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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021

Commission File Number 001-18761

MONSTER BEVERAGE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

47-1809393

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1 Monster Way

Corona, California 92879

(Address of principal executive offices) (Zip code)

(951) 739 - 6200

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock

MNST

Nasdaq Global Select Market

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

Yes  X   No ___

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

Yes  X   No ___

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Yes ___ No   X   

The registrant had 528,562,217 shares of common stock, par value $0.005 per share, outstanding as of April 30, 2021.

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

MARCH 31, 2021

INDEX

Part I.

FINANCIAL INFORMATION

Page No.

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Income for the Three-Months Ended March 31, 2021 and 2020

4

Condensed Consolidated Statements of Comprehensive Income for the Three-Months Ended March 31, 2021 and 2020

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three-Months Ended March 31, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the Three-Months Ended March 31, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4.

Controls and Procedures

42

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3.

Defaults Upon Senior Securities

43

Item 4.

Mine Safety Disclosures

43

Item 5.

Other Information

43

Item 6.

Exhibits

44

Signatures

45

2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

(In Thousands, Except Par Value) (Unaudited)

March 31, 

December 31, 

    

2021

    

2020

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

1,178,879

$

1,180,413

Short-term investments

 

980,108

 

 

881,354

Accounts receivable, net

 

802,509

 

 

666,012

Inventories

 

368,402

 

 

333,085

Prepaid expenses and other current assets

 

72,803

 

 

55,358

Prepaid income taxes

 

31,171

 

 

24,733

Total current assets

 

3,433,872

 

 

3,140,955

INVESTMENTS

 

63,751

 

 

44,291

PROPERTY AND EQUIPMENT, net

 

312,155

 

 

314,656

DEFERRED INCOME TAXES, net

 

241,650

 

 

241,650

GOODWILL

 

1,331,643

 

 

1,331,643

OTHER INTANGIBLE ASSETS, net

 

1,063,092

 

 

1,059,046

OTHER ASSETS

 

88,203

 

 

70,475

Total Assets

$

6,534,366

 

$

6,202,716

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

334,076

 

$

296,800

Accrued liabilities

 

170,954

 

 

142,653

Accrued promotional allowances

 

197,380

 

 

186,658

Deferred revenue

 

45,961

 

 

45,429

Accrued compensation

 

30,499

 

 

55,015

Income taxes payable

 

9,991

 

 

23,433

Total current liabilities

 

788,861

 

 

749,988

DEFERRED REVENUE

 

257,730

 

 

264,436

OTHER LIABILITIES

28,338

27,432

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ EQUITY:

Common stock - $0.005 par value; 1,250,000 shares authorized; 639,154 shares issued and 528,439 shares outstanding as of March 31, 2021; 638,662 shares issued and 528,097 shares outstanding as of December 31, 2020

3,196

3,193

Additional paid-in capital

 

4,562,689

 

 

4,537,982

Retained earnings

 

6,747,268

 

 

6,432,074

Accumulated other comprehensive (loss) income

 

(24,874)

 

 

3,034

Common stock in treasury, at cost; 110,715 shares and 110,565 shares as of March 31, 2021 and December 31, 2020, respectively

 

(5,828,842)

 

 

(5,815,423)

Total stockholders’ equity

 

5,459,437

 

 

5,160,860

Total Liabilities and Stockholders’ Equity

$

6,534,366

 

$

6,202,716

See accompanying notes to condensed consolidated financial statements.

