MONSTER BEVERAGE CORPORATION 
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is provided as a supplement to - and should be
read in conjunction with - our financial statements and the accompanying notes
("Notes") included in Part II, Item 8 of this Form 10-K. This discussion
contains forward-looking statements that are based on management's current
expectations, estimates and projections about our business and operations. Our
actual results may differ materially from those currently anticipated and
expressed in such forward-looking statements. See "Forward-Looking Statements"
and "Part I, Item 1A - Risk Factors."
This overview provides our perspective on the individual sections of MD&A. MD&A includes the following sections:
Our Business - a general description of our business, the value drivers of our
? business, and opportunities and risks facing our Company, stock repurchases,
acquisitions and divestitures;
? Results of Operations - an analysis of our consolidated results of operations
for the three years presented in our financial statements;
? Sales - details of our sales measured on a quarterly basis in both dollars and
cases;
? Inflation - information about the impact that inflation may or may not have on
our results;
? Liquidity and Capital Resources - an analysis of our cash flows, sources and
uses of cash and contractual obligations;
Accounting Policies and Pronouncements - a discussion of accounting policies
? that require critical judgments and estimates including newly issued accounting
pronouncements;
Forward-Looking Statements - cautionary information about forward-looking
? statements and a description of certain risks and uncertainties that could
cause our actual results to differ materially from the Company's historical
results or our current expectations or projections; and
Market Risks - information about market risks and risk management. (See
? "Forward-Looking Statements" and "Part II, Item 7A - Quantitative and
Qualitative Disclosures About Market Risks").
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Our Business
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 FuelTM ? Predator® ? Reign InfernoTM Thermogenic Fuel Our net sales of$4.20 billion for the year endedDecember 31, 2019 represented record annual net sales. Net sales for the year endedDecember 31, 2019 were positively impacted by approximately$101.9 million as a result of a price increase effective fromNovember 1, 2018 inthe United States ("theU.S. Price Increase") and effective fromFebruary 1, 2019 inCanada (the "Canada Price Increase"), on certain of our Monster Energy® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately$69.2 million for the year endedDecember 31, 2019 . The vast majority of our net sales are derived from our Monster Energy® Drinks segment. Net sales of our Monster Energy® Drinks segment were$3.90 billion for the year endedDecember 31, 2019 . Net sales of our Strategic Brands segment were$274.9 million for the year endedDecember 31, 2019 . Our Monster Energy® Drinks segment represented 92.9% and 91.9% of our net sales for the years endedDecember 31, 2019 and 2018, respectively. Our Strategic Brands segment represented 6.5% and 7.5% of our net sales for the year endedDecember 31, 2019 and 2018, respectively. Our Other segment represented 0.5% and 0.6% of our net sales for the years endedDecember 31, 2019 and 2018, respectively. Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Monster Energy® Drinks segment of approximately$59.6 million for the year endedDecember 31, 2019 . Net changes in foreign currency exchange rates had an unfavorable impact on net sales in the Strategic Brands segment of approximately$9.6 million for the year endedDecember 31, 2019 . Our growth strategy includes expanding our international business. Gross sales to customers outsidethe United States amounted to$1.62 billion ,$1.36 billion and$1.09 billion for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Such sales were approximately 33%, 31% and 28% of gross sales for the years endedDecember 31, 2019 , 2018 and 2017, respectively.
Our customers are primarily full service beverage bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, value stores, e-commerce
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retailers and the military. Percentages of our gross sales to our various customer types for the years endedDecember 31, 2019 , 2018 and 2017 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our full service beverage bottlers/distributors inthe United States . Such full service beverage bottlers/distributors in turn sell certain of our products to some of the same customer types listed below. We limit our description of our customer types to include only our sales to our full service bottlers/distributors without reference to such bottlers/distributors' sales to their own customers. 2019 2018
2017
U.S. full service bottlers/distributors 58% 61%
63%
International full service bottlers/distributors 33% 31%
28%
Club stores, mass merchandisers and e-commerce retailers 7% 6%
7%
Retail grocery, specialty chains and wholesalers 1% 1%
1% Other 1% 1% 1% Our customers includeCoca-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. ,Kalil Bottling Group (untilMarch 5, 2019 ),Big Geyser, Inc. (untilApril 5, 2019 ),Wal-Mart, Inc. (includingSam's Club ) and Costco Wholesale Corporation. A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material negative effect on our financial condition and consolidated results of operations. TCCC, through the TCCC Subsidiaries, accounted for approximately 2%, 3% and 18% of our net sales for the years endedDecember 31, 2019 , 2018 and 2017, respectively. As part of TCCC's North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent TCCC bottlers/distributors and/or TCCC Related Parties. Accordingly, our percentage of net sales to the TCCC Subsidiaries significantly decreased for the years endedDecember 31, 2019 , 2018 and 2017.
Coca-Cola Consolidated, Inc. accounted for approximately 13% of our net sales
for the years ended
Coca-Cola European Partners accounted for approximately 10%, 10% and 9% of the
Company's net sales for the years ended
We continue to incur expenditures in connection with the development and introduction of new products and flavors.
Value Drivers of our Business
We believe that the key value drivers of our business include the following:
International Growth - The introduction, development and sustained
? profitability of our Monster Energy® brand internationally remains a key value
driver for our corporate growth. One or more of our products are distributed in
approximately 153 countries and territories worldwide.
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Profitable Growth - We believe "functional" value-added brands supported by
marketing and innovation and targeted to a diverse consumer base, drive
profitable growth. We continue to broaden our family of products to provide
more alternatives to consumers and launched Reign Total Body FuelTM high
? performance energy drinks in the first quarter of 2019. We are focused on
increasing the profit margins for both our Monster Energy® Drinks segment and
our Strategic Brands segment, and believe that tailored branding, packaging,
pricing and distribution channel strategies help achieve profitable growth. We
are implementing these strategies with a view to continuing profitable growth.
Cost Management - The principal focus of cost management will continue to be on
reducing input procurement and production costs on a per-case basis, including
raw material costs and co-packing fees, as well as reducing freight costs by
? securing additional co-packing facilities strategically localized. Another key
area of focus is to decrease promotional allowances, selling and general and
administrative costs, including sponsorships, sampling, promotional and marketing expenses, as a percentage of net sales.
Efficient Capital Structure - Our capital structure is designed to optimize our
working capital in order to finance expansion, both domestically and
? internationally. We believe that with our strong capital position, our ability
to raise funds, if necessary, at a relatively low effective cost of borrowings,
provides a competitive advantage. The reduction of days outstanding for
accounts receivable and inventory days on hand will remain an area of focus.
