Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)		The following documents are filed as a part of this Form 10-K:
		Report of Independent Registered Public Accounting Firm	74
		Financial Statements:
		Consolidated Balance Sheets as of December 31, 2014 and 2013	75
		Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012	76
		Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012	77
		Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012	78
		Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	79
		Notes to Consolidated Financial Statements	81
		Financial Statement Schedule:
		Valuation and Qualifying Accounts for the years ended December 31, 2014, 2013 and 2012	114
		Exhibits:
		The Exhibits listed in the Index of Exhibits, which appears immediately following the signature page and is incorporated herein by reference, as filed as part of this Form 10-K.

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MONSTER BEVERAGE CORPORATION

/s/ RODNEY C. SACKS		Rodney C. Sacks		Date: March 2, 2015
		Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature		Title		Date
/s/ RODNEY C. SACKS		Chairman of the Board of Directors and Chief Executive Officer (principal executive officer)		March 2, 2015
Rodney C. Sacks
/s/ HILTON H. SCHLOSBERG		Vice Chairman of the Board of Directors, President, Chief Operating Officer, Chief Financial Officer and Secretary (principal financial officer, controller and principal accounting officer)		March 2, 2015
Hilton H. Schlosberg
/s/ NORMAN C. EPSTEIN		Director		March 2, 2015
Norman C. Epstein
/s/ BENJAMIN M. POLK		Director		March 2, 2015
Benjamin M. Polk
/s/ SYDNEY SELATI		Director		March 2, 2015
Sydney Selati
/s/ HAROLD C. TABER, JR.		Director		March 2, 2015
Harold C. Taber, Jr.
/s/ MARK S. VIDERGAUZ		Director		March 2, 2015
Mark S. Vidergauz
/s/ MARK J. HALL		Director		March 2, 2015
Mark J. Hall

INDEX TO EXHIBITS

The following designated exhibits, as indicated below, are either filed or furnished, as applicable herewith or have heretofore been filed or furnished with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, as indicated by footnote.

2.1	Transaction Agreement, dated as of August 14, 2014, by and among Monster Beverage Corporation, New Laser Corporation, New Laser Merger Corp, The Coca-Cola Company and European Refreshments (incorporated by reference from exhibit 2.1 to our Form 8-K dated August 18, 2014).
2.2	Asset Transfer Agreement, dated as of August 14, 2014, by and among Monster Beverage Corporation, New Laser Corporation and The Coca-Cola Company Refreshments (incorporated by reference from exhibit 2.2 to our Form 8-K dated August 18, 2014).
3.1	Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to our Form 10-K dated February 29, 2012).
3.2	Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to our Form 8-K dated August 2, 2013).
10.1+	Form of Amendment to Stock Option Agreement (relating to the amendment of certain stock option agreements between Hansen Natural Corporation and its executive officers and directors) (incorporated by reference to Exhibit 10.1 to our Form 8-K dated January 8, 2007).
10.2	Form of Indemnification Agreement (to be provided by Hansen Natural Corporation to its directors) (incorporated by reference to Exhibit 10.1 to our Form 8-K dated November 14, 2005).
10.3+	Stock Option Agreement between Hansen Natural Corporation and Harold Taber (made as of November 11, 2005) (incorporated by reference to Exhibit 10.42 to our Form 10-K dated March 15, 2006).
10.4+	Stock Option Agreement between Hansen Natural Corporation and Hilton H. Schlosberg (made as of November 11, 2005) (incorporated by reference to Exhibit 10.46 to our Form 10-K dated March 15, 2006).
10.5+	Stock Option Agreement between Hansen Natural Corporation and Rodney C. Sacks (made as of November 11, 2005) (incorporated by reference to Exhibit 10.47 to our Form 10-K dated March 15, 2006).
10.6	Single Tenant Industrial Lease, made and entered into as of October 13, 2006 by and between Watson Land Company, a California Corporation, and Hansen Beverage Company, a Delaware Corporation (incorporated by reference to exhibit 10 to our Form 10-K dated June 6, 2007).
10.7+	Hansen Natural Corporation 2001 Amended and Restated Stock Option Plan (incorporated by reference to Exhibit A to our Proxy Statement dated September 25, 2007).
10.8	Business Loan Agreement between Hansen Beverage Company and Comerica Bank (incorporated by reference to Exhibit 10.1 to our Form 10-Q dated August 9, 2007).
10.9	Monster Energy Distribution Coordination Agreement, dated October 3, 2008, between Hansen Beverage Company and The Coca Cola Company (incorporated by reference to exhibit 10.1 to our Form 10-Q dated November 10, 2008).
10.10	Monster Energy International Distribution Coordination Agreement, dated October 3, 2008, between Tauranga Ltd, trading as Monster Energy, and Coca-Cola Enterprises Inc. (incorporated by reference to exhibit 10.2 to our Form 10-Q dated November 10, 2008).
10.11	Monster Energy Distribution Agreement, dated October 3, 2008, between Hansen Beverage Company and Coca-Cola Enterprises, Inc. (incorporated by reference to exhibit 10.3 to our Form 10-Q dated November 10, 2008).

10.12	Monster Energy Canadian Distribution Agreement, dated October 3, 2008, between Hansen Beverage Company and Coca-Cola Bottling Company. (incorporated by reference to exhibit 10.4 to our Form 10-Q dated November 10, 2008).
10.13	Monster Energy International Distribution Agreement, dated October 3, 2008, between Tauranga Ltd, trading as Monster Energy, and Coca-Cola Enterprises Inc. (incorporated by reference to exhibit 10.5 to our Form 10-Q dated November 10, 2008).
10.14	Monster Energy Belgium Distribution Agreement, dated October 3, 2008, between Tauranga Ltd, trading as Monster Energy, and Coca-Cola Enterprises Inc. (incorporated by reference to exhibit 10.6 to our Form 10-Q dated November 10, 2008).
10.15+	Stock Option Agreement between Hansen Natural Corporation and Rodney C. Sacks (made as of June 2, 2008) (incorporated by reference to exhibit 10.44 to our Form 10-K dated March 1, 2010).
10.16A+	Amendment to Stock Option Agreement between Hansen Natural Corporation and Rodney C. Sacks (made as of August 2, 2008) (incorporated by reference to exhibit 10.44A to our Form 10-K dated March 1, 2010).
10.17+	Stock Option Agreement between Hansen Natural Corporation and Hilton H. Schlosberg (made as of June 2, 2008) (incorporated by reference to exhibit 10.45 to our Form 10-K dated March 1, 2010).
10.18A+	Amendment to Stock Option Agreement between Hansen Natural Corporation and Hilton H. Schlosberg (made as of August 2, 2008) (incorporated by reference to exhibit 10.45A to our Form 10-K dated March 1, 2010).
10.19+	Stock Option Agreement between Hansen Natural Corporation and Thomas J. Kelly (made as of June 2, 2008) (incorporated by reference to exhibit 10.47 to our Form 10-K dated March 1, 2010).
10.20+	2009 Hansen Natural Corporation Stock Incentive Plan for Non-Employee Directors (incorporated by reference to Exhibit A to our Proxy Statement dated April 24, 2009).
10.21+	Stock Option Agreement between Hansen Natural Corporation and Thomas J. Kelly (made as of June 1, 2009) (incorporated by reference to exhibit 10.49 to our Form 10-K dated March 1, 2010).
10.22+	Stock Option Agreement between Hansen Natural Corporation and Rodney C. Sacks (made as of December 1, 2009) (incorporated by reference to exhibit 10.51 to our Form 10-K dated March 1, 2010).
10.23+	Stock Option Agreement between Hansen Natural Corporation and Hilton H. Schlosberg (made as of December 1, 2009) (incorporated by reference to exhibit 10.52 to our Form 10-K dated March 1, 2010).
10.24+	Stock Option Agreement between Hansen Natural Corporation and Mark J. Hall (made as of December 1, 2009) (incorporated by reference to exhibit 10.53 to our Form 10-K dated March 1, 2010).
10.25+	Stock Option Agreement between Hansen Natural Corporation and Thomas J. Kelly (made as of December 1, 2009) (incorporated by reference to exhibit 10.55 to our Form 10-K dated March 1, 2010).
10.26+	Stock Option Agreement between Hansen Natural Corporation and Thomas J. Kelly (made as of December 1, 2010) (incorporated by reference to exhibit 10.53 to our Form 10-K dated March 1, 2011).
10.27+	Stock Option Agreement between Hansen Natural Corporation and Mark J. Hall (made as of December 1, 2010) (incorporated by reference to exhibit 10.54 to our Form 10-K dated March 1, 2011).
10.28+	Form of Restricted Stock Unit Agreement pursuant to the 2009 Hansen Natural Corporation Stock Incentive Plan for Non-Employee Directors (incorporated by reference to exhibit 10.55 to our Form 10-K dated March 1, 2011).
10.29+	Form of Restricted Stock Agreement (incorporated by reference to exhibit 10.1 to our Form 10-Q dated August 9, 2011).