3

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE-MONTHS ENDED MARCH 31, 2021 AND 2020

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

Three-Months Ended

March 31, 

    

2021

    

2020

NET SALES

$

1,243,816

$

1,062,097

COST OF SALES

 

528,881

 

424,901

GROSS PROFIT

 

714,935

 

637,196

OPERATING EXPENSES

 

300,789

 

272,208

OPERATING INCOME

 

414,146

 

364,988

INTEREST and OTHER (EXPENSE) INCOME, net

 

(759)

 

872

INCOME BEFORE PROVISION FOR INCOME TAXES

 

413,387

 

365,860

PROVISION FOR INCOME TAXES

98,193

87,025

NET INCOME

$

315,194

$

278,835

NET INCOME PER COMMON SHARE:

Basic

$

0.60

$

0.52

Diluted

$

0.59

$

0.52

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

Basic

 

528,195

 

536,061

Diluted

 

534,982

 

540,518

See accompanying notes to condensed consolidated financial statements.

4

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTHS ENDED MARCH 31, 2021 AND 2020

(In Thousands) (Unaudited)

Three-Months Ended

March 31, 

    

2021

    

2020

Net income, as reported

$

315,194

$

278,835

Other comprehensive income (loss):

Change in foreign currency translation adjustment

 

(27,932)

 

(30,599)

Available-for-sale investments:

Change in net unrealized gains

 

24

 

304

Reclassification adjustment for net gains included in net income

 

 

Net change in available-for-sale investments

 

24

 

304

Other comprehensive income (loss)

 

(27,908)

 

(30,295)

Comprehensive income

$

287,286

$

248,540

See accompanying notes to condensed consolidated financial statements.

5

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE-MONTHS ENDED MARCH 31, 2021 AND 2020

(In Thousands) (Unaudited)

Accumulated

Other

Total

Common stock

Additional

Retained

Comprehensive

Treasury stock

Stockholders’

  

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

(Loss) Income

  

Shares

  

Amount

  

Equity

Balance, December 31, 2020

    

638,662

    

$

3,193

    

$

4,537,982

    

$

6,432,074

    

$

3,034

    

(110,565)

    

$

(5,815,423)

    

$

5,160,860

Stock-based compensation

 

17,949

17,949

Exercise of stock options

 

492

3

6,758

6,761

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

24

 

 

 

24

Repurchase of common stock

 

(150)

(13,419)

(13,419)

Foreign currency translation

 

(27,932)

(27,932)

Net income

 

315,194

315,194

Balance, March 31, 2021

 

639,154

 

$

3,196

 

$

4,562,689

 

$

6,747,268

 

$

(24,874)

(110,715)

 

$

(5,828,842)

 

$

5,459,437

Accumulated

Other

Total

Common stock

Additional

Retained

Comprehensive

Treasury stock

Stockholders’

  

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

(Loss) Income

  

Shares

  

Amount

  

Equity

Balance, December 31, 2019

 

636,460

    

$

3,182

    

$

4,397,511

    

$

5,022,480

    

$

(32,387)

    

(99,762)

    

$

(5,219,505)

    

$

4,171,281

Stock-based compensation

 

17,098

17,098

Exercise of stock options

 

644

4

13,971

13,975

Unrealized gain, net on available-for-sale securities

 

 

 

 

 

304

 

 

 

304

Repurchase of common stock

 

(10,503)

(579,948)

(579,948)

Foreign currency translation

 

(30,599)

(30,599)

Net income

 

278,835

278,835

Balance, March 31, 2020

 

637,104

 

$

3,186

 

$

4,428,580

 

$

5,301,315

 

$

(62,682)

(110,265)

 

$

(5,799,453)

 

$

3,870,946

See accompanying notes to condensed consolidated financial statements.

6

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTHS ENDED MARCH 31, 2021 AND 2020

(In Thousands) (Unaudited)

Three-Months Ended

March 31, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

315,194

$

278,835

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

Depreciation and amortization

13,777

16,546

Gain on disposal of property and equipment

(88)

(58)

Impairment of intangibles

3,000

Stock-based compensation

18,362

17,098

Effect on cash of changes in operating assets and liabilities:

Accounts receivable

(147,544)

(147,660)

Distributor receivables

92

176

Inventories

(39,546)

1,037

Prepaid expenses and other assets

(18,487)

(18,081)

Prepaid income taxes

(7,076)

