020 and 2019, respectively. Interest income was $0.9 million and $4.1
million
for the three-months ended June 30, 2020 and 2019, respectively.



Provision for Income Taxes. Provision for income taxes was $94.1 million for the
three-months ended June 30, 2020, an increase of $4.6 million, or 5.2% higher
than the provision for income taxes of $89.5 million for the three-months ended
June 30, 2019. The effective combined federal, state and foreign tax rate
decreased to 23.2% from 23.4% for the three-months ended June 30, 2020 and



2019,
respectively.



Net Income. Net income was $311.4 million for the three-months ended June 30,
2020
, an increase of $18.9 million, or 6.5% higher than net income of $292.5
million
for the three-months ended June 30, 2019. The increase in net income was
primarily due to the $30.1 million decrease in operating expenses for the
three-months ended June 30, 2020.




Results of Operations for the Six-Months Ended June 30, 2020 Compared to the
Six-Months Ended June 30, 2019.






Net Sales. Net sales were $2.16 billion for the six-months ended June 30, 2020,
an increase of approximately $106.0 million, or 5.2% higher than net sales of
$2.05 billion for the six-months ended June 30, 2019. The COVID-19 pandemic had
an adverse impact on net sales for the six-months ended June 30, 2020. Net
changes in foreign currency exchange rates had an unfavorable impact on net
sales of approximately $28.6 million for the six-months ended June 30, 2020.



Net sales for the Monster Energy® Drinks segment were $2.02 billion for the
six-months ended June 30, 2020, an increase of approximately $130.6 million, or
6.9% higher than net sales of $1.89 billion for the six-months ended June 30,
2019
. Net sales for the Monster Energy® Drinks segment increased primarily due
to increased worldwide sales by volume of our Monster Energy® brand energy
drinks as a result of increased consumer demand as well as enhanced distribution
and increased consumer demand for our Reign Total Body Fuel® high performance
energy drinks. The COVID-19 pandemic had an adverse impact on net sales of the
Monster Energy® Drinks segment for the six-months ended June 30, 2020. Net
changes in foreign currency exchange rates had an unfavorable impact on net
sales for the Monster Energy® Drinks segment of approximately $26.7 million for
the six-months ended June 30, 2020.



Net sales for the Strategic Brands segment were $124.1 million for the
three-months ended June 30, 2020, a decrease of approximately $25.3 million, or
16.9% lower than net sales of $149.4 million for the six-months ended June 30,
2019
. The COVID-19 pandemic had a material adverse impact on net sales of the
Strategic Brands segment for the six-months ended June 30, 2020. The COVID-19
pandemic impact was more pronounced in the Strategic Brand segment, particularly
in EMEA, as our largest revenue generating countries for this segment
experienced extended lockdowns. Net changes in foreign currency exchange rates
had an unfavorable impact on net sales for the Strategic Brands segment of
approximately $1.9 million for the six-months ended June 30, 2020.



Net sales for the Other segment were $11.7 million for the six-months ended June
30, 2020
, an increase of approximately $0.6 million, or 5.7% higher than net
sales of $11.1 million for the six-months ended June 30, 2019.



Case sales, in 192-ounce case equivalents, were 232.6 million cases for the
six-months ended June 30, 2020, an increase of approximately 11.7 million cases
or 5.3% higher than case sales of 220.9 million cases for the six-months ended
June 30, 2019. The overall average net sales per case (excluding net sales of
AFF Third-Party Products of $11.7 million and $11.1 million for the six-months
ended June 30, 2020 and 2019, respectively, as these sales do not have unit case
equivalents) decreased to $9.22 for the six-months ended June 30, 2020, as
compared to net sales per case of $9.23 for the six-months ended June 30,



2019.



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Gross Profit. Gross profit was $1.30 billion for the six-months ended June 30,
2020
, an increase of approximately $61.8 million, or 5.0% higher than the gross
profit of $1.23 billion for the six-months ended June 30, 2019. The increase in
gross profit dollars was primarily the result of the $130.6 million increase in
net sales of our Monster Energy® Drinks segment for the six-months ended June
30, 2020
.