10.30+	Monster Beverage Corporation 2011 Omnibus Incentive Plan (incorporated by reference to exhibit 10.1 to our Form 8-K dated May 24, 2011).
10.31+	Agreement between the Company and Mark Hall, dated October 28, 2013 (incorporated by reference to exhibit 10.52 to our Form 10-K dated March 3, 2014).
10.32+	Employment Agreement between Monster Beverage Corporation and Rodney C. Sacks (incorporated by reference to Exhibit 10.1 to our Form 8-K dated March 19, 2014).
10.33+	Employment Agreement between Monster Beverage Corporation and Hilton H. Schlosberg (incorporated by reference to Exhibit 10.2 to our Form 8-K dated March 19, 2014).
21*	Subsidiaries
23*	Consent of Independent Registered Public Accounting Firm
31.1*	Certification by CEO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2*	Certification by CFO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1*	Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2*	Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101*	The following materials from Monster Beverage Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 are furnished herewith, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of December 31, 2014 and 2013, (ii) the Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012, (iii) the Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012, and (vi) the Notes to Consolidated Financial Statements.

• Filed herewith.

• Management contract or compensatory plans or arrangements.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

		Page
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm		74
Consolidated Balance Sheets as of December 31, 2014 and 2013		75
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012		76
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012		77
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012		78
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012		79
Notes to Consolidated Financial Statements		81
Financial Statement Schedule – Valuation and Qualifying Accounts for the years ended December 31, 2014, 2013 and 2012		114

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Monster Beverage Corporation Corona, California

We have audited the accompanying consolidated balance sheets of Monster Beverage Corporation and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Monster Beverage Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2015, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Costa Mesa, California March 2, 2015

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2014 AND 2013 (In Thousands, Except Par Value)

		2014			2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	370,323		$	211,349
Short-term investments		781,134			402,247
Accounts receivable, net		280,203			291,638
Distributor receivables		552			4,542
Inventories		174,573			221,449
Prepaid expenses and other current assets		19,673			21,376
Intangibles held-for-sale		18,079			-
Prepaid income taxes		8,617			9,518
Deferred income taxes		40,275			20,924
Total current assets		1,693,429			1,183,043
INVESTMENTS		42,940			9,792
PROPERTY AND EQUIPMENT, net		90,156			88,143
DEFERRED INCOME TAXES		54,106			63,611
INTANGIBLES, net		50,748			65,774
OTHER ASSETS		7,496			10,146
Total Assets		$	1,938,875		$	1,420,509
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	127,641		$	119,376
Accrued liabilities		40,271			59,113
Accrued promotional allowances		114,047			99,470
Deferred revenue		49,926			13,832
Accrued compensation		17,983			14,864
Income taxes payable		5,848			9,359
Total current liabilities		355,716			316,014
DEFERRED REVENUE		68,009			112,216
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY:
Common stock - $0.005 par value; 240,000 shares authorized; 207,004 shares issued and 167,722 outstanding as of December 31, 2014; 206,014 shares issued and 166,822 outstanding as of December 31, 2013		1,035			1,030
Additional paid-in capital		426,145			368,069
Retained earnings		2,330,510			1,847,325
Accumulated other comprehensive loss		(11,453)			(1,233)
Common stock in treasury, at cost; 39,282 shares and 39,192 shares as of December 31, 2014 and 2013, respectively		(1,231,087)			(1,222,912)
Total stockholders’ equity		1,515,150			992,279
Total Liabilities and Stockholders’ Equity		$	1,938,875		$	1,420,509

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In Thousands, Except Per Share Amounts)

		2014			2013			2012
NET SALES		$	2,464,867		$	2,246,428		$	2,060,702
COST OF SALES		1,125,057			1,073,497			995,046
GROSS PROFIT		1,339,810			1,172,931			1,065,656
OPERATING EXPENSES		592,305			600,015			515,033
OPERATING INCOME		747,505			572,916			550,623
OTHER (EXPENSE) INCOME:
Interest and other (expense) income, net		(1,676)			(11,737)			(2,256)
(Loss) gain on investments and put option, net (Note 2)		(41)			2,715			787
Total other (expense) income		(1,717)			(9,022)			(1,469)
INCOME BEFORE PROVISION FOR INCOME TAXES		745,788			563,894			549,154
PROVISION FOR INCOME TAXES		262,603			225,233			209,134
NET INCOME		$	483,185		$	338,661		$	340,020
NET INCOME PER COMMON SHARE:
Basic		$	2.89		$	2.03		$	1.96
Diluted		$	2.77		$	1.95		$	1.86
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Basic		167,257			166,679			173,712
Diluted		174,285			173,387			183,083

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In Thousands)

		2014			2013			2012
Net income, as reported		$	483,185		$	338,661		$	340,020
Other comprehensive (loss) income:
Change in foreign currency translation adjustment		(10,220)			(1,782)			2,096
Available-for-sale investments:
Change in net unrealized gains		-			-			1,525
Reclassification adjustment for net gains included in net income		-			(1,525)			-
Net change in available-for-sale investments		-			(1,525)			1,525
Other comprehensive (loss) income		(10,220)			(3,307)			3,621
Comprehensive income		$	472,965		$	335,354		$	343,641

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In Thousands)

													Accumulated
							Additional						Other									Total
		Common stock					Paid-in			Retained			Comprehensive			Treasury stock						Stockholders’
		Shares		Amount			Capital			Earnings			Income (Loss)			Shares		Amount				Equity
Balance, January 1, 2012		198,729		$	994		$	229,301		$	1,168,644		$	(1,547)		(24,452)		$		(418,234)		$	979,158
Stock-based compensation		-		-			28,007			-			-			-		-				28,007
Exercise of stock options		5,030		25			10,989			-			-			-		-				11,014
Excess tax benefits from share based payment arrangements		-		-			19,656			-			-			-		-				19,656
Repurchase of common stock		-		-			-			-			-			(13,531)		(737,079)				(737,079		)
Foreign currency translation		-		-			-			-			2,096			-		-				2,096
Change in unrealized gain on available-for-sale securities, net of tax		-		-			-			-			1,525			-		-				1,525
Net income		-		-			-			340,020			-			-		-				340,020
Balance, December 31, 2012		203,759		1,019			287,953			1,508,664			2,074			(37,983)		(1,155,313)				644,397
Stock-based compensation		-		-			28,528			-			-			-		-				28,528
Exercise of stock options		2,255		11			21,240			-			-			-		-				21,251
Excess tax benefits from share based payment arrangements		-		-			30,348			-			-			-		-				30,348
Repurchase of common stock		-		-			-			-			-			(1,209)		(67,599)				(67,599		)
Foreign currency translation		-		-			-			-			(1,782)			-		-				(1,782		)
Reclassification adjustments for net gains included in net income		-		-			-			-			(1,525)			-		-				(1,525		)
Net income		-		-			-			338,661			-			-		-				338,661
Balance, December 31, 2013		206,014		1,030			368,069			1,847,325			(1,233)			(39,192)		(1,222,912)				992,279
Stock-based compensation		-		-			28,989			-			-			-		-				28,989
Exercise of stock options		990		5			17,163			-			-			-		-				17,168
Excess tax benefits from share based payment arrangements		-		-			11,924			-			-			-		-				11,924
Repurchase of common stock		-		-			-			-			-			(90)		(8,175)				(8,175		)
Foreign currency translation		-		-			-			-			(10,220)			-		-				(10,220		)
Net income		-		-			-			483,185			-			-		-				483,185
Balance, December 31, 2014		207,004		$	1,035		$	426,145		$	2,330,510		$	(11,453)		(39,282)		$	(1,231,087)			$	1,515,150