We believe that, subject to increases in the costs of certain raw materials being contained, these value drivers, when implemented and/or achieved inthe United States and internationally, will result in: (1) improving or maintaining our product gross profit margins; (2) providing additional leverage over time through reduced expenses as a percentage of net operating revenues; and (3) enhancing our cost of capital. The ultimate measure of success is and will be reflected in our current and future results of operations. Gross and net sales, gross profit, operating income, net income and net income per share represent key measurements of the above value drivers. These measurements will continue to be a key management focus in 2020 and beyond (See "Part II, Item 7 - Results of Operations - Results of Operations for the Year EndedDecember 31, 2019 , Compared to the Year EndedDecember 31, 2018 "). As ofDecember 31, 2019 , the Company had working capital of$1.66 billion compared to$1.20 billion as ofDecember 31, 2018 . The increase in working capital was primarily the result of the$1.12 billion of net income earned during the year endedDecember 31, 2019 . For the year endedDecember 31, 2019 , our net cash provided by operating activities was approximately$1.11 billion as compared to$1.16 billion for the year endedDecember 31, 2018 . Principal uses of cash flows in 2019, were purchases of investments, repurchase of our common stock, development of our Monster Energy® brand internationally and acquisitions of property and equipment. These principal uses of cash flows are expected to be and remain our principal recurring use of cash and working capital funds in the future (See "Part II, Item 7 - Liquidity and Capital Resources").
Opportunities, Challenges and Risks
Looking forward, our management has identified certain challenges and risks for the beverage industry and the Company, including our significant commercial relationship with TCCC and TCCC's status as a significant shareholder of the Company, in each case as described above under "Part I, Item 1A - Risk Factors." In addition, legislation has been proposed and/or adopted at theU.S. , state, county and/or municipal level and proposed and/or adopted in certain foreign jurisdictions to 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, require 41
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certain product labeling disclosures and/or warnings, impose taxes, limit product sizes or impose age restrictions for the sale of energy drinks. In addition, articles critical of the caffeine content in energy drinks and their perceived benefits and articles indicating certain health risks of energy drinks have been published. The proposal and/or adoption of such legislation and the publication of such articles, or the future proposal and/or adoption of similar legislation or publication of similar articles, may adversely affect our Company. In addition, uncertainty and/or volatility in our domestic and/or our international economic markets could negatively affect both the stability of our industry and our Company. Furthermore, our growth strategy includes expanding our international business, which exposes us to risks inherent in conducting international operations, including the risks associated with foreign currency exchange rate fluctuations. Consumer discretionary spending also represents a challenge to the successful marketing and sale of our products. Increases in consumer and regulatory awareness of the health problems arising from obesity and inactive lifestyles continue to represent a challenge. We recognize that obesity is a complex and serious public health problem. Our commitment to consumers begins with our broad product line and a wide selection of diet, light and low calorie beverages within our energy drink product lines. We continuously strive to meet changing consumer needs through beverage innovation, choice and variety. (See "Part I, Item 1A - Risk Factors"). Our historical success is attributable, in part, to our introduction of different and innovative beverages which have been positively accepted by consumers. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages that meet consumer preferences, although there can be no assurance of our ability to do so. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of price, quality, method of distribution, brand image and intellectual property protection. The beverage industry is subject to changing consumer preferences that may adversely affect us if we misjudge such preferences.
In addition, other key challenges and risks that could impact our Company's future financial results include, but are not limited to:
? the risks associated with the realization of benefits from our relationship
with TCCC;
? the impact of TCCC's bottlers/distributors distributing Coca-Cola brand energy
drinks;
? changes in consumer preferences and demand for our products;
? economic uncertainty in
we operate;
? the risks associated with foreign currency exchange rate fluctuations;
? maintenance of our brand image, product quality and corporate reputation;
increasing concern over various environmental, human rights and health matters,
? including obesity, caffeine consumption and energy drinks generally, and
changes in regulation and consumer preferences in response to those concerns;
profitable expansion and growth of our family of brands in the competitive
? market place (See "Part I, Item 1 - Business - Competition" and
"Part I, Item 1 - Business - Sales and Marketing");
? costs of establishing and promoting our brands internationally;
? increase in costs of raw materials used by us;
restrictions on imports and sources of supply, duties or tariffs, changes in
? related government regulations and disruptions in the timely import or export
of our products and/or ingredients due to port strikes, related labor issues or
other importation impediments;
protection of our existing intellectual property portfolio of trademarks and
? copyrights and the continuous pursuit to develop and protect new and innovative
trademarks and copyrights for our expanding product lines;
limitations on available quantities of aluminum cans in general as well as
? certain package containers and lids such as the aluminum 24-ounce cap can and
resealable lids;
? limitations on co-packing availability, particularly for retort production as
well for 550ml products utilizing BRE resealable lids;
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? the impact of Brexit on our business in
the imposition of additional regulation, including regulation restricting the
? sale of energy drinks, limiting caffeine content in beverages, requiring
product labeling and/or warnings, imposing excise taxes and/or sales taxes,
and/or limiting product size and/or age restrictions.
See "Part I, Item 1A - Risk Factors" for additional information about risks and uncertainties facing our Company.
We believe that the following opportunities exist for us:
? domestic and international growth potential of our products;
? growth potential of the energy drink category, both domestically and
internationally;
? planned and future new product and product line introductions with the
objective of increasing sales and/or contributing to higher profitability;
? the introduction of new package formats designed to generate strong revenue
growth;
? package, pricing and channel opportunities to increase profitable growth;
? effective strategic positioning to capitalize on industry growth;
? broadening distribution/expansion opportunities in both domestic and
international markets;
? launching and/or relaunching our products and new products into new domestic
and international markets and channels; and
? continued focus on reducing our cost base.
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Results of Operations
The following table sets forth key statistics for the years ended
(In thousands, except per share
amounts) Percentage Percentage
Change Change
2019 2018 2017 19 vs. 18 18 vs. 17
Net sales1 $ 4,200,819 $ 3,807,183 $ 3,369,045 10.3% 13.0%
Cost of sales 1,682,234 1,511,808 1,231,355 11.3% 22.8%
Gross profit*1 2,518,585 2,295,375 2,137,690 9.7% 7.4%
Gross profit as a percentage of net
sales 60.0% 60.3% 63.5%
Operating expenses2 1,115,646 1,011,756 938,903 10.3% 7.8%
Operating expenses as a percentage
of net sales 26.6% 26.6% 27.9%
Operating income1,2 1,402,939 1,283,619 1,198,787 9.3% 7.1%
Operating income as a percentage of
net sales 33.4% 33.7% 35.6%
Other income, net 13,023 9,653 2,836 34.9% 240.4%
Income before provision for income
taxes1,2 1,415,962 1,293,272 1,201,623 9.5% 7.6%
Provision for income taxes 308,127 300,268
380,945 2.6% (21.2%)
Income taxes as a percentage of income before taxes 21.8% 23.2% 31.7% Net income1,2$ 1,107,835 $ 993,004 $ 820,678 11.6% 21.0% Net income as a percentage of net sales 26.4% 26.1%
24.4%
Net income per common share: Basic$ 2.04 $ 1.78 $ 1.45 14.6% 23.1% Diluted$ 2.03 $ 1.76 $ 1.42 15.2% 23.8% Case sales (in thousands) (in 192ounce case equivalents) 448,770 410,886
359,957 9.2% 14.1% ¹ Includes$46.3 million ,$44.3 million and$43.4 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively, related to the recognition of deferred revenue.