Gross profit as a percentage of net sales decreased to 60.1% for the six-months
ended June 30, 2020 from 60.2% for the six-months ended June 30, 2019.






Operating Expenses. Total operating expenses were $524.4 million for the
six-months ended June 30, 2020, a decrease of approximately $20.0 million, or
3.7% lower than total operating expenses of $544.4 million for the six-months
ended June 30, 2019. The decrease in operating expenses was primarily due to
decreased expenditures of $24.2 million for sponsorship and endorsements and
decreased expenditures of $10.4 million for travel and entertainment, each
largely as a consequence of the COVID-19 pandemic, as well as decreased
expenditures of $10.8 million related to the costs associated with distributor
terminations. The costs for certain postponed or rescheduled events have been,
or may be, deferred to future periods. Due to the uncertainty surrounding the
COVID-19 pandemic, we are unable to estimate in what future periods, if any,
such deferred sponsorship and endorsement costs will be recognized. The decrease
in operating expenses was partially offset by increased payroll expenses of
$16.5 million (of which $2.1 million was related to an increase in stock-based
compensation), increased out-bound freight and warehouse costs of $4.3 million,
a $4.0 million Strategic Brand trademark impairment charge and increased
expenditures of $4.2 million for premiums.



Operating Income. Operating income was $772.3 million for the six-months ended
June 30, 2020, an increase of approximately $81.8 million, or 11.8% higher than
operating income of $690.5 million for the six-months ended June 30, 2019.
Operating income as a percentage of net sales increased to 35.8% for the
six-months ended June 30, 2020 from 33.7% for the six-months ended June 30,
2019
. Operating income was $132.8 million and $107.1 million for the six-months
ended June 30, 2020 and 2019, respectively, for our operations in Europe, Middle
East
and Africa ("EMEA"), Asia Pacific and South America.



Operating income for the Monster Energy® Drinks segment, exclusive of corporate
and unallocated expenses, was $864.5 million for the six-months ended June 30,
2020
, an increase of approximately $110.7 million, or 14.7% higher than
operating income of $753.8 million for the six-months ended June 30, 2019. The
increase in operating income for the Monster Energy® Drinks segment was
primarily the result of the $130.7 million increase in net sales of our Monster
Energy® Drinks segment for the six-months ended June 30, 2020.



Operating income for the Strategic Brands segment, exclusive of corporate and
unallocated expenses, was $74.4 million for the six-months ended June 30, 2020,
a decrease of approximately $21.2 million, or 22.2% lower than operating income
of $95.7 million for the six-months ended June 30, 2019. The decrease in
operating income for the six-months ended June 30, 2020 was primarily the result
of a decrease in net sales related to the COVID-19 pandemic.



Operating income for the Other segment, exclusive of corporate and unallocated
expenses, was $2.4 million for the six-months ended June 30, 2020, an increase
of approximately $0.4 million, or 19.4% higher than operating income of $2.0
million
for the six-months ended June 30, 2019.



Interest and Other (Expense) Income, net. Interest and other non-operating
(expense) income, net, was ($0.9) million for the six-months ended June 30,
2020
, as compared to interest and other non-operating (expense) income, net, of
$5.7 million for the six-months ended June 30, 2019. Foreign currency
transaction losses were $4.4 million and $1.2 million for the six-months ended
June 30, 2020 and 2019, respectively. Interest income was $5.7 million and $7.4
million
for the six-months ended June 30, 2020 and 2019, respectively.



Provision for Income Taxes. Provision for income taxes was $181.1 million for
the six-months ended June 30, 2020, an increase of $38.9 million, or 27.4%
higher than the provision for income taxes of $142.2 million for the six-months
ended June 30, 2019. The effective combined federal, state and foreign tax rate
increased to 23.5% from 20.4% for the six-months ended June 30, 2020 and 2019,
respectively. The increase in the effective tax rate was primarily attributable
to a decrease in the equity compensation deduction.