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In Thousands)

		2014			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	483,185		$	338,661		$	340,020
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,651			22,762			20,562
Loss (gain) on disposal of property and equipment		(408)			506			25
Stock-based compensation		28,552			28,764			28,413
Loss on put option		842			838			1,111
Gain on investments, net		(801)			(3,553)			(1,897)
Deferred income taxes		(9,846)			(7,074)			(2,460)
Tax benefit from exercise of stock options		(11,924)			(30,348)			(19,656)
Effect on cash of changes in operating assets and liabilities:
Accounts receivable		(14,290)			(42,901)			(17,782)
Distributor receivables		4,580			(7,382)			3
Inventories		42,763			(21,552)			(47,568)
Prepaid expenses and other current assets		888			(4,501)			(4,523)
Prepaid income taxes		157			24,008			(33,210)
Accounts payable		11,282			(8,204)			3,659
Accrued liabilities		3,019			2,265			6,458
Accrued promotional allowances		20,530			8,932			2,723
Accrued distributor terminations		(2,338)			1,552			794
Accrued compensation		3,394			1,970			2,498
Income taxes payable		8,438			34,308			14,165
Deferred revenue		(8,107)			2,982			(5,659)
Net cash provided by operating activities		585,567			342,033			287,676
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held-to-maturity investments		710,294			256,843			841,576
Sales of available-for-sale investments		-			5,793			68,451
Sales of trading investments		13,075			2,250			17,050
Purchases of held-to-maturity investments		(1,130,601)			(557,419)			(597,155)
Purchases of available-for-sale investments		(4,001)			-			(9,502)
Purchases of property and equipment		(27,952)			(40,762)			(42,935)
Proceeds from sale of property and equipment		963			9,022			288
Additions to intangibles		(3,411)			(11,175)			(6,301)
(Increase) decrease in other assets		1,230			(4,360)			377
Net cash (used in) provided by investing activities		(440,403)			(339,808)			271,849
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt		(1,619)			(1,887)			(2,076)
Tax benefit from exercise of stock options		11,924			30,348			19,656
Issuance of common stock		17,168			21,252			11,015
Purchases of common stock held in treasury		(8,175)			(67,599)			(727,670)
Net cash provided by (used in) financing activities		19,298			(17,886)			(699,075)
Effect of exchange rate changes on cash and cash equivalents		(5,488)			4,496			2,733
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		158,974			(11,165)			(136,817)
CASH AND CASH EQUIVALENTS, beginning of year		211,349			222,514			359,331
CASH AND CASH EQUIVALENTS, end of year		$	370,323		$	211,349		$	222,514
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest		$	34		$	49		$	48
Income taxes		$	267,251		$	174,278		$	230,221

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS:

During the years ended December 31, 2014, 2013 and 2012, the Company entered into capital leases of $0.8 million, $2.6 million and $1.5 million, respectively, for the acquisition of promotional vehicles.

Included in accounts payable as of December 31, 2012 are treasury stock purchases of $9.4 million.

Included in accounts payable was equipment purchased of $0.7 million, $0.1 million and $0.4 million as of December 31, 2014, 2013 and 2012, respectively.

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization – Monster Beverage Corporation (the “Company”, “Monster”, “Hansen” or “Hansen Beverage Company”) was incorporated in Delaware on April 25, 1990. The Company is a holding company and has no operating business except through its consolidated subsidiaries.

Nature of Operations – The Company develops, markets, sells and distributes “alternative” beverage category beverages primarily under the following brand names: Monster Energy®, Monster Rehab®, Monster Energy Extra Strength Nitrous Technology®, Java Monster®, Muscle Monster®, Punch Monster®, Juice Monster™, Peace Tea®, Hansen’s®, Hansen’s Natural Cane Soda®, Junior Juice®, Blue Sky® and Hubert’s®. The “alternative” beverage category combines non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages, ready-to-drink dairy and coffee drinks, energy drinks, sports drinks, and single-serve still water (flavored, unflavored and enhanced) with “new age” beverages, including sodas that are considered natural, sparkling juices and flavored sparkling beverages.

Acquisitions and Divestitures – On August 14, 2014, the Company and The Coca-Cola Company (“TCCC”) entered into definitive agreements for a long-term strategic relationship in the global energy drink category (the “TCCC Transaction”). In the TCCC Transaction, the Company, New Laser Corporation, a wholly owned subsidiary of the Company (“NewCo”), New Laser Merger Corp., a wholly owned subsidiary of NewCo (“Merger Sub”), TCCC and European Refreshments, an indirect wholly owned subsidiary of TCCC, entered into a transaction agreement, and the Company, TCCC and NewCo entered into an asset transfer agreement (together, the “TCCC Transaction Agreements”). Pursuant to the TCCC Transaction Agreements, the Company will reorganize into a new holding company by merging Merger Sub into the Company, with the Company surviving as a wholly owned subsidiary of NewCo. In the merger, each outstanding share of the Company’s common stock will be converted into one share of NewCo’s common stock.

Subject to the terms and conditions of the TCCC Transaction Agreements, upon the closing of the TCCC Transaction, (1) NewCo will issue to TCCC newly issued shares of common stock representing approximately 16.7% of the total number of shares of issued and outstanding NewCo common stock (after giving effect to the new issuance) and TCCC will have the right to nominate two (reduced to one upon the earlier of (i) 36 months after the closing of the TCCC Transaction and (ii) TCCC’s equity interest in NewCo exceeding 20% of the outstanding shares of NewCo common stock) individuals to NewCo’s Board of Directors, (2) TCCC will transfer its global energy drink business (including the NOS®, Full Throttle®, Burn®, Mother®, Play® and Power Play®, and Relentless® brands) to NewCo, and the Company will transfer its non-energy drink business (including the Hansen’s® Natural Sodas, Peace Tea®, Hubert’s® Lemonade and Hansen’s® Juice Products) to TCCC, (3) the Company and TCCC will amend their current distribution coordination agreements, which will contemplate expanding distribution of the Company’s products into additional territories pursuant to long-term distribution agreements with TCCC’s network of owned or controlled bottlers/distributors and independent bottling and distribution partners, and (4) TCCC will make a net cash payment of $2.15 billion to the Company (up to $625.0 million of which will be held in escrow, subject to release upon achievement of milestones relating to the transfer of distribution rights).

The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the TCCC Transaction expired on October 15, 2014, and all necessary approvals or consents from foreign antitrust authorities have been obtained. The closing of the transaction is subject to customary closing conditions and is expected to close in the second quarter of 2015.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries.

Principles of Consolidation – The Company consolidates all entities that it controls by ownership of a majority voting interest. All intercompany balances and transactions have been eliminated in consolidation.

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 Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“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 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 income (loss) as a separate component of stockholders’ equity. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available (see Note 3). Under 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 income (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

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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 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.

Intangibles – Intangibles are comprised primarily of trademarks that represent the Company’s exclusive ownership of the Monster Energy®, ®, Monster Rehab®, Java Monster®, Unleash the Beast®, Punch Monster®, Juice Monster™, Peace Tea®, Hansen’s®, Blue Sky® and the Junior Juice® trademarks, all used in connection with the manufacture, sale and distribution of supplements and beverages. The Company also owns in its own right a number of other trademarks in the United States, as well as in a number of countries around the world. In accordance with 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 trademarks with finite useful lives over their respective useful lives, which range from 1 to 25 years. For the fiscal years ended December 31, 2014, 2013 and 2012, 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 fiscal years ended December 31, 2014, 2013 and 2012, 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 ASC 830. Foreign currency transaction gains and losses are recognized in interest and 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) income

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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) income in stockholders’ equity. During the year ended December 31, 2014, 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 entered into by us as of December 31, 2014 have terms of one month or less. We do not enter into forward currency exchange contracts for speculation or trading purposes.