2 Includes
*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 Year Ended
Net Sales . Net sales were$4.20 billion for the year endedDecember 31, 2019 , an increase of approximately$393.6 million , or 10.3% higher than net sales of$3.81 billion for the year endedDecember 31, 2018 . Net sales for the year endedDecember 31, 2019 were positively impacted by approximately$101.9 million as a result of theU.S. Price Increase and the Canada Price Increase, on certain of our Monster Energy® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on net sales of approximately$69.2 million for the year endedDecember 31, 2019 . Net sales for the Monster Energy® Drinks segment were$3.90 billion for the year endedDecember 31, 2019 , an increase of approximately$405.6 million , or 11.6% higher than net sales of$3.50 billion for the year endedDecember 31 , 44
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2018. Net sales for the Monster Energy® Drinks segment increased primarily due to (i) sales of our Reign Total Body FuelTM high performance energy drinks, introduced in the first quarter of 2019, (ii) the price increases described above, and (iii) increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Monster Energy® Drinks segment of approximately$59.6 million for the year endedDecember 31, 2019 . Net sales for the Strategic Brands segment were$274.9 million for the year endedDecember 31, 2019 , a decrease of approximately$10.9 million , or 3.8% lower than net sales of$285.8 million for the year endedDecember 31, 2018 . Net changes in foreign currency exchange rates had an unfavorable impact on net sales for the Strategic Brands segment of approximately$9.6 million for the year endedDecember 31, 2019 . Net sales for the Other segment were$21.9 million for the year endedDecember 31, 2019 , a decrease of approximately$1.1 million , or 4.6% lower than net sales of$22.9 million for the year endedDecember 31, 2018 . Case sales, in 192-ounce case equivalents, were 448.8 million cases for the year endedDecember 31, 2019 , an increase of approximately 37.9 million cases or 9.2% higher than case sales of 410.9 million cases for the year endedDecember 31, 2018 . The overall average net sales per case (excluding net sales of AFF Third-Party Products of$21.9 million and$22.9 million for the years endedDecember 31, 2019 and 2018, respectively, as these sales do not have unit case equivalents) increased to$9.31 for the year endedDecember 31, 2019 , which was 1.1% higher than the average net sales per case of$9.21 for the year endedDecember 31, 2018 . The increase in the average net sales per case was primarily attributable to a price increase effective fromNovember 1, 2018 inthe United States and effective fromFebruary 1, 2019 inCanada , on certain of our Monster Energy® brand energy drinks. Gross Profit. Gross profit was$2.52 billion for the year endedDecember 31, 2019 , an increase of approximately$223.2 million , or 9.7% higher than the gross profit of$2.30 billion for the year endedDecember 31, 2018 . The increase in gross profit dollars was primarily the result of the$405.6 million increase in net sales of our Monster Energy® Drinks segment for the year endedDecember 31, 2019 . Gross profit as a percentage of net sales decreased to 60.0% for the year endedDecember 31, 2019 from 60.3% for the year endedDecember 31, 2018 . The decrease for the year endedDecember 31, 2019 was primarily the result of geographical and product sales mix. Such decrease was partially offset by the sales price increases discussed above. Operating Expenses. Total operating expenses were$1.12 billion for the year endedDecember 31, 2019 , an increase of approximately$103.9 million , or 10.3% higher than total operating expenses of$1.01 billion for the year endedDecember 31, 2018 . The increase in operating expenses was primarily due to increased payroll expenses of$36.0 million (of which$6.2 million was related to an increase in stock-based compensation), increased expenditures of$25.1 million for professional service fees, including legal and accounting costs, increased expenditures of$13.4 million for sponsorships and endorsements, and increased expenditures of$19.1 million in other marketing expenses. The increase in operating expenses was partially offset by decreased expenditures of$15.4 million related to the costs associated with distributor terminations. Operating expenses for the year endedDecember 31, 2019 included a$15.5 million provision in connection with an intellectual property claim brought by the descendants ofHubert Hansen in relation to the Company's use of the Hubert Hansen name prior to the transaction with TCCC, that closed in 2015. Operating Income. Operating income was$1.40 billion for the year endedDecember 31, 2019 , an increase of approximately$119.3 million , or 9.3% higher than operating income of$1.28 billion for the year endedDecember 31, 2018 . Operating income as a percentage of net sales was 33.4% and 33.7% for the years endedDecember 31, 2019 andDecember 31, 2018 , respectively. Operating income was$229.2 million and$180.8 million for the years endedDecember 31, 2019 and 2018, respectively, in connection with our operations inEurope ,Middle East andAfrica ("EMEA"),Asia Pacific andSouth America . 45
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Operating income* for the Monster Energy® Drinks segment was$1.57 billion for the year endedDecember 31, 2019 , an increase of approximately$195.0 million , or 14.2% higher than operating income of$1.37 billion for the year endedDecember 31, 2018 . The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the$405.6 million increase in net sales of our Monster Energy® Drinks segment for the year endedDecember 31, 2019 . Operating income* for the Strategic Brands segment was$164.1 million for the year endedDecember 31, 2019 , a decrease of approximately$12.5 million , or 7.1% lower than operating income of$176.5 million for the year endedDecember 31, 2018 .
Operating income* for the Other segment was
*Exclusive of corporate and unallocated expenses.
Other Income, net. Other non-operating income, net, was$13.0 million for the year endedDecember 31, 2019 , as compared to other non-operating income, net, of$9.7 million for the year endedDecember 31, 2018 . Foreign currency transaction losses were$4.1 million and$4.0 million for the years endedDecember 31, 2019 and 2018, respectively. Interest income was$17.8 million and$13.8 million for the years endedDecember 31, 2019 and 2018, respectively. Provision for Income Taxes. Provision for income taxes was$308.1 million for the year endedDecember 31, 2019 , an increase of$7.9 million , or 2.6% higher than the provision for income taxes of$300.3 million for the year endedDecember 31, 2018 . The effective combined federal, state and foreign tax rate decreased to 21.8% from 23.2% for the year endedDecember 31, 2019 and 2018, respectively. The decrease in effective tax rate was primarily attributable to an increase in equity compensation deductions. The decrease in the effective tax rate was partially offset by increased income taxes in certain foreign jurisdictions. Net Income. Net income was$1.11 billion for the year endedDecember 31, 2019 , an increase of$114.8 million , or 11.6% higher than net income of$993.0 million for the year endedDecember 31, 2018 . The increase in net income was primarily due to the$223.2 million increase in gross profit. The increase in net income was partially offset by the increase in operating expenses of$103.9 million and an increase in the provision for income taxes of$7.9 million .