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Net Income. Net income was $590.2 million for the six-months ended June 30,
2020
, an increase of $36.2 million, or 6.5% higher than net income of $554.0
million
for the six-months ended June 30, 2019. The increase in net income was
primarily due to the $61.8 million increase in gross profit and the $20.0
million
decrease in operating expenses. The increase in net income was partially
offset by an increase in the provision for income taxes of $38.9 million.



Non-GAAP Financial Measures




Three-Months Ended June 30, 2020 Compared to the Three-Months Ended June 30,
2019
.






Gross Sales**. Gross sales were $1.27 billion for the three-months ended June
30, 2020
, a decrease of approximately $12.2 million, or 0.9% lower than gross
sales of $1.29 billion for the three-months ended June 30, 2019. The COVID-19
pandemic had an adverse impact on gross sales for the three-months ended June
30, 2020
. Net changes in foreign currency exchange rates had an unfavorable
impact on gross sales of approximately $21.6 million for the three-months ended
June 30, 2020.




Gross sales for the Monster Energy® Drinks segment were $1.20 billion for the
three-months ended June 30, 2020, an increase of approximately $9.7 million, or
0.8% higher than gross sales of $1.19 billion for the three-months ended June
30, 2019
. The COVID-19 pandemic had an adverse impact on gross sales of the
Monster Energy® Drinks segment for the three-months ended June 30, 2020. Net
changes in foreign currency exchange rates had an unfavorable impact on gross
sales for the Monster Energy® Drinks segment of approximately $20.1 million for
the three-months ended June 30, 2020.



Gross sales of our Strategic Brands segment were $67.8 million for the
three-months ended June 30, 2020, a decrease of $22.7 million, or 25.1% lower
than gross sales of $90.5 million for the three-months ended June 30, 2019. The
COVID-19 pandemic had a material adverse impact on gross sales of the Strategic
Brands segment for the three-months ended June 30, 2020. The COVID-19 pandemic
impact was more pronounced in the Strategic Brands segment, particularly in
EMEA, as our larger revenue generating countries for this segment experienced
extended lockdowns. Net changes in foreign currency exchange rates had an
unfavorable impact on gross sales in the Strategic Brands segment of
approximately $1.5 million for the three-months ended June 30, 2020.



Gross sales of our Other segment were $6.6 million for the three-months ended
June 30, 2020, an increase of $0.9 million, or 14.7% higher than gross sales of
$5.8 million for the three-months ended June 30, 2019.



Promotional allowances, commissions and other expenses, as described in the
footnote below, were $180.4 million for the three-months ended June 30, 2020, a
decrease of $2.0 million, or 1.1% lower than promotional allowances, commissions
and other expenses of $182.4 million for the three-months ended June 30, 2019.
Promotional allowances, commissions and other expenses as a percentage of gross
sales were 14.2% for both the three-months ended June 30, 2020 and 2019,
respectively.




Six-Months Ended June 30, 2020 Compared to the Six-Months Ended June 30, 2019.



Gross Sales**. Gross sales were $2.51 billion for the six-months ended June 30,
2020
, an increase of approximately $133.5 million, or 5.6% higher than gross
sales of $2.38 billion for the six-months ended June 30, 2019. The COVID-19
pandemic had an adverse impact on gross sales for the six-months ended June 30,
2020
. Net changes in foreign currency exchange rates had an unfavorable impact
on gross sales of approximately $32.8 million for the six-months ended June



30,
2020.




Gross sales for the Monster Energy® Drinks segment were $2.36 billion for the
six-months ended June 30, 2020, an increase of approximately $161.6 million, or
7.4% higher than gross sales of $2.20 billion for the six-months ended June 30,
2019
. Gross sales for the Monster Energy® Drinks segment increased primarily due
to increased worldwide sales by volume of our Monster Energy® brand energy
drinks as a result of increased consumer demand as well as enhanced distribution
and increased consumer demand for our Reign Total Body Fuel® high performance
energy drinks. The COVID-19 pandemic had an adverse impact on gross sales of the
Monster Energy® Drinks segment for the six-months ended June 30, 2020. Net
changes in foreign currency exchange rates had an unfavorable impact on gross
sales for the Monster Energy® Drinks segment of approximately $30.9 million for
the six-months ended June 30, 2020.