We have not designated our foreign currency exchange contracts as hedge transactions under ASC 815. Therefore, gains and losses on our foreign currency exchange contracts are recognized in interest and other (expense) income, net, in the consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item. For the years ended December 31, 2014, 2013 and 2012, aggregate foreign currency transaction losses, including the gains or losses on forward currency exchange contracts, amounted to $3.4 million, $12.9 million and $3.7 million, respectively, and have been recorded in other (expense) income in the accompanying consolidated statements of income.

Revenue Recognition – The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Generally, ownership of and title to the Company’s products passes to customers upon delivery of the products to customers. Certain of the Company’s distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, ownership of and title to the Company’s products that are co-packed on the Company’s behalf by those co-packers who are also distributors, passes to such distributors when the Company is notified by them that they have taken transfer or possession of the relevant portion of the Company’s finished goods. Net sales have been determined after deduction of promotional and other allowances in accordance with ASC 605-50. The Company’s promotional and other allowances are calculated based on various programs with its distributors and retail customers, and accruals are established during the year for the 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 estimated expense 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 agreement, generally 20 years.

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 raw materials utilized in the manufacture of products, co-packing fees, repacking fees, in-bound freight charges, as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products and certain quality control costs. Raw materials account for the largest portion of the cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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.

Freight-Out Costs – For the years ended December 31, 2014, 2013 and 2012, freight-out costs amounted to $92.7 million, $84.0 million and $76.1 million, respectively, and have been recorded in operating expenses in the accompanying consolidated statements of income.

Advertising and Promotional Expenses – The Company accounts for advertising production costs by expensing such production costs the first time the related advertising takes place. A significant amount of the Company’s promotional expenses result from payments under endorsement and sponsorship contracts. Accounting for endorsement and sponsorship payments is based upon specific contract provisions. Generally, endorsement and sponsorship payments are expensed on a straight-line basis over the term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Advertising and promotional expenses, including but not limited to production costs, amounted to $171.5 million, $181.8 million and $165.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. Advertising and promotional expenses are included in operating expenses in the accompanying consolidated statements of income.

Income Taxes – The Company utilizes the liability method of accounting for income taxes as set forth in 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.

Stock-Based Compensation – The Company accounts for stock-based compensation under the provisions of ASC 718. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula. The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula. Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit in cash, the award is classified as a liability and revalued at each balance sheet date. (See Note 13).

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Net Income Per Common Share – In accordance with ASC 260, net income per common share, on a basic and diluted basis, is presented for all periods. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding. The calculation of common equivalent shares assumes the exercise of dilutive stock options, net of assumed treasury share repurchases at average market prices, as applicable.

Concentration of Risk – Certain of the Company’s products utilize components (raw materials and/or co-packing services) from a limited number of sources. A disruption in the supply of such components could significantly affect the Company’s revenues from those products, as alternative sources of such components may not be available at commercially reasonable rates or within a reasonably short time period. The Company continues to take steps on an ongoing basis to secure the availability of alternative sources for such components and minimize the risk of any disruption in production.

Coca-Cola Refreshments USA, Inc. (“CCR”), a customer of the Direct Store Delivery segment (“DSD”) with sales within specific markets in the United States and Canada, accounted for approximately 29%, 29% and 28% of the Company’s net sales for the years ended December 31, 2014, 2013 and 2012, respectively.

Credit Risk – The Company sells its products nationally and internationally, primarily to full service beverage distributors, retail grocery and specialty chains, wholesalers, club stores, drug chains, mass merchandisers, convenience chains, health food distributors and food service customers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for estimated credit losses, and historically, such losses have been within management’s expectations.

Fair Value of Financial Instruments – The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the relatively short maturity of the respective instruments.

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

Recent Accounting Pronouncements – In September 2014, the Company elected to early adopt FASB ASU No. 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. ASU 2014-08 provides new guidance related to the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The adoption of ASU 2014-08 did not have a material impact on the Company’s financial position, results of operations or liquidity.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

In June 2014, the FASB issued ASU No. 2014-12, “Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force)”. ASU 2014-12 clarifies that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. ASU 2014-12 is effective for annual periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 may be applied either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s financial position, results of operations or liquidity.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes previous revenue recognition guidance. ASU 2014-09 requires that a company recognize revenue at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. In applying the new guidance, a company will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016 and can be adopted using either a full retrospective or modified approach. The Company is currently evaluating the impact of ASU 2014-09 on its financial position, results of operations and liquidity.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

2. INVESTMENTS

The following table summarizes the Company’s investments at:

December 31, 2014		Amortized Cost			Gross Unrealized Holding Gains			Gross Unrealized Holding Losses			Fair Value			Continuous Unrealized Loss Position less than 12 Months			Continuous Unrealized Loss Position greater than 12 Months
Held-to-Maturity
Short-term:
Commercial paper		$	19,482		$	(2)		$	-		$	19,480		$	-		$	-
Municipal securities		744,542			105			-			744,647			-			-
U.S. Government Agencies		9,199			(1)			-			9,198			-			-
Lont-term:
Municipal securities		42,940			10			-			42,950			-			-
Available-for-sale
Short-term:
Variable rate demand notes		4,001			-			-			4,001			-			-
Total		$	820,164		$	112		$	-		820,276			$	-		$	-
Trading
Short-term:
Auction rate securities											3,910
Long-term:
Auction rate securities											-
Total											$	824,186

December 31, 2013		Amortized Cost			Gross Unrealized Holding Gains			Gross Unrealized Holding Losses			Fair Value			Continuous Unrealized Loss Position less than 12 Months			Continuous Unrealized Loss Position greater than 12 Months
Held-to-Maturity
Short-term:
Certificates of deposit		$	22,045		$	-		$	-		$	22,045		$	-		$	-
Commercial paper		5,991			-			-			5,991			-			-
Municipal securities		367,819			48			-			367,867			-			-
Total		$	395,855		$	48		$	-		395,903			$	-		$	-
Trading
Short-term:
Auction rate securities											6,392
Long-term:
Auction rate securities											9,792
Total											$	412,087

During the year ended December 31, 2014, realized gains or losses recognized on the sale of investments were not significant. During the year ended December 31, 2013, the Company recognized $2.5 million of realized gains on the sale of available-for-sale investments. Realized gains or losses on the sale of all other investments during the year ended December 31, 2013 were not significant. During the year ended December 31, 2012, realized gains or losses recognized on the sale of investments were not significant.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The Company recognized a net gain through earnings on its trading securities as follows for the years ended:

		2014			2013			2012
Gain (loss) on transfer from available-for-sale to trading		$	-		$	-		$	-
Gain on trading securities sold		978			255			1,130
(Loss) gain on trading securities held		(177)			816			753
Gain on trading securites		$	801		$	1,071		$	1,883

The Company’s investments at December 31, 2014 and 2013 in certificates of deposit, commercial paper, municipal securities, U.S. government agency securities and/or variable rate demand notes (“VRSNs”) carried investment grade credit ratings. VRDNs are floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. While they are classified as marketable investment securities, the put option allows the VRDNs to be liquidated at par on a same day, or more generally on a seven day, settlement basis. All of the Company’s investments at December 31, 2014 and 2013 in municipal, educational or other public body securities with an auction reset feature (“auction rate securities”) also carried investment grade credit ratings.