Results of Operations for the Year Ended
Net Sales . Net sales were$3.81 billion for the year endedDecember 31, 2018 , an increase of approximately$438.1 million , or 13.0% higher than net sales of$3.37 billion for the year endedDecember 31, 2017 . Net sales for the year endedDecember 31, 2018 were negatively impacted by approximately$42.2 million as a result of the adoption of ASC 606. Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately$14.8 million for the year endedDecember 31, 2018 . Net sales for the Monster Energy® Drinks segment were$3.50 billion for the year endedDecember 31, 2018 , an increase of approximately$450.8 million , or 14.8% higher than net sales of$3.05 billion for the year endedDecember 31, 2017 . Net sales for the Monster Energy® Drinks segment for the year endedDecember 31, 2018 were negatively impacted by approximately$17.4 million as a result of the adoption of ASC 606. Net changes in foreign currency exchange rates had a favorable impact on net sales for the Monster Energy® Drinks segment of approximately$14.6 million for the year endedDecember 31, 2018 . Net sales for the Monster Energy® Drinks segment increased primarily due to increased sales by volume of our Monster Energy® brand energy drinks as a result of increased domestic and international consumer demand.
Net sales for the Strategic Brands segment were
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sales for the Strategic Brands segment for the year ended December 31, 2018 were
negatively impacted by approximately $24.9 million as a result of the adoption
of ASC 606. Net changes in foreign currency exchange rates had a favorable
impact on net sales for the Strategic Brands segment of approximately $0.2
million for the year ended December 31, 2018 .
Net sales for the Other segment were $22.9 million for the year ended December
31, 2018 , an increase of approximately $1.3 million , or 6.1% higher than net
sales of $21.6 million for the year ended December 31, 2017 .
Case sales, in 192-ounce case equivalents, were 410.9 million cases for the year
ended December 31, 2018 , an increase of approximately 50.9 million cases or
14.1% higher than case sales of 360.0 million cases for the year ended December
31, 2017 . The overall average net sales per case (excluding net sales of AFF
Third-Party Products of $22.9 million and $21.6 million for the years ended
December 31, 2018 and 2017, respectively, as these sales do not have unit case
equivalents) decreased to $9.21 for the year ended December 31, 2018 , which was
1.0% lower than the average net sales per case of $9.30 for the year ended
December 31, 2017 , due to the adoption of ASC 606. Without the adoption of ASC
606, the overall average net sales per case increased to $9.31 for the year
ended December 31, 2018 , as compared to average net sales per case of $9.30 for
the year ended December 31, 2017 .
Gross Profit. Gross profit was $2.30 billion for the year ended December 31,
2018 , an increase of approximately $157.7 million , or 7.4% higher than the gross
profit of $2.14 billion for the year ended December 31, 2017 . The increase in
gross profit dollars was primarily the result of the $450.8 million increase in
net sales of our Monster Energy® brand energy drinks segment for the year ended
December 31, 2018 .
Gross profit as a percentage of net sales decreased to 60.3% for the year ended
December 31, 2018 from 63.5% for the year ended December 31, 2017 . Gross profit
as a percentage of net sales, excluding the impact of ASC 606, was 60.7% for the
year ended December 31, 2018 .
The decrease in gross profit as a percentage of net sales was primarily
attributable to (i) increases in certain input costs, principally aluminum cans,
freight in and other input costs; (ii) domestic product sales mix (iii)
geographical sales mix, as a result of our international sales increasing as a
percentage of total net sales (our foreign operations generally have lower gross
profit margins); (iv) the $42.2 million of commissions accounted for as a
reduction to net sales due to the adoption of ASC 606; and (v) increases in
promotional allowances as a percentage of gross sales.
Operating Expenses. Total operating expenses were $1.01 billion for the year
ended December 31, 2018 , an increase of approximately $72.9 million , or 7.8%
higher than total operating expenses of $938.9 million for the year ended
December 31, 2017 . The increase in operating expenses was primarily due to
increased out-bound freight and warehouse costs of $38.5 million , increased
payroll expenses of $28.6 million (of which $4.8 million was related to an
increase in stock-based compensation), increased expenditures of $14.8 million
for sponsorships and endorsements, and increased expenditures of $12.1 million
for other marketing expenses. The increase in operating expenses was partially
offset by the $8.8 million decrease in costs associated with distributor
terminations. Commissions included in operating expenses were $16.7 million , or
65.1% lower than commissions included in operating expenses of $47.7 million for
the year ended December 31, 2017 . Without the adoption of ASC 606, an additional
$42.2 million of commissions would have been included in operating expenses for
the year ended December 31, 2018 (such commissions are included as a reduction
to net sales).
Operating Income. Operating income was $1.28 billion for the year ended December
31, 2018 , an increase of approximately $84.8 million , or 7.1% higher than
operating income of $1.20 billion for the year ended December 31, 2017 .
Operating income as a percentage of net sales decreased to 33.7% for the year
ended December 31, 2018 from 35.6% for the year ended December 31, 2017 .
Operating income was $180.8 million and $139.3 million for the years ended
December 31, 2018 and 2017, respectively, in connection with our operations in
EMEA, Asia Pacific and South America .
Operating income* for the Monster Energy® Drinks segment was $1.37 billion for
the year ended December 31, 2018 , an increase of approximately $106.5 million ,
or 8.4% higher than operating income of $1.26 billion for the year ended
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December 31, 2017 . The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the$455.1 million increase in net sales of our Monster Energy® brand energy drinks for the year endedDecember 31, 2018 . Operating income* for the Strategic Brands segment was$176.5 million for the year endedDecember 31, 2018 , an increase of approximately$2.1 million , or 1.2% higher than operating income of$174.5 million for the year endedDecember 31, 2017 .
Operating income* for the Other segment was
*Exclusive of corporate and unallocated expenses.
Other Income, net. Other non-operating income, net, was$9.7 million for the year endedDecember 31, 2018 , as compared to other non-operating income, net, of$2.8 million for the year endedDecember 31, 2017 . Foreign currency transaction (losses)/gains were($4.0) million and($3.3) million for the years endedDecember 31, 2018 and 2017, respectively. Interest income was$13.8 million and$6.8 million for the years endedDecember 31, 2018 and 2017, respectively. Provision for Income Taxes. Provision for income taxes was$300.3 million for the year endedDecember 31, 2018 , a decrease of$80.7 million , or 21.2% lower than the provision for income taxes of$380.9 million for the year endedDecember 31, 2017 . The effective combined federal, state and foreign tax rate decreased to 23.2% from 31.7% for the years endedDecember 31, 2018 and 2017, respectively. The decrease in the effective tax rate was primarily due to the reduction in theU.S. federal statutory tax rate as a result of the Tax Reform Act signed into law onDecember 22, 2017 (before considering the potential impact of further clarification of certain matters related to the Tax Reform Act), and to a reduction in certain foreign income that is subject toU.S. taxation. The decrease in the provision for income taxes was partially offset by the elimination of the domestic production deduction following the Tax Reform Act as well as a decrease in the stock based compensation tax deduction. Net Income. Net income was$993.0 million for the year endedDecember 31, 2018 , an increase of$172.3 million , or 21.0% higher than net income of$820.7 million for the year endedDecember 31, 2017 . The increase in net income was primarily due to the$157.7 million increase in gross profit and the$80.7 million decrease in the provision for income taxes. The increase in net income was partially offset by the increase in operating expenses of$72.9 million .