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Gross sales of our Strategic Brands segment were $141.2 million for the
six-months ended June 30, 2020, a decrease of $28.7 million, or 16.9% lower than
gross sales of $170.0 million for the six-months ended June 30, 2019. The
COVID-19 pandemic had a material adverse impact on gross sales of the Strategic
Brands segment for the six-months ended June 30, 2020. The COVID-19 pandemic
impact was more pronounced in the Strategic Brands segment, particularly in
EMEA, as our larger revenue generating countries for this segment experienced
extended lockdowns. Net changes in foreign currency exchange rates had an
unfavorable impact on gross sales in the Strategic Brands segment of
approximately $1.9 million for the six-months ended June 30, 2020.



Gross sales of our Other segment were $11.7 million for the six-months ended
June 30, 2020, an increase of $0.6 million, or 5.7% higher than gross sales of
$11.1 million for the six-months ended June 30, 2019.



Promotional allowances, commissions and other expenses, as described in the
footnote below, were $354.3 million for the six-months ended June 30, 2020, an
increase of $27.8 million, or 8.4% higher than promotional allowances,
commissions and other expenses of $326.8 million for the six-months ended June
30, 2019
. Promotional allowances, commissions and other expenses as a percentage
of gross sales increased to 14.1% from 13.8% for the six-months ended June



30,
2020 and 2019, 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 Six-Months Ended Percentage
June 30, Change June 30, Change
(In thousands) 2020 2019 20 vs. 19 2020 2019 20 vs. 19
Gross sales, net of
discounts and returns $ 1,274,277 $ 1,286,436 (0.9) % $ 2,510,337 $ 2,376,862 5.6 %
Less: Promotional
allowances, commissions and
other expenses*** 180,381 182,391 (1.1) % 354,344 326,825 8.4 %
Net Sales $ 1,093,896 $ 1,104,045 (0.9) % $ 2,155,993 $ 2,050,037 5.2 %





***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-months ended June 30, 2020 and 2019
were (i) to increase sales volume and trial, (ii) to address market conditions,
and (iii) to secure shelf and display space at retail.



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Sales



The table below discloses selected quarterly data regarding sales for the three-
and six-months ended June 30, 2020 and 2019, 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 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/distributors, changes in the sales mix of our products
and changes in advertising and promotional expenses. The COVID-19 pandemic may
also have an impact on consumer behavior and change the seasonal fluctuation of
our business.




Three-Months Ended Six-Months Ended
June 30, June 30,
(In thousands, except average net
sales per case) 2020 2019 2020 2019
Net sales $ 1,093,896 $ 1,104,045 $ 2,155,993 $ 2,050,037
Less: AFF third-party sales (6,644) (5,791) (11,749) (11,112)
Adjusted net sales1 $ 1,087,252 $ 1,098,254 $ 2,144,244 $ 2,038,925
Case sales by segment:
Monster Energy® Drinks 101,046 98,821 199,298 182,296
Strategic Brands 15,914 20,774 33,261 38,583
Other - - - -
Total case sales 116,960 119,595 232,559 220,879



Average net sales per case $ 9.30 $ 9.18 $



9.22 $ 9.23





1Excludes Other segment net sales of $6.6 million and $5.8 million for the
three-months ended June 30, 2020 and 2019, 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 $11.7
million
and $11.1 million for the six-months ended June 30, 2020 and 2019,
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 and cash equivalents, short-term and long-term investments. 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. Our sources
and uses of cash were not materially impacted by the COVID-19 pandemic in the
six-months ended June 30, 2020 and, to date, we have not identified any material
liquidity deficiencies as a result of the COVID-19 pandemic. Based on the
information currently available to us, we do not expect the impact of the
COVID-19 pandemic to have a material impact on our liquidity. We will continue
to monitor and assess the impact the COVID-19 pandemic may have on our business,
financial condition and/or operating results.