The following table summarizes the underlying contractual maturities of the Company’s investments at:

		December 31, 2014						December 31, 2013
		Amortized Cost			Fair Value			Amortized Cost			Fair Value
Less than 1 year:
U.S. Treasuries		$	-		$	-		$	-		$	-
Certificates of deposit		-			-			22,045			22,045
Commercial paper		19,482			19,480			5,991			5,991
Municipal securities		744,542			744,647			367,819			367,867
U.S. government agency securities		9,199			9,198			-			-
Due 1 -10 years:
Municipal securities		42,940			42,950			-			-
Due 11 - 20 years:
Auction rate securities		3,910			3,910			11,102			11,102
Due 21 - 30 years:
Variable rate demand notes		4,001			4,001			-			-
Auction rate securities		-			-			5,082			5,082
Total		$	824,074		$	824,186		$	412,039		$	412,087

3. FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

ASC 820 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three levels of inputs required by the standard that the Company uses to measure fair value are summarized below.

· Level 1: Quoted prices in active markets for identical assets or liabilities.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

· Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

· Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

ASC 820 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.

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

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

December 31, 2014		Level 1			Level 2			Level 3			Total
Cash		$	196,090		$	-		$	-		$	196,090
Money market funds		106,928			-			-			106,928
Certificates of deposit		-			-			-			-
Commercial paper		-			19,482			-			19,482
Municipal securities		-			854,787			-			854,787
U.S. government agency securities		-			9,199			-			9,199
Variable rate demand notes		-			4,001			-			4,001
Auction rate securities		-			-			3,910			3,910
Put option related to auction rate securities		-			-			250			250
Foreign currency derivatives		-			(252		)	-			(252		)
Total		$	303,018		$	887,217		$	4,160		$	1,194,395
Amounts included in:
Cash and cash equivalents		$	303,018		$	67,305		$	-		$	370,323
Short-term investments		-			777,224			3,910			781,134
Accounts receivable, net		-			83			-			83
Investments		-			42,940			-			42,940
Prepaid expenses and other current assets		-			-			250			250
Other assets		-			-			-			-
Accrued liabilities		-			(335		)	-			(335		)
Total		$	303,018		$	887,217		$	4,160		$	1,194,395
December 31, 2013		Level 1			Level 2			Level 3			Total
Cash		$	139,300		$	-		$	-		$	139,300
Money market funds		60,102			-			-			60,102
Certificates of deposit		-			22,045			-			22,045
Commercial paper		-			5,991			-			5,991
Municipal securities		-			379,766			-			379,766
Auction rate securities		-			-			16,184			16,184
Put option related to auction rate securities		-			-			1,092			1,092
Total		$	199,402		$	407,802		$	17,276		$	624,480
Amounts included in:
Cash and cash equivalents		$	199,402		$	11,947		$	-		$	211,349
Short-term investments		-			395,855			6,392			402,247
Investments		-			-			9,792			9,792
Prepaid expenses and other current assets		-			-			486			486
Other assets		-			-			606			606
Total		$	199,402		$	407,802		$	17,276		$	624,480

The majority of the Company’s short-term investments are classified within Level 1 or Level 2 of the fair value hierarchy. The Company’s valuation of its Level 1 investments, which include money market funds, is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments, which include certificates of deposit, commercial paper, municipal securities, U.S. government agency securities and VRDNs, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical tools and other relevant information for the same or similar securities. The Company’s valuation of its Level 2 foreign exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk. There were no transfers between Level 1 and Level 2 measurements during the year ended December 31, 2014 or the year ended December 31, 2013, and there were no changes in the Company’s valuation techniques.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The Company’s Level 3 assets are comprised of auction rate securities and put options. The Company’s Level 3 valuation utilized a mark-to-model approach which included estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums, as well as expected holding periods for the auction rate securities. These assumptions are typically volatile and subject to change as the underlying data sources and market conditions evolve. A significant change in any single input could have a significant valuation impact; however, no single input has a more significant impact on valuation than another. There were no changes in the Company’s valuation techniques of its Level 3 assets during the year ended December 31, 2014.

The following table presents quantitative information related to the significant unobservable inputs utilized in the Company’s Level 3 recurring fair value measurements as of December 31, 2014.

		Valuation Technique		Unobservable Input		Range (Weighted-Average)
Auction Rate Securities		Discounted cash flow		Maximum rate probability		1.37%-3.02% (2.58%)
				Principal returned probability		84.78%-94.07% (87.05%)
				Default probability		4.56%-12.21% (10.37%)
				Liquidity risk		2.50%-2.50% (2.50%)
				Recovery rate		60-60 (60)
Put Options		Discounted cash flow		Counterparty risk		0.73%-0.79% (0.74%)

At December 31, 2014, the Company held auction rate securities with a face value of $4.2 million (amortized cost basis of $3.9 million). A Level 3 valuation was performed on the Company’s auction rate securities as of December 31, 2014 resulting in a fair value of $3.9 million for the Company’s trading auction rate securities (after a $0.3 million impairment), which are included in short-term and long-term investments.

In June 2011, the Company entered into an agreement (the “2011 ARS Agreement”), related to $24.5 million of par value auction rate securities (the “2011 ARS Securities”). Under the 2011 ARS Agreement, the Company has the right to sell the 2011 ARS Securities including all accrued but unpaid interest thereon (the “2011 Put Option”) as follows: (i) on or after July 1, 2013, up to $1.0 million aggregate par value; (ii) on or after October 1, 2013, up to an additional $1.0 million aggregate par value; and (iii) in quarterly installments thereafter based on a formula of the then outstanding 2011 ARS Securities, as adjusted for normal market redemptions, with full sale rights available on or after April 1, 2016. The 2011 ARS Securities will continue to accrue interest until redeemed through the 2011 Put Option, or as determined by the auction process, or should the auction process fail, the terms outlined in the prospectus of the respective 2011 ARS Securities. Under the 2011 ARS Agreement, the Company has the obligation, should it receive written notification from the put issuer, to sell the 2011 ARS Securities at par plus all accrued but unpaid interest. During the year ended December 31, 2014, $6.2 million of 2011 ARS Securities were redeemed at par through the exercise of a portion of the 2011 Put Option and $6.9 million of 2011 ARS Securities were redeemed at par through normal market channels ($2.3 million, $1.3 million and $3.7 million of 2011 ARS Securities were redeemed at par through normal market channels during the years ended December 31, 2013, 2012 and 2011, respectively). The 2011 Put Option does not meet the definition of derivative instruments under ASC 815. Therefore, the Company elected the fair value option under ASC 825-10 in accounting for the 2011 Put Option. As of December 31, 2014, the Company recorded $0.3 million as the fair market value of the 2011 Put Option, included in prepaid expenses and other current assets, as well as in other assets, in the consolidated balance sheet.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The net effect of (i) the revaluation of the 2011 Put Option as of December 31, 2014; (ii) the redemption at par of certain 2011 ARS Securities; and (iii) the revaluation of the Company’s trading auction rate securities as of December 31, 2014 resulted in a loss of ($0.04) million, which is included in other (expense) income for the year ended December 31, 2014. The net effect of (i) the revaluation of the 2011 Put Option as of December 31, 2013; (ii) the redemption at par of certain 2011 ARS Securities; (iii) the revaluation of the Company’s trading auction rate securities as of December 31, 2013; and (iv) a recognized gain resulting from the redemption of previously other-than-temporary impaired securities; resulted in a gain of $2.7 million, which is included in other (expense) income for the year ended December 31, 2013.

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

		December 31, 2014						December 31, 2013
		Auction Rate Securities			Put Options			Auction Rate Securities			Put Options
Opening Balance		$	16,184		$	1,092		$	23,156		$	1,929
Transfers into Level 3		-			-			-			-
Transfers out of Level 3		-			-			-			-
Total gains (losses) for the period:
Included in earnings		801			(842)			3,553			(837)
Included in other comprehensive income		-			-			(2,482)			-
Settlements		(13,075)			-			(8,043)			-
Closing Balance		$	3,910		$	250		$	16,184		$	1,092

4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to foreign currency exchange rate risks related primarily to its foreign business operations. During the year ended December 31, 2014, the Company 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 entered into by the Company as of December 31, 2014 have terms of one month or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.