Non-GAAP Financial Measures
For the year ended
Gross Sales**. Gross sales were$4.87 billion for the year endedDecember 31, 2019 , an increase of approximately$438.2 million , or 9.9% higher than gross sales of$4.43 billion for the year endedDecember 31, 2018 . Gross sales for the year endedDecember 31, 2019 were positively impacted by approximately$101.9 million as a result ofU.S. Price Increase and the Canada Price Increase, on certain of our Monster Energy® brand energy drinks. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales of approximately$82.5 million for the year endedDecember 31, 2019 . Gross sales for the Monster Energy® Drinks segment were$4.53 billion for the year endedDecember 31, 2019 , an increase of approximately$453.6 million , or 11.1% higher than gross sales of$4.08 billion for the year endedDecember 31, 2018 . Gross sales for the Monster Energy® Drinks segment increased primarily due to (i) sales of our Reign Total Body FuelTM high performance energy drinks, introduced in the first quarter of 2019, (ii) the price increases described above, and (iii) increased sales by volume of our Monster Energy® brand energy drinks as a result of increased domestic and 48
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international consumer demand. Net changes in foreign currency exchange rates had an unfavorable impact on gross sales for the Monster Energy® Drinks segment of approximately$72.9 million for the year endedDecember 31, 2019 . Gross sales for the Strategic Brands segment were$312.7 million for the year endedDecember 31, 2019 , a decrease of$14.4 million , or 4.4% lower than gross sales of$327.1 million for the year endedDecember 31, 2018 . Net changes in foreign currency exchange rates had an unfavorable impact on gross sales in the Strategic Brands segment of approximately$9.6 million for the year endedDecember 31, 2019 . Gross sales for the Other segment were$21.9 million for the year endedDecember 31, 2019 , a decrease of$1.1 million , or 4.6% lower than gross sales of$22.9 million for the year endedDecember 31, 2018 . Promotional allowances, commissions and other expenses, as described in the footnote below, were$666.9 million for the year endedDecember 31, 2019 , an increase of$44.5 million , or 7.2% higher than promotional allowances, commissions and other expenses of$622.3 million for the year endedDecember 31, 2018 . Promotional allowances, commissions and other expenses as a percentage of gross sales decreased to 13.7% from 14.0% for the year endedDecember 31, 2019 and 2018, respectively.
For the year ended
Gross Sales**. Gross sales were$4.43 billion for the year endedDecember 31, 2018 , an increase of approximately$568.2 million , or 14.7% higher than gross sales of$3.86 billion for the year endedDecember 31, 2017 . Gross sales for the Monster Energy® Drinks segment were$4.08 billion for the year endedDecember 31, 2018 , an increase of$558.2 million , or 15.9% higher than gross sales of$3.52 billion for the year endedDecember 31, 2017 . Gross sales of our Monster Energy® Drinks segment increased partially due to increased sales by volume as a result of increased domestic and international consumer demand. Gross sales for the Strategic Brands segment were$327.1 million for the year endedDecember 31, 2018 , an increase of$8.6 million , or 2.7% higher than gross sales of$318.5 million for the year endedDecember 31, 2017 . Gross sales for the Other segment were$22.9 million for the year endedDecember 31, 2018 , an increase of$1.3 million , or 6.1% higher than gross sales of$21.6 million for the year endedDecember 31, 2017 .
No other individual product line contributed either a material increase or
decrease to gross sales for the year ended
Promotional and other allowances, as described in the footnote below, were$622.3 million for the year endedDecember 31, 2018 , an increase of$130.0 million , or 26.4% higher than promotional and other allowances of$492.3 million for the year endedDecember 31, 2017 . Promotional and other allowances as a percentage of gross sales increased to 14.0% from 12.7% for the years endedDecember 31, 2018 and 2017, respectively, partially due to an increase in commissions of$42.2 million included in net sales, related to the adoption of ASC 606. Net changes in foreign currency exchange rates had a favorable impact on gross sales in the Monster Energy® Drinks segment of approximately$21.6 million for the year endedDecember 31, 2018 . Net changes in foreign currency exchange rates had a favorable impact on gross sales in the Strategic Brands segment of approximately$0.2 million for the year endedDecember 31, 2018 . **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 49
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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:
Percentage Percentage
In thousands Change Change
2019 2018 2017 19 vs. 18 18 vs. 17
Gross sales, net of discounts and
returns $ 4,867,698 $ 4,429,522 $ 3,861,368 9.9% 14.7%
Less: Promotional and other
allowances*** 666,879 622,339 492,323 7.2% 26.4%
Net Sales $ 4,200,819 $ 3,807,183 $ 3,369,045 10.3% 13.0%
***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 years endedDecember 31, 2019 and 2018 were (i) to increase sales volume and trial, (ii) to address market conditions, and (iii) to secure shelf and display space at retail.
Sales
The table set forth below discloses selected quarterly data regarding sales for the past five years. Data from any one or more quarters 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. In addition, our experience with our energy
drink products suggests they are less seasonal than the seasonality expected
from traditional beverages. 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
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pronounced, the addition of new bottlers/distributors and customers, changes in
the sales mix of our products and changes in and/or increased advertising and
promotional expenses. (See "Part I, Item 1 - Business - Seasonality").