8,078

Accounts payable

36,859

19,328

Accrued liabilities

32,441

34,500

Accrued promotional allowances

13,965

9,439

Accrued distributor terminations

(282)

Accrued compensation

(24,443)

(24,807)

Income taxes payable

(13,287)

(1,552)

Other liabilities

504

(192)

Deferred revenue

(5,250)

(4,273)

Net cash provided by operating activities

175,473

191,132

CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of available-for-sale investments

325,751

513,534

Purchases of available-for-sale investments

(440,570)

(214,697)

Purchases of property and equipment

(8,400)

(11,119)

Proceeds from sale of property and equipment

231

217

Additions to intangibles

(7,239)

(6,811)

Increase in other assets

(18,856)

(1,148)

Net cash (used in) provided by investing activities

(149,083)

279,976

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings of (payments on) debt

957

(733)

Issuance of common stock

6,761

13,975

Purchases of common stock held in treasury

(13,419)

(559,210)

Net cash used in financing activities

(5,701)

(545,968)

Effect of exchange rate changes on cash and cash equivalents

(22,223)

(21,261)

NET DECREASE IN CASH AND CASH EQUIVALENTS

(1,534)

(96,121)

CASH AND CASH EQUIVALENTS, beginning of period

1,180,413

797,957

CASH AND CASH EQUIVALENTS, end of period

$

1,178,879

$

701,836

SUPPLEMENTAL INFORMATION:

Cash paid during the period for:

Interest

$

13

$

11

Income taxes

$

121,866

$

79,993

See accompanying notes to condensed consolidated financial statements.

7

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTHS ENDED MARCH 31, 2021 AND 2020

(In Thousands) (Unaudited) (Continued)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS

Included in accrued liabilities as of March 31, 2021 and 2020 were $7.8 million and $12.9 million, respectively, related to additions to other intangible assets.

Included in accounts payable as of March 31, 2021 were $4.4 million of available-for-sale short-term investment purchases.

Included in accounts payable as of March 31, 2020 were $20.7 million of treasury stock repurchases.

See accompanying notes to condensed consolidated financial statements.

8

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1.

BASIS OF PRESENTATION

Reference is made to the Notes to Consolidated Financial Statements, in Monster Beverage Corporation and Subsidiaries (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2020 for a summary of significant accounting policies utilized by the Company and its consolidated subsidiaries and other disclosures, which should be read in conjunction with this Quarterly Report on Form 10-Q (“Form 10-Q”).

The Company’s condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting.  They do not include all the information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP.  The information set forth in these interim condensed consolidated financial statements for the three-months ended March 31, 2021 and 2020, respectively, is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed consolidated financial statements not misleading.  Results of operations for periods covered by this report may not necessarily be indicative of results of operations for the full year.

The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from these estimates.

2.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes”, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU No. 2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU No. 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance was effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s financial position, results of operations and liquidity.

3.

REVENUE RECOGNITION

The Company has three operating and reportable segments: (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is primarily comprised of the Company’s Monster Energy® drinks and Reign Total Body Fuel® high performance energy drinks (ii) Strategic Brands segment (“Strategic Brands”), which is primarily comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”) in 2015 as well as the Company’s 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 of the Company, to independent third-party customers (the “AFF Third-Party Products”).

The Company’s Monster Energy® Drinks segment generates net operating revenues by selling ready-to-drink packaged energy drinks primarily to bottlers and full service beverage bottlers/distributors (“bottlers/distributors”). In some cases, the Company sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military.

The Company’s Strategic Brands segment primarily generates net operating revenues by selling “concentrates” and/or “beverage bases” to authorized bottling and canning operations. Such bottlers generally combine the concentrates and/or beverage bases with sweeteners, water and other ingredients to produce ready-to-drink packaged energy drinks. The ready-to-drink packaged energy drinks are then sold by such bottlers to other bottlers/distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores, value stores, e-commerce retailers and the military. To a lesser extent, the Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers/distributors.