The Company has not designated its foreign currency exchange contracts as hedge transactions under ASC 815. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in interest and other (expense) income, net, in the consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The notional amount and fair value of all outstanding foreign currency derivative instruments in the consolidated balance sheets consist of the following at:

		December 31, 2014
Derivatives not designated as hedging instruments under FASB ASC 815-20		Notional Amount			Fair Value			Balance Sheet Location
Assets:
Foreign currency exchange contracts:
Receive CAD/pay USD		$	19,940		$	83		Accounts receivable, net
Liabilities:
Foreign currency exchange contracts:
Receive EUR/pay USD		$	13,265		$	(75)		Accrued liabilities
Receive USD/pay AUD		8,343			(48)			Accrued liabilities
Receive USD/pay JPY		10,620			(84)			Accrued liabilities
Receive USD/pay ZAR		14,760			(105)			Accrued liabilities
Receive USD/pay MXN		4,961			(11)			Accrued liabilities
Receive USD/pay CLP		2,685			(10)			Accrued liabilities
Receive USD/pay COP		2,845			(2)			Accrued liabilities

The Company had no foreign currency exchange contracts outstanding at December 31, 2013.

The net gain on derivative instruments in the consolidated statements of income were as follows:

				Amount of gain recognized in income on derivatives
				Year ended
Derivatives not designated as hedging instruments under FASB ASC 815-20		Location of gain recognized in income on derivatives		December 31, 2014			December 31, 2013
Foreign currency exchange contracts		Interest and other income (expense), net		$	1,424		$	-

5. INVENTORIES

Inventories consist of the following at December 31:

		2014			2013
Raw materials		$	59,938		$	68,088
Finished goods		114,635			153,361
		$	174,573		$	221,449

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

6. PROPERTY AND EQUIPMENT, Net

Property and equipment consist of the following at December 31:

		2014			2013
Land		$	6,792		$	5,382
Leasehold improvements		2,796			2,222
Furniture and fixtures		3,371			3,474
Office and computer equipment		10,072			14,135
Computer software		1,317			791
Equipment		84,263			62,552
Building		37,311			33,468
Vehicles		27,813			30,442
		173,735			152,466
Less: accumulated depreciation and amortization		(83,579)			(64,323)
		$	90,156		$	88,143

7. INTANGIBLES, Net

The following provides additional information concerning the Company’s intangibles as of December 31:

		2014			2013
Amortizing intangibles		$	233		$	1,076
Accumulated amortization		(50)			(590)
		183			486
Non-amortizing intangibles		50,565			65,288
		$	50,748		$	65,774

All amortizing intangibles have been assigned an estimated finite useful life and such intangibles are amortized on a straight-line basis over the number of years that approximate their respective useful lives ranging from one to 25 years (weighted-average life of 17 years). Total amortization expense recorded was $0.4 million, $0.05 million and $0.05 million for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, future estimated amortization expense related to amortizing intangibles through the year ending December 31, 2019 is approximately $0.01 million per year. At December 31, 2014, $18.0 million of non-amortizing intangibles and $0.1 million of amortizing intangibles (net of accumulated amortization) are subject to divestiture under the TCCC Transaction and are included in intangibles held-for-sale in the accompanying consolidated balance sheet at December 31, 2014.

8. DISTRIBUTION AGREEMENTS

Amounts received pursuant to new and/or amended distribution agreements entered into with certain distributors, relating to the costs associated with terminating agreements with the Company’s prior distributors, have been accounted for as deferred revenue in the accompanying consolidated balance sheets and are recognized as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years. Revenue recognized was $7.8 million, $8.4 million and $8.2 million for years ended December 31, 2014, 2013 and 2012, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

The Company incurred termination amounts (net of adjustments to estimated amounts previously accrued) to certain of its prior distributors amounting to a credit of ($0.2) million and an expense of $10.8 million and $1.5 million in aggregate for the years ended December 31, 2014, 2013 and 2012, respectively. Such termination amounts have been expensed in full and are included in operating expenses for the years ended December 31, 2014, 2013 and 2012.

As part of the TCCC Transaction, the amended distribution coordination agreements to be entered into with TCCC will provide for the transition of third parties’ rights to distribute the Company’s products in most territories in the U.S. and Canada to members of TCCC’s distribution network, which consists of owned or controlled bottlers/distributors and independent bottling/distribution partners. On February 9, 2015 in accordance with its existing agreements with the applicable third-party distributors, the Company sent notices of termination to certain affected third-party distributors, including the majority of the Company’s Anheuser-Busch distributors (the “AB Distributors”) in the U.S., providing for the termination of their respective distribution agreements, to be effective at various dates beginning in March 2015. The associated distribution rights will be transitioned to TCCC’s distribution network in each applicable territory as of the effective date of the termination of the applicable third party’s rights in such territory. The Company estimates the termination costs associated with the transition of its distribution arrangements to be approximately $280.0 million, the majority of which will be recognized in the first quarter of 2015 in accordance with ASC No. 420 “Exit or Disposal Cost Obligations.” Actual termination amounts may differ materially from those estimated, which could have a material impact on the Company’s financial position, results of operations or liquidity. The Company anticipates that approximately $38.2 million of deferred revenue will be recognized into income in the first quarter of 2015 associated with the terminated AB Distributors. As a result, this amount has been classified as a current liability in the accompanying consolidated balance sheet at December 31, 2014.

9. DEBT

The Company entered into a credit facility with Comerica Bank (“Comerica”) consisting of a revolving line of credit, which was amended in June 2013, under which the Company may borrow up to $10.0 million of non-collateralized debt. The revolving line of credit is effective through June 1, 2015. Interest on borrowings under the line of credit is based on Comerica’s base (prime) rate minus 1% to 1.5%, or London Interbank Offered Rates plus an additional percentage of 1.25% to 1.75%, depending upon certain financial ratios maintained by the Company. The Company had no outstanding borrowings on this line of credit at December 31, 2014. Under this revolving line of credit, the Company may also issue standby Letters of Credit with an aggregate amount of up to $4.0 million. The fee on the standby Letters of Credit ranges from 1.00% to 1.50% depending upon certain financial ratios maintained by the Company. The Company had no outstanding standby Letters of Credit at December 31, 2014.

The Company’s debt of $0.4 million and $1.3 million at December 31, 2014 and 2013, respectively, consisted of capital leases, collateralized by vehicles, payable over 12 months in monthly installments at various effective interest rates, with final payments ending on or before December 31, 2015.

At December 31, 2014 and 2013, the assets acquired under capital leases had a net book value of $3.7 million and $4.2 million, net of accumulated depreciation of $3.5 million and $2.3 million, respectively.

Interest expense for capital lease obligations amounted to $0.03 million, $0.05 and $0.05 for the years ended December 31, 2014, 2013 and 2012, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

10. COMMITMENTS AND CONTINGENCIES

The Company is obligated under various non-cancellable lease agreements providing for office space, warehouse space, and automobiles that expire at various dates through the year 2023.

Rent expense under operating leases was $6.8 million, $7.4 million and $4.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Future minimum rental payments at December 31, 2014 under the operating leases referred to above are as follows:

Year Ending December 31:
2015		$	5,310
2016		4,329
2017		1,178
2018		495
2019		495
2020 and thereafter		1,166
		$	12,973

Contractual obligations – The Company has the following contractual obligations related primarily to sponsorships and other commitments as of December 31, 2014:

Year Ending December 31:
2015		$	46,290
2016		25,296
2017		3,602
2018		2,793
2019		-
2020 and thereafter		-
		$	77,981

Purchase Commitments – The Company has purchase commitments aggregating approximately $31.3 million at December 31, 2014, which represent commitments made by the Company and its subsidiaries to various suppliers of raw materials for the production of its products. These obligations vary in terms, but are generally satisfied within one year.

The Company purchases various raw material items, including, but not limited to, flavors, ingredients, dietary ingredients, containers, milk, cream and protein, from a limited number of resources. An interruption in supply from any of such resources could result in the Company’s inability to produce certain products for limited or possibly extended periods of time. The aggregate value of purchases from suppliers of such limited resources described above for the years ended December 31, 2014, 2013 and 2012 was $292.8 million, $282.5 million and $264.2 million, respectively.