2019 2018 2017 2016 2015
Net Sales (in
Thousands)
Quarter 1 $ 945,991 $ 850,921 $ 742,146 $ 680,186 $ 626,791
Quarter 2 1,104,045 1,015,873 907,068 827,488 693,722
Quarter 3 1,133,577 1,016,160 909,476 787,954 756,619
Quarter 4 1,017,206 924,229 810,355 753,765 645,432
Total $ 4,200,819 $ 3,807,183 $ 3,369,045 $ 3,049,393 $ 2,722,564 Less: AFF third party net sales (in Thousands) Quarter 1$ (5,321) $ (4,657) $ (5,539) $ - $ - Quarter 2 (5,791) (6,623) (6,174) (6,635) - Quarter 3 (5,860) (6,573) (5,200) (5,686) - Quarter 4 (4,893) (5,067) (4,692) (4,690) - Total$ (21,865) $ (22,920) $ (21,605) $ (17,011) $ - Adjusted Net Sales (in Thousands)¹ Quarter 1$ 940,670 $ 846,264 $ 736,607 $ 680,186 $ 626,791 Quarter 2 1,098,254 1,009,250 900,894 820,853 693,722 Quarter 3 1,127,717 1,009,587 904,276 782,268 756,619 Quarter 4 1,012,313 919,162 805,663 749,075 645,432 Total$ 4,178,954 $ 3,784,263 $ 3,347,440 $ 3,032,382 $ 2,722,564 Unit Case Volume / Sales (in Thousands) Quarter 1 101,284 92,315 79,992 72,653 57,779 Quarter 2 119,595 110,057 97,233 87,574 68,037 Quarter 3 121,854 111,038 96,184 82,767 81,274 Quarter 4 106,037 97,476 86,548 77,966 67,531 Total 448,770 410,886 359,957 320,960 274,621 Adjusted Average Net Sales Per Case Quarter 1$ 9.29 $ 9.17 $ 9.21 $ 9.36 $ 10.85 Quarter 2 9.18 9.17 9.27 9.37 10.20 Quarter 3 9.25 9.09 9.40 9.45 9.31 Quarter 4 9.55 9.43 9.31 9.61 9.56 Total$ 9.31 $ 9.21 $ 9.30 $ 9.45 $ 9.91
1Excludes Other segment net sales of
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The following represents case sales by segment for the years ended
(In thousands, except average
net sales per case)
2019 2018 2017 2016 2015
Net sales $ 4,200,819 $ 3,807,183 $ 3,369,045 $ 3,049,393 $ 2,722,564
Less: AFF third-party sales (21,865) (22,920) (21,605) (17,011) -
Adjusted net sales¹ $ 4,178,954 $ 3,784,263 $ 3,347,440 $ 3,032,382 $ 2,722,564
Case sales by segment:
Monster Energy® Drinks 377,551 338,880 289,105 256,323 228,628
Strategic Brands 71,219 72,006 70,852 64,637 34,791
Other - - - - 11,202
Total case sales 448,770 410,886 359,957 320,960 274,621
Average net sales per case $ 9.31 $ 9.21 $ 9.30 $ 9.45 $ 9.91 1Excludes Other segment net sales of
Inflation
We do not believe that inflation had a significant impact on our results of
operations for the years ended
Liquidity and Capital Resources
Cash flows provided by operating activities. Cash provided by operating activities was$1.11 billion for the year endedDecember 31, 2019 , as compared with cash provided by operating activities of$1.16 billion for the year endedDecember 31, 2018 . For the year endedDecember 31, 2019 , cash provided by operating activities was primarily attributable to net income earned of$1.11 billion and adjustments for certain non-cash expenses, consisting of$64.8 million of depreciation and amortization and$63.4 million of stock-based compensation. For the year endedDecember 31, 2019 , cash provided by operating activities also increased due to a$28.8 million increase in accounts payable, a$21.9 million increase in accrued promotional allowances, a$9.5 million decrease in prepaid income taxes, an$8.1 million increase in income taxes payable, a$7.2 million increase in accrued compensation, a$6.5 million decrease in distributor receivables and a$1.3 million decrease in deferred income taxes. For the year endedDecember 31, 2019 , cash used in operating activities was primarily attributable to an$85.2 million increase in inventories, a$66.4 million increase in accounts receivable, a$24.9 million decrease in deferred revenue, a$14.3 million decrease in accrued liabilities and a$13.8 million increase in prepaid expenses and other assets. For the year endedDecember 31, 2018 , cash provided by operating activities was primarily attributable to net income earned of$993.0 million and adjustments for certain non-cash expenses, consisting of$57.1 million of stock-based compensation and$57.0 million of depreciation and amortization. For the year endedDecember 31, 2018 , cash provided by operating activities also increased due to a$98.7 million decrease in prepaid income taxes, an$11.7 million increase in accrued promotional allowances, an$18.1 million increase in accrued liabilities, a$10.0 million decrease in distributor receivables, a$9.9 million increase in accounts payable, a$5.5 million increase in accrued compensation and a$1.9 million increase in income taxes payable. For the year endedDecember 31, 2018 , cash used in operating activities was primarily attributable to a$48.4 million increase in accounts receivable, a$26.1 million increase in inventories, a$20.0 million decrease in deferred revenue and a$6.7 million increase in prepaid expenses and other assets. 52
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Cash flows (used in) provided by investing activities. Net cash used in investing activities was$326.7 million for the year endedDecember 31, 2019 as compared to cash provided by investing activities of$273.0 million for the year endedDecember 31, 2018 . For both the years endedDecember 31, 2019 and 2018, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For both the years endedDecember 31, 2019 and 2018, cash used in investing activities was primarily attributable to purchases of available-for-sale investments. For both the years endedDecember 31, 2019 and 2018, cash used in investing activities also included the acquisition 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, real property, computer software, equipment used for sales and administrative activities, certain leasehold improvements, improvements to real property as well as the acquisition, defense and maintenance of trademarks. 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 and 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$628.5 million for the year endedDecember 31, 2019 as compared to cash used in financing activities of$1.32 billion for the year endedDecember 31, 2018 . The cash flows used in financing activities for both the years endedDecember 31, 2019 and 2018 was primarily the result of the repurchases of our common stock. The cash flows provided by financing activities for both the years endedDecember 31, 2019 , and 2018 was primarily attributable to the issuance of our common stock. Purchases of inventories, increases in accounts receivable and other assets, acquisition of property and equipment (including real property, personal property and coolers), leasehold improvements, advances for or the purchase of equipment for our bottlers, acquisition and maintenance of trademarks, payments of accounts payable, income taxes payable and purchases of our common stock are expected to remain our principal recurring use of cash. Cash and cash equivalents, short-term and long-term investments - As ofDecember 31, 2019 , we had$798.0 million in cash and cash equivalents,$533.1 million in short-term investments and$12.9 million in long-term investments. We have historically invested these amounts inU.S. treasuries,U.S. government agency securities and municipal securities (which may have an auction reset feature), certificates of deposit, commercial paper, variable rate demand notes and money market funds meeting certain criteria. We maintain our investments for cash management purposes and not for purposes of speculation. Our risk management policies emphasize credit quality (primarily based on short-term ratings by nationally recognized statistical rating 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 risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition. Of our$798.0 million of cash and cash equivalents held atDecember 31, 2019 ,$416.9 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries atDecember 31, 2019 . We believe that cash available from operations, including our cash resources and our revolving line of 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 shares of our common stock, as well as purchases of capital assets, equipment and properties, through at least the next 12 months. Based on our current plans, capital expenditures (exclusive of common stock repurchases) are currently estimated to be approximately$150.0 million throughDecember 31, 2020 . However, future business opportunities may cause a change in this estimate. 53 Table of Contents
The following represents a summary of the Company's contractual commitments and
related scheduled maturities as of
Payments due by period (in thousands)
Less than 13 35 More than
Obligations Total 1 year years years 5 years
Contractual Obligations¹ $ 181,896 $ 121,675 $ 56,721 $ 3,500 $ -
Finance Leases 1,500 1,500 - - -
Operating Leases 33,814 3,661 6,203 5,762 18,188
Purchase Commitments² 86,712 86,712 - - -
$ 303,922 $ 213,548 $ 62,924 $ 9,262 $ 18,188 1 Contractual obligations include our obligations related to sponsorships and other commitments.