9

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, control of the Company’s products passes to such bottlers/distributors when they notify the Company that they have taken possession or transferred the relevant portion of the Company’s finished goods. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as of March 31, 2021 and December 31, 2020.

The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense after manufacture are accounted for within operating expenses.

Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s bottlers/distributors or retail customers including, but not limited to the following:

discounts granted off list prices to support price promotions to end-consumers by retailers;
reimbursements given to the Company’s 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;
the Company’s agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities;
the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers;
incentives given to the Company’s bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals;
discounted or free products;
contractual fees given to the Company’s bottlers/distributors related to sales made directly by the Company to certain customers that fall within the bottlers’/distributors’ sales territories; and
commissions to TCCC based on the Company’s sales to certain wholly-owned subsidiaries of TCCC (the “TCCC Subsidiaries”) and/or to certain companies accounted for under the equity method by TCCC (the “TCCC Related Parties”).

The Company’s promotional allowance programs with its 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, typically ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with bottlers/distributors and retail customers, and accruals are established at the time of initial product sale for the Company’s anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or bottler/distributor and retail customer performance levels. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.

Amounts received pursuant to new and/or amended distribution agreements entered into with certain bottlers/distributors relating to the costs associated with terminating the Company’s prior distributors, are accounted for as deferred revenue and recognized as revenue ratably over the anticipated life of the respective distribution agreements, generally over 20 years.

The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing the Company’s trademarks including, but not limited to, clothing, hats, t-shirts, jackets, helmets and automotive wheels.

10

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.

Disaggregation of Revenue

The following tables disaggregate the Company’s revenue by geographical markets and reportable segments:

Three-Months Ended March 31, 2021

    

    

    

    

Latin

    

America

 

U.S. and

and

 

Net Sales

Canada

EMEA1

Asia Pacific

Caribbean

Total

Monster Energy® Drinks

$

773,504

$

219,300

$

106,747

$

70,729

$

1,170,280

Strategic Brands

 

37,683

 

19,909

 

8,438

 

1,779

 

67,809

Other

 

5,727

 

 

 

 

5,727

Total Net Sales

$

816,914

$

239,209

$

115,185

$

72,508

$

1,243,816

Three-Months Ended March 31, 2020

    

    

    

Latin

    

America

U.S. and

and

Net Sales

Canada

EMEA1

Asia Pacific

Caribbean

Total

Monster Energy® Drinks

$

690,018

$

164,771

$

85,904

$

51,761

$

992,454

Strategic Brands

37,870

 

20,346

 

5,317

 

1,005

 

64,538

Other

5,105

 

 

 

 

5,105

Total Net Sales

$

732,993

$

185,117

$

91,221

$

52,766

$

1,062,097

1Europe, Middle East and Africa (“EMEA”)

Contract Liabilities

Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as deferred revenue. As of March 31, 2021, the Company had $303.7 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. As of December 31, 2020, the Company had $309.9 million of deferred revenue, which is included in current and long-term deferred revenue in the Company’s condensed consolidated balance sheet. During the three-months ended March 31, 2021 and 2020, $10.4 million and $10.6 million, respectively, of deferred revenue was recognized in net sales. See Note 11.

4.

LEASES

The Company leases identified assets comprising real estate and equipment. Real estate leases consist primarily of office and warehouse space and equipment leases consist of vehicles and warehouse equipment. At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. At inception of a lease, the Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.

Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification (“ASC”) 842. The Company’s operating leases are comprised of real estate and warehouse equipment, and the Company’s finance leases are comprised of vehicles.

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Right-of-use (“ROU”) assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases generally do not provide an implicit rate, the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. ROU assets also include any lease payments made and exclude lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Certain of the Company’s real estate leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at the lease commencement date. Additional payments based on the change in an index or rate, or payments based on a change in the Company’s portion of real estate taxes and insurance, are recorded as a period expense when incurred.

Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term and is included in operating expenses in the condensed consolidated statement of income. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and is included in operating expenses in the condensed consolidated statement of income. Interest expense on finance leases is calculated using the amortized cost basis and is included in interest and other (expense) income, net in the condensed consolidated statement of income.

The Company’s leases have remaining lease terms of less than one year to 13 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.  The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of 12 months or less.

The components of lease cost were comprised of the following:

Three-Months

Three-Months

Ended March 31,

Ended March 31,

  

2021

  

2020

Operating lease cost

$

1,131

$

1,445

Short-term lease cost

 

953

 

707

Variable lease cost

 

162

 

162

Finance leases:

Amortization of ROU assets

 

134

 

148

Interest on lease liabilities

 

4

 

11

Finance lease cost

 

138

 

159

Total lease cost

$

2,384

$

2,473

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MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Supplemental cash flow information for the following periods:

Three-Months

Three-Months

Ended March 31,

Ended March 31,

  

2021

  

2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflows from operating leases

$

991

$

1,083

Operating cash outflows from finance leases

4

11

Financing cash outflows from finance leases

689

733

ROU assets obtained in exchange for lease obligations:

Finance leases

1,495

1,465

Operating leases

36

1,163

ROU assets for operating and finance leases recognized in the condensed consolidated balance sheets were comprised of the following at:

March 31, 2021

    

Real Estate

    

Equipment

    

Total

    

Balance Sheet Location

Operating leases

$

21,674

$

128

$

21,802

Other Assets

Finance leases

 

 

2,289

 

2,289

Property and Equipment, net

December 31, 2020

    

Real Estate

    

Equipment

    

Total

    

Balance Sheet Location

Operating leases

$

22,565

$

189

$

22,754

Other Assets

Finance leases

 

 

2,120

 

2,120

Property and Equipment, net

Operating and finance lease liabilities recognized in the condensed consolidated balance sheets were as follows at:

March 31, 2021

Operating Leases

    

Finance Leases

Accrued liabilities

    

$

3,039

$

1,609

Other liabilities

 

16,621

 

22

Total

$

19,660

$

1,631

December 31, 2020

    

Operating Leases

    

Finance Leases

Accrued liabilities

    

$

3,171

    

$

799

Other liabilities

 

17,342

 

24

Total

$

20,513

$

823

The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases at March 31, 2021 and December 31, 2020 were as follows:

March 31, 2021

    

Operating Leases

    

Finance Leases

 

Weighted-average remaining lease term (years)

9.4

 

0.9

Weighted-average discount rate

3.6

%  

1.2

%

13

Table of Contents

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2020

    

Operating Leases

    

Finance Leases

Weighted-average remaining lease term (years)

 

9.4

0.6

Weighted-average discount rate

 

3.6

%  

1.9

%

The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance leases recorded in the condensed consolidated balance sheet at March 31, 2021:

    

Undiscounted Future Lease Payments

Operating Leases

    

Finance Leases

2021 (excluding the three-months ended March 31, 2021)

$

2,804

$

1,370

2022

3,109

257

2023

 

2,377

 

11

2024

 

1,890

 

3

2025

 

1,601

 

2026 and thereafter

 

11,588

 

Total lease payments

 

23,369

 

1,641

Less imputed interest

 

(3,709)

 

(10)

Total

$

19,660

$

1,631

As of March 31, 2021, the Company did not have any significant additional operating or finance leases that have not yet commenced.

5.

INVESTMENTS

The following table summarizes the Company’s investments at:

Continuous

Continuous

Gross

Gross

Unrealized

Unrealized

Unrealized

Unrealized

Loss Position

Loss Position

Amortized

Holding

Holding

Fair

less than 12

greater than 12

March 31, 2021

    

Cost

    

Gains

    

Losses

    

Value

    

Months

    

Months

Available-for-sale

Short-term:

Commercial paper

$

166,306

$

$

$

166,306

$

$

Certificates of deposit

40,517

3

40,520