Guarantees – The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) certain agreements with the Company’s officers, directors and employees under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship, (ii) certain distribution or purchase agreements under which the Company may

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

have to indemnify the Company’s customers from any claim, liability or loss arising out of any actual or alleged injury or damages suffered in connection with the consumption or purchase of the Company’s products or the use of Company trademarks, and (iii) certain real estate leases, under which the Company may be required to indemnify property owners for liabilities and other claims arising from the Company’s use of the applicable premises. The terms of such obligations vary and typically, a maximum obligation is not explicitly stated. Generally, the Company believes that its insurance coverage is adequate to cover any resulting liabilities or claims.

Litigation – On October 17, 2012, Wendy Crossland and Richard Fournier filed a lawsuit in the Superior Court of the State of California, County of Riverside, styled Wendy Crossland and Richard Fournier v. Monster Beverage Corporation, against the Company claiming that the death of their 14 year old daughter (Anais Fournier) was caused by her consumption of two 24-ounce Monster Energy® drinks over the course of two days in December 2011. The plaintiffs allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The plaintiffs claim general damages in excess of $25,000 and punitive damages. The Company filed a demurrer and a motion to strike the plaintiffs’ complaint on November 19, 2012, and the plaintiffs filed a first amended complaint on December 19, 2012. The Company filed its answer to the first amended complaint on June 7, 2013. The parties attended a court ordered mediation on January 23, 2014. Discovery has commenced and trial has been scheduled for August 21, 2015. The Company believes that the plaintiffs’ complaint is without merit and plans a vigorous defense. The Company also believes that any such damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.

The Company has also been named as a defendant in other complaints containing similar allegations to those presented in the Fournier lawsuit, each of which the Company believes is also without merit and would not have a material adverse effect on the Company’s financial position or results of operations in the event any damages were awarded.

Securities Litigation – On September 11, 2008, a federal securities class action complaint styled Cunha v. Hansen Natural Corp., et al. was filed in the United States District Court for the Central District of California (the “District Court”). On September 17, 2008, a second federal securities class action complaint styled Brown v. Hansen Natural Corp., et al. was also filed in the District Court. After the District Court consolidated the two actions and appointed the Structural Ironworkers Local Union #1 Pension Fund as lead plaintiff, a Consolidated Complaint for Violations of Federal Securities Laws was filed on August 28, 2009 (the “Consolidated Class Action Complaint”).

The Consolidated Class Action Complaint purported to be brought on behalf of a class of purchasers of the Company’s stock during the period November 9, 2006 through November 8, 2007 (the “Class Period”). It named as defendants the Company, Rodney C. Sacks, Hilton H. Schlosberg, and Thomas J. Kelly. Plaintiff principally alleged that, during the Class Period, the defendants made false and misleading statements relating to the Company’s distribution coordination agreements with Anheuser-Busch, Inc. (“AB”) and its sales of “Allied” energy drink lines, and engaged in sales of shares in the Company on the basis of material non-public information. Plaintiff also alleged that the Company’s financial statements for the second quarter of 2007 did not include certain promotional expenses. The Consolidated Class Action Complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and sought an unspecified amount of damages.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

The District Court dismissed the Consolidated Class Action Complaint, with leave to amend, on July 12, 2010. Plaintiff thereafter filed a Consolidated Amended Class Action Complaint for Violations of Federal Securities Laws on August 27, 2010 (the “Amended Class Action Complaint”). While similar in many respects to the Consolidated Class Action Complaint, the Amended Class Action Complaint dropped certain of the allegations set forth in the Consolidated Class Action Complaint and made certain new allegations, including that the Company engaged in “channel stuffing” during the Class Period that rendered false or misleading the Company’s reported sales results and certain other statements made by the defendants. In addition, it no longer named Thomas J. Kelly as a defendant.

On September 4, 2012, the District Court dismissed certain of the claims in the Amended Class Action Complaint, including plaintiff’s allegations relating to promotional expenses, but denied defendants’ motion to dismiss with regard to the majority of plaintiff’s claims, including plaintiff’s channel stuffing allegations. Plaintiff filed a motion seeking class certification on December 6, 2012, which the court denied, without prejudice, on January 17, 2014.

Following a mediation conducted by an independent mediator, the Company entered into a Stipulation of Settlement on April 16, 2014 to resolve the litigation. Following a fairness hearing, on January 29, 2015, the District Court granted final approval of the settlement and entered a final judgment dismissing the action with prejudice.

Under the terms of the settlement, certain of the Company’s insurance carriers paid $16.25 million into an escrow account for distribution to a settlement class, certified by the District Court for settlement purposes only and consisting of all persons who purchased or otherwise acquired the Company’s stock during the Class Period (with certain exclusions as specified in the settlement agreement). Under the settlement, defendants and various of their related persons and entities received a full release of all claims that were or could have been brought in the action as well as all claims that arise out of, are based upon or relate to the allegations, transactions, facts, representations, omissions or other matters involved in the complaints filed in the action or any statement communicated to the public during the Class Period, and the purchase, acquisition or sale of the Company’s stock during the Class Period.

The settlement contained no admission of any liability or wrongdoing on the part of the defendants, each of whom continues to deny all of the allegations against them and believes that the claims were without merit. Because the full amount of the settlement was paid by the Company’s insurance carriers, the settlement did not have an effect on the Company’s results of operations.

State Attorney General Inquiry – In July 2012, the Company received a subpoena from the Attorney General for the State of New York in connection with its investigation concerning the Company’s advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand of energy drinks. Production of documents pursuant to that subpoena was completed in approximately May 2014.

On August 6, 2014, the Attorney General for the State of New York issued a second subpoena seeking additional documents and the deposition of a Company employee. On September 8, 2014, the Company moved to quash the second subpoena. The motion has been fully briefed and argument has been scheduled on the motion for March 17, 2015. It is unknown what, if any, action the state attorney general may take against the Company, the relief which may be sought in the event of any such proceeding or whether such proceeding could have a material adverse effect on the Company’s business, financial condition or results of operations.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

San Francisco City Attorney Litigation – On October 31, 2012, the Company received a written request for information from the City Attorney for the City and County of San Francisco concerning the Company’s advertising and marketing of its Monster Energy® brand of energy drinks and specifically concerning the safety of its products for consumption by adolescents. In a letter dated March 29, 2013, the San Francisco City Attorney threatened to bring suit against the Company if it did not agree to take the following five steps immediately: (i) “Reformulate its products to lower the caffeine content to safe levels” - (ii) “Provide adequate warning labels”; (iii) “Cease promoting over-consumption in marketing”; (iv) “Cease use of alcohol and drug references in marketing”; and (v) “Cease targeting minors.”

(i) The Company Action – On April 29, 2013, the Company and its wholly owned subsidiary, Monster Energy Company, filed a complaint for declaratory and injunctive relief against the San Francisco City Attorney (the “Company Action”) in United States District Court for the Central District of California (the “Central District Court”), styled Monster Beverage Corp., et al. v. Dennis Herrera. The Company sought a declaration from the Central District Court that the San Francisco City Attorney’s investigation and demands are impermissible and preempted, subject to the doctrine of primary jurisdiction, are unconstitutional in that they violate the First and Fourteenth Amendments’ prohibitions against compelled speech, content-based speech and commercial speech, are impermissibly void-for-vagueness, and/or violate the Commerce Clause. On June 3, 2013, the City Attorney filed a motion to dismiss the Company Action, arguing in part that the complaint should be dismissed in light of the San Francisco Action (described below) filed on May 6, 2013. On August 22, 2013, the Central District Court granted in part and denied in part the City Attorney’s motion. On October 17, 2013 (after the San Francisco Action, described below, was remanded to San Francisco Superior Court), the City Attorney filed a renewed motion to dismiss the Company Action and on December 16, 2013, the Central District Court granted the City Attorney’s renewed motion, dismissing the Company Action. The Company filed a Notice of Appeal to the Ninth Circuit on December 18, 2013. The Company filed its opening brief on November 28, 2014. The City Attorney’s filed an answering brief on February 13, 2015, and the Company’s reply brief is currently due on February 27, 2015.