2 Purchase 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 ofDecember 31, 2019 . It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months. As ofDecember 31, 2019 , we had$0.4 million of accrued interest and penalties related to unrecognized tax benefits.
Accounting Policies and Pronouncements
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with GAAP.
GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. The following summarizes our most significant accounting and reporting policies and practices: Business Combinations - Business acquisitions are accounted for in accordance withFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805 "Business Combinations". FASB ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree's results are included in the Company's consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Adjustments to fair value assessments are recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination. Cash and Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. Throughout the year, the Company has had amounts on deposit at financial institutions that exceed the federally insured limits. The Company has not experienced any loss as a result of these deposits and does not expect to incur any losses in the future. Investments - The Company's investments in debt securities are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320. Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that the Company intends to sell 54
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in the near term. All other securities not included in the held-to-maturity or trading category are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost which approximates fair market value. Trading securities are carried at fair value with unrealized gains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive loss as a separate component of stockholders' equity. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. Under FASB ASC 320-10-35, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security's amortized cost basis (the difference being defined as the "Credit Loss") or if the fair value of the security is less than the security's amortized cost basis and the investor intends, or will be required, to sell the security before recovery of the security's amortized cost basis. If an other-than-temporary impairment exists, the charge to earnings is limited to the amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of the security's amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive loss, net of applicable taxes. The Company evaluates whether the decline in fair value of its investments is other-than-temporary at each quarter-end. This evaluation consists of a review by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer's financial condition and, if applicable, information on the guarantors' financial condition. Factors considered in determining whether a loss is temporary include the length of time and extent to which the investment's fair value has been less than its cost basis, the financial condition and near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and our intent and ability to retain the investment for a reasonable period of time sufficient to allow for any anticipated recovery of fair value. Accounts Receivable - The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer's inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company's recent loss history and an overall assessment of past due trade accounts receivable outstanding. In accordance with FASB ASC 210-20-45, in its consolidated balance sheets, the Company has presented accounts receivable, net of promotional allowances, only for those customers that it allows net settlement. All other accounts receivable and related promotional allowances are shown on a gross basis.
Inventories - Inventories are valued at the lower of first-in, first-out, cost or market value (net realizable value).
Property and Equipment - Property and equipment are stated at cost. Depreciation of furniture and fixtures, office and computer equipment, computer software, equipment, and vehicles is based on their estimated useful lives (three to ten years) and is calculated using the straight-line method. Amortization of leasehold improvements is based on the lesser of their estimated useful lives or the terms of the related leases and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.Goodwill - The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects.Goodwill is not amortized; instead goodwill is tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company determines that the fair value is less than the carrying value, the Company will use a two-step process to determine the amount of goodwill impairment. The first step requires comparing the fair value of the reporting unit to its net book value, including goodwill. A potential impairment exists if the fair value
of
the reporting
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unit is lower than its net book value. The second step of the process, performed
only if a potential impairment exists, involves determining the difference
between the fair value of the reporting unit's net assets, other than goodwill,
and the fair value of the reporting unit. An impairment charge is recognized for
the excess of the carrying value of goodwill over its implied fair value. For
the years ended December 31, 2019 , 2018 and 2017 there were no impairments
recorded.
Other Intangibles - Other Intangibles are comprised of trademarks that represent
the Company's exclusive ownership of the Monster Energy®,
[[Image Removed: Graphic]]®, Monster Energy Ultra®, Unleash the Beast!®, Monster
Rehab®, Java Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Espresso
Monster®, Caffé Monster®, Monster Energy Extra Strength Nitrous Technology®,
Muscle Monster®, Punch Monster®, Juice Monster®, Reign Total Body FuelTM, Reign
InfernoTM, M3(stylized)®, BU®, Nalu®, NOS®, Full Throttle®, Burn®, Mother®,
Ultra Energy®, Play® and Power Play® (stylized), Gladiator®, Relentless®,
Samurai®, Predator® and BPM® trademarks, all used in connection with the
manufacture, sale and distribution of beverages. The Company also owns in its
own right a number of other trademarks, flavors and formulas in the United
States , as well as in a number of countries around the world. In addition, in
2016 through our acquisition of AFF, we secured the intellectual property of our
most important flavors for certain of our Monster Energy® Brand energy drinks in
perpetuity. In accordance with FASB ASC 350, intangible assets with indefinite
lives are not amortized but instead are measured for impairment at least
annually, or when events indicate that an impairment exists. The Company
calculates impairment as the excess of the carrying value of its
indefinite-lived assets over their estimated fair value. If the carrying value
exceeds the estimate of fair value a write-down is recorded. The Company
amortizes its intangibles with finite useful lives over their respective useful
lives. For the years ended December 31, 2019 , 2018 and 2017 there were no
impairments recorded.
Long-Lived Assets - Management regularly reviews property and equipment and
other long-lived assets, including certain definite-lived intangible assets, for
possible impairment. This review occurs annually, or more frequently if events
or changes in circumstances indicate the carrying amount of the asset may not be
recoverable. If there is indication of impairment, management then prepares an
estimate of future cash flows (undiscounted and without interest charges)
expected to result from the use of the asset and its eventual disposition. If
these cash flows are less than the carrying amount of the asset, an impairment
loss is recognized to write down the asset to its estimated fair value. The fair
value is estimated using the present value of the future cash flows discounted
at a rate commensurate with management's estimates of the business risks.
Preparation of estimated expected future cash flows is inherently subjective and
is based on management's best estimate of assumptions concerning expected future
conditions. For the years ended December 31, 2019 , 2018 and 2017, there were no
impairment indicators identified. Long-lived assets held for sale are recorded
at the lower of their carrying amount or fair value less cost to sell.
Foreign Currency Translation and Transactions - The accounts of the Company's
foreign subsidiaries are translated in accordance with FASB ASC 830. Foreign
currency transaction gains and losses are recognized in other income, net, at
the time they occur. Net foreign currency exchange gains or losses resulting
from the translation of assets and liabilities of foreign subsidiaries whose
functional currency is not the U.S. dollar are recorded as a part of accumulated
other comprehensive loss in stockholders' equity. Unrealized foreign currency
exchange gains and losses on certain intercompany transactions that are of a
long-term investment nature (i.e., settlement is not planned or anticipated in
the foreseeable future) are also recorded in accumulated other comprehensive
loss in stockholders' equity. During the years ended December 31, 2019 , 2018 and
2017, we entered into forward currency exchange contracts with financial
institutions to create an economic hedge to specifically manage a portion of the
foreign exchange risk exposure associated with certain consolidated subsidiaries
non-functional currency denominated assets and liabilities. All foreign currency
exchange contracts outstanding as of December 31, 2019 have terms of three
months or less. We do not enter into forward currency exchange contracts for
speculation or trading purposes.