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At June 30, 2020, we had $921.3 million in cash and cash equivalents, $250.8
million
in short-term investments and $2.1 million in long-term investments. We
have historically invested these amounts in U.S. treasuries, U.S. government
agency securities, municipal securities, commercial paper, certificates of
deposit, variable rate demand notes and money market funds meeting certain
criteria. At this time, we no longer invest these amounts in municipal
securities. 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.



Based on our current plans, at this time we estimate that capital expenditures
(exclusive of common stock repurchases) are likely to be less than $150.0
million
through June 30, 2021. However, future business opportunities may cause
a change in this estimate.




Cash flows provided by operating activities. Cash provided by operating
activities was $440.5 million for the six-months ended June 30, 2020, as
compared with cash provided by operating activities of $454.8 million for the
six-months ended June 30, 2019.






For the six-months ended June 30, 2020, cash provided by operating activities
was primarily attributable to net income earned of $590.2 million and
adjustments for certain non-cash expenses, consisting of $33.0 million of
stock-based compensation, $32.1 million of depreciation and amortization and
$4.0 million of intangible asset impairment. For the six-months ended June 30,
2020
, cash provided by operating activities also increased due to a $31.7
million
increase in accrued liabilities, a $14.2 million decrease in
inventories, an $8.3 million increase in income tax payable, a $7.2 million
decrease in prepaid income taxes and a $3.1 million increase in accrued
promotional allowance. For the six-months ended June 30, 2020, cash used in
operating activities was primarily attributable to a $231.8 million increase in
accounts receivable, a $23.4 million increase in prepaid expenses and other
assets, a $10.9 million decrease in accrued compensation, a $10.4 million
decrease in deferred revenue and a $6.8 million decrease in accounts payable.



For the six-months ended June 30, 2019, cash provided by operating activities
was primarily attributable to net income earned of $554.0 million and
adjustments for certain non-cash expenses, consisting of $30.9 million of
stock-based compensation and $32.4 million of depreciation and amortization. For
the six-months ended June 30, 2019, cash provided by operating activities also
increased due to a $53.6 million increase in accrued promotional allowances, a
$36.9 million increase in accounts payable, a $5.0 million increase in income
taxes payable, a $4.6 million decrease in prepaid income taxes and a $4.5
million
decrease in distributor receivables. For the six-months ended June 30,
2019
, cash used in operating activities was primarily attributable to a $204.4
million
increase in accounts receivable, a $21.5 million increase in
inventories, a $16.8 million increase in prepaid expenses and other assets, a
$14.4 million decrease in deferred revenue, a $10.5 million decrease in accrued
compensation and a $1.4 million decrease in accrued liabilities.




Cash flows provided by (used in) investing activities. Cash provided by
investing activities was $250.7 million for the six-months ended June 30, 2020
as compared to cash used in investing activities of $56.0 million for the
six-months ended June 30, 2019.






For both the six-months ended June 30, 2020 and 2019, cash provided by investing
activities was primarily attributable to sales of available-for-sale
investments. For both the six-months ended June 30, 2020 and 2019, cash used in
investing activities was primarily attributable to purchases of
available-for-sale investments. For both the six-months ended June 30, 2020 and
2019, 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
$553.6 million for the six-months ended June 30, 2020 as compared to cash used
in financing activities of $151.4 million for the three-months ended June 30,
2019
. The cash used in financing activities for both the six-months ended June
30, 2020
and 2019 was primarily the result of the repurchases of our common
stock. The cash provided by financing activities for both the six-months ended
June 30, 2020, and 2019 was primarily attributable to the issuance of our common
stock under our stock-based compensation plans.

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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.




Of our $921.3 million of cash and cash equivalents held at June 30, 2020, $418.0
million
was held by our foreign subsidiaries. No short-term or long-term
investments were held by our foreign subsidiaries at June 30, 2020.