Revenue Recognition - 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 distributors. In some cases, the
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Company sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value retailers, 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 to other bottlers and full service distributors and to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, drug stores and the military. To a lesser extent, our Strategic Brands segment generates net operating revenues by selling certain ready-to-drink packaged energy drinks to bottlers and full service beverage distributors. 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 ofDecember 31, 2019 andDecember 31, 2018 .
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;
? 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 paid to TCCC based on our sales to the TCCC Subsidiaries and/or 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, 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 during the year for its 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 distributor and retail customer
performance levels. Differences between such
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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 distributors, relating to the costs associated with terminating the Company's prior distributors, are accounted for as revenue ratably over the anticipated life of the respective distribution agreements, generally 20 years.
The Company also enters into license agreements that generate revenues associated with third-party sales of non-beverage products bearing our trademarks including, but not limited to, clothing, hats, t-shirts, jackets, helmets and automotive wheels.
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company's historical experience.
Cost of Sales - Cost of sales consists of the costs of flavors, concentrates and/or beverage bases, the costs of raw materials utilized in the manufacture of beverages, co-packing fees, repacking fees, in-bound freight charges, as well as internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company's finished products and certain quality control costs. In addition, the Company includes in costs of sales certain costs such as depreciation, amortization and payroll costs that relate to the direct manufacture by the Company of certain flavors and concentrates. Raw materials account for the largest portion of cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials. Operating Expenses - Operating expenses include selling expenses such as distribution expenses to transport products to customers and warehousing expenses after manufacture, as well as expenses for advertising, sampling and in-store demonstration costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), termination payments made to certain of the Company's prior distributors, depreciation and other general and administrative costs. Income Taxes - The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC 740. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies. If in the future the Company determines that it would not be able to realize its recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the Company's evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.
Recent Accounting Pronouncements
See "Part II, Item 8 - Financial Statements and Supplementary Data - Note 1 -
Organization and Summary of Significant Accounting Policies - Recent Accounting
Pronouncements" for a full description of recent accounting
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pronouncements including the respective expected dates of adoption and expected effects on the Company's consolidated financial position, results of operations or liquidity. Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. 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 Exchange Act, as amended) regarding our expectations 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 Act. Without limiting the foregoing, the words "believes," "thinks," "anticipates," "plans," "expects," "estimates," and similar expressions are intended to identify forward-looking statements. Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside our control and involve a number of risks, uncertainties and other factors, that could cause actual results and events to differ materially from the statements made including, but not limited to, the following:
We have extensive commercial arrangements with TCCC and, as a result, our ? future performance is substantially dependent on the success of our
relationship with TCCC;
? The impact of TCCC's bottlers/distributors distributing Coca-Cola brand energy
drinks;
? The effect of TCCC being one of our significant shareholders and the potential
divergence of TCCC's interests from those of our other shareholders;
The effect of TCCC's refranchising initiative to transition from a TCCC owned ? system to an independent bottling system, including our ability to maintain
relationships with TCCC system bottlers/distributors and manage their ongoing
commitment to focus on our products;
The possible slowing of and/or decline in the sales growth rates of the
? domestic and international energy drink categories and/or the
store market generally;
Disruption in distribution or sales and/or decline in sales due to the ? termination and/or appointment of existing and/or new domestic and/or
international distributors;
? Lack of anticipated demand for our products in domestic and/or international
markets;
? Fluctuations in the inventory levels of our bottlers/distributors, planned or
otherwise, and the resultant impact on our revenues;
Unfavorable regulations, including taxation requirements, age restrictions ? imposed on the sale, purchase, or consumption of our products, marketing
restrictions, product registration requirements, tariffs, trade restrictions,
container size limitations and/or ingredient restrictions;
The effect of inquiries from, and/or actions by, state attorneys general, the
other government agencies, quasi-government agencies, government officials
? (including members of
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 GDPR and the CCPA;
? Our ability to achieve profitability from certain of our operations outsidethe United States ; 59 Table of Contents
Our ability to manage legal and regulatory requirements in foreign ? jurisdictions, potential difficulties in staffing and managing foreign
operations and potentially higher incidence of fraud or corruption and credit
risk of foreign customers and/or distributors;
? Our ability to produce our products in international markets in which they are
sold, thereby reducing freight costs and/or product damages;
? Our ability to absorb, reduce or pass on to our bottlers/distributors increases
in freight costs;
? Our ability to effectively manage our inventories and/or our accounts
receivables;
Our foreign currency exchange rate risk with respect to our sales, expenses,
? profits, assets and liabilities denominated in currencies other than the
dollar, which will continue to increase as foreign sales increase;
? Uncertainties surrounding Brexit;
? Changes in accounting standards may affect our reported profitability;
? Implications of
? Any proceedings which may be brought against us by the
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 global supply chain and our operations due to the recent
coronavirus (or COVID-19) outbreak;
The impact on our business of competitive products and pricing pressures and
our ability to gain or maintain our share of sales in the marketplace as a ? result of actions by competitors, including unsubstantiated and/or misleading
claims, false advertising claims and tortious interference, as well as
competitors selling misbranded products;
The impact on our business of trademark and trade dress infringement ? proceedings brought against us relating to our Reign Total Body FuelTM high
performance energy drinks;
? Our ability to introduce new products;
? Our ability to implement and/or maintain price increases;
? An inability to achieve volume growth through product and packaging
initiatives;
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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
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
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
counterparts;
Our ability to satisfy all criteria set forth in any model energy drink
guidelines, including, without limitation, those adopted by the American
?
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 full ? service bottlers/distributors of our products, most of whom distribute products
that may be regarded as competitive with our products;
Unilateral decisions by full service bottlers/distributors, convenience chains,
grocery chains, mass merchandisers, specialty chain stores, club stores and ? other customers to discontinue carrying all or any of our products that they
are carrying at any time, restrict the range of our products they carry and/or
devote less resources to the sale of our products;
? The effects of retailer consolidation on our business 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 endeavors both domestically and
internationally;
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? Unforeseen economic and political changes and local or international
catastrophic events;
? Possible recalls of our products and/or defective production;
Our ability to make suitable arrangements and/or procure sufficient capacity ? for the co-packing of any of our products both domestically and
internationally, the timely replacement of discontinued co-packing arrangements
and/or limitations on co-packing availability, including for retort production;
? Our ability to make suitable arrangements for the timely procurement of
non-defective raw materials;
Our inability to protect and/or the loss of our intellectual property rights ? and/or our inability to use our trademarks, trade names or designs and/or trade
dress in certain countries;
Volatility of stock prices which may restrict stock sales, stock purchases or ? other opportunities as well as negatively impact the motivation of equity award
grantees;
Provisions in our organizational documents and/or control by insiders which may ? prevent changes in control even if such changes would be beneficial to other
stockholders;
? The failure of our bottlers and/or contract packers to manufacture our products
on a timely basis or at all;
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 theSecurities and Exchange Commission is not exhaustive. See "Part I, Item 1A - Risk Factors," 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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