The following represents a summary of the Company's contractual commitments and
related scheduled maturities as of June 30, 2020:







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

Contractual Obligations1 $ 182,092 $ 136,681 $ 43,716 $ 1,695 $ -
Finance Leases 1,840 1,840 - - -
Operating Leases 25,314 3,664 5,648 3,760 12,242
Purchase Commitments2 59,175 59,175 - - -
$ 268,421 $ 201,360 $ 49,364 $ 5,455 $ 12,242





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 $3.0 million of unrecognized tax benefits have been
recorded as liabilities as of June 30, 2020. It is expected that the amount of
unrecognized tax benefits will not significantly change within the next 12
months. As of June 30, 2020, we had $0.4 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, 2019 ("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.






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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:




The human and economic consequences of the COVID-19 pandemic, as well as the



measures taken or that may be taken in the future by governments, and



? consequently, businesses (including the Company and its suppliers, bottlers/



distributors, co-packers and other service providers) and the public at large



to limit the COVID-19 pandemic;



The slowing of growth and/or decline in sales of the domestic and international



energy drink categories generally, including the convenience and gas channel



? (which is our largest channel) and food-service on-premise, and the impact on



demand for our products resulting from deteriorating economic conditions and



financial uncertainties due to the COVID-19 pandemic;



The impact of temporary plant closures, production slowdowns and disruptions in



? operations experienced by our suppliers, bottlers/distributors and/or



co-packers as a result of the COVID-19 pandemic, including any material



disruptions on the production and distribution of our products;



The impact of the reduction in our sponsorship and endorsement activities as



? well as our sampling activities as a result of COVID-19 on our future sales and



market share;



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 and possible reductions in the number of our SKUs carried by such



bottlers/distributors and/or such bottlers/distributors imposing limitations on



distributing new product SKUs;



? Closures of, and continued restrictions on, on-premise retailers and other



establishments which sell our products as the result of the COVID-19 pandemic;



? The limitation or reduction by our suppliers, bottlers/distributors and/or



co-packers of their activities and/or operations during the COVID-19 pandemic;



? The impact of the COVID-19 pandemic on our product sampling programs;



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



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



? Our ability to maintain relationships with TCCC system bottlers/distributors



and manage their ongoing commitment to focus on our products;



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



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



international bottlers/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;


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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 laws, regulations and evolving industry standards



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



the General Data Protection Regulation and the California Privacy Act of 2018;



? 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 bottlers/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;



? Uncertainties surrounding the United Kingdom's departure from the European



Union (or "Brexit");



? Changes in accounting standards may affect our reported profitability;



? Implications of the Organization for Economic Cooperation and Development's



base erosion and profit shifting project;



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;



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



proceedings;



? Intellectual property injunctions;



? 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 and 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 of unstable political conditions, civil unrest, large scale



? terrorist acts, the outbreak or escalation of armed hostilities, major natural



disasters and extreme weather conditions, or widespread outbreaks of infectious



diseases;



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 brands, including our Reign



? Total Body Fuel® high performance energy drinks, which could result in an



injunction barring us from selling certain of our products and/or require



changes to be made to our current trade dress;



? Our ability to introduce new products and the impact of the COVID-19 pandemic



on our innovation activities;



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



? An inability to achieve volume growth through product and packaging



initiatives;


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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 our



Strategic Brands;



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;



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



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



may be regarded as competitive with our products;



Unilateral decisions by bottlers/distributors, buying groups, 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 impact of the trading dispute between TCCC and a European buying group



? primarily in Western Europe, which has resulted in the temporary delisting of



certain TCCC and Company products;



? The effects of retailer consolidation on our business and our ability to



successfully adapt to the rapidly changing retail landscape;



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



marketing and promotional strategies;



? The success of our sports marketing, social media and other general marketing



endeavors both domestically and internationally;



Our ability to successfully adapt to the changing landscape of advertising,



? marketing, promotional, sponsorship and endorsement opportunities created by



the COVID-19 pandemic;



? Unforeseen economic and political changes and local or international



catastrophic events;



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





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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 co-packers to manufacture our products on a



timely basis or at all;



? The impact of any reductions in productivity and disruptions to our business



routines while most office-based employees of the Company work remotely;



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, as well as cybersecurity incidents



involving data shared with third parties; 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 and in Item 1A of this Quarterly Report
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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