(ii) The San Francisco Action – On May 6, 2013, the San Francisco City Attorney filed a complaint for declaratory and injunctive relief, civil penalties and restitution for alleged violation of California’s Unfair Competition Law, Business & Professions Code sections 17200, et seq., styled People Of The State Of California ex rel. Dennis Herrera, San Francisco City Attorney v. Monster Beverage Corporation, in San Francisco Superior Court (the “San Francisco Action”). The City Attorney alleges that the Company (1) mislabeled its products as a dietary supplement, in violation of California’s Sherman Food, Drug and Cosmetic Law, California Health & Safety Code sections 109875 et. seq.; (2) is selling an “adulterated” product because caffeine is not generally recognized as safe (“GRAS”) due to the alleged lack of scientific consensus concerning the safety of the levels of caffeine in the Company’s products; and (3) is engaged in unfair and misleading business practices because its marketing (a) does not disclose the health risks that energy drinks pose for children and teens; (b) fails to warn against and promotes unsafe consumption; (c) implicitly promotes mixing of energy drinks with alcohol or drugs; and (d) is deceptive because it includes unsubstantiated claims about the purported special benefits of its “killer” ingredients and “energy blend.” The City Attorney sought a declaration that the Company has engaged in unfair and unlawful business acts and practices in violation of the Unfair Competition Law; an injunction from performing or proposing to perform any acts in violation of the Unfair Competition Law; restitution; and civil penalties. On June 3, 2013, the Company removed the San Francisco Action to the United States District Court for the Northern District of California (the “Northern District Court”). On July 3, 2013, the City Attorney filed a motion to remand the San Francisco Action back to state court. On September 18, 2013, the Northern District Court granted the City Attorney’s motion to remand the San Francisco Action back to state court.

On January 15, 2014, the Company filed a demurrer to and motion to strike allegations in the complaint in the San Francisco Action. On March 5, 2014, the Court overruled the demurrer, granted the motion to strike as to one theory for relief pleaded by the City Attorney, and lifted the stay on discovery.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

On March 20, 2014, the City Attorney filed an amended complaint, adding allegations supporting the theory for relief as to which the Court had granted the motion to strike. On April 18, 2014, the Company filed a renewed motion to strike, challenging the theory for relief previously rejected by the Court, as well as a motion asking the Court to bifurcate and/or stay claims relating to the safety of Monster Energy® drinks, pending resolution of the ongoing FDA investigation of the safety and labeling of food products to which caffeine is added. On May 22, 2014, the Court denied the Company’s motion to strike and motion to bifurcate and/or stay claims relating to safety.

On June 16, 2014, the Company filed a petition for writ of mandate with the Court of Appeal, asking for a writ directing the trial court to vacate its order denying the Company’s motion to bifurcate and/or stay the San Francisco Action, and instead to stay proceedings pending FDA’s investigation. On June 19, 2014, the Court of Appeal denied the petition. On June 25, 2014, the Company filed a petition for review with the California Supreme Court. On July 23, 2014, the Supreme Court denied the petition.

On August 27, 2014, the Court issued an order setting the case for a two-week bench trial beginning on February 8, 2016. On September 5, 2014, the City Attorney filed a second amended complaint, adding Monster Energy Company as a defendant. The Company and Monster Energy Company filed answers to the second amended complaint on October 4, 2014 and November 10, 2014, respectively. A case management conference is scheduled for March 10, 2015. Discovery is ongoing.

The Company denies that it has violated the Unfair Competition Law or any other law and believes that the City Attorney’s claims and demands are preempted and unconstitutional, as alleged in the action the Company filed in the Central District Court. The Company intends to vigorously defend against this lawsuit. At this time, no evaluation of the likelihood of an unfavorable outcome or range of potential loss can be expressed.

In addition to the above matters, the Company has been named as a defendant in various false advertising putative class actions and in a private attorney general action. In these actions, plaintiffs allege that defendants misleadingly labeled and advertised Monster Energy® brand products that allegedly were ineffective for the advertised benefits (including, but not limited to, an allegation that the products do not hydrate as advertised because they contain caffeine). The plaintiffs further allege that the Monster Energy® brand products at issue are unsafe because they contain one or more ingredients that allegedly could result in illness, injury or death. In connection with these product safety allegations, the plaintiffs claim that the product labels did not provide adequate warnings and/or that the Company did not include sufficiently specific statements with respect to contra-indications and/or adverse reactions associated with the consumption of its energy drink products (including, but not limited to, claims that certain ingredients, when consumed individually or in combination with other ingredients, could result in high blood pressure, palpitations, liver damage or other negative health effects and/or that the products themselves are unsafe). Based on these allegations, the plaintiffs assert claims for violation of state consumer protection statutes, including unfair competition and false advertising statutes, and for breach of warranty and unjust enrichment. In their prayers for relief, the plaintiffs seek, inter alia, compensatory and punitive damages, restitution, attorneys’ fees, and, in some cases, injunctive relief. The Company regards these cases and allegations as having no merit. Furthermore, the Company is subject to litigation from time to time in the normal course of business, including intellectual property litigation and claims from terminated distributors.

The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, or in the amount of any related insurance reimbursements recorded. As of December 31, 2014 and December 31, 2013, the Company’s consolidated balance sheets include accrued loss contingencies of approximately $3.7 million and $17.0 million, respectively, and receivables for insurance reimbursements of approximately $0.0 million and $16.25 million, respectively. Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to the Company, management believes that such litigation in the aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

11. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows at December 31:

		2014			2013
Foreign currency translation adjustments		$	11,453		$	1,233

12. TREASURY STOCK PURCHASE

On April 7, 2013, the Company’s Board of Directors authorized a new share repurchase program for the repurchase of up to $200.0 million of the Company’s outstanding common stock (the “April 2013 Repurchase Plan”). During the year ended December 31, 2014, no shares of common stock were purchased under the April 2013 Repurchase Plan. During the year ended December 31, 2013, the Company purchased 0.951 million shares of common stock under the April 2013 Repurchase Plan at an average purchase price of $56.98 per share for a total amount of $54.2 million (excluding broker commissions).

During the year ended December 31, 2014, 0.09 million shares were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $8.2 million. While such purchases are considered common stock repurchases, they are not counted as purchases against the Company’s authorized share repurchase programs, including the April 2013 Repurchase Plan.

13. STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which shares were available for grant at December 31, 2014: the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”) and the 2009 Monster Beverage Corporation Stock Incentive Plan for Non-Employee Directors (the “2009 Directors Plan”).

The 2011 Omnibus Incentive Plan permits the granting of options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards up to an aggregate of 14,500,000 shares of the common stock of the Company to employees or consultants of the Company and its subsidiaries. Shares authorized under the 2011 Omnibus Incentive Plan are reduced by 2.16 shares for each share granted or issued with respect to a Full Value Award. A Full Value Award is an award other than an incentive stock option, a non-qualified stock option, or a stock appreciation right, which is settled by the issuance of shares. Options granted under the 2011 Omnibus Incentive Plan may be incentive stock options under Section 422 of the Internal Revenue Code, as amended, or non-qualified stock options. The Compensation Committee of the Board of Directors (the “Compensation Committee”) has sole and exclusive authority to grant stock awards to all employees who are not new hires and to all new hires who are subject to Section 16 of the Exchange Act. The Compensation Committee and the Executive Committee of the Board of Directors (the “Executive Committee”) each independently has the authority to grant stock awards to new hires who are not Section 16 employees. Awards granted by the

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

Executive Committee are not subject to approval or ratification by the Board or the Compensation Committee. Options granted under the 2011 Omnibus Incentive Plan generally vest over a five-year period from the grant date and are generally exercisable up to 10 years after the grant date. As of December 31, 2014, 3,620,280 shares of the Company’s common stock have been granted, net of cancellations, and 9,865,555 shares of the Company’s common stock remain available for grant under the 2011 Omnibus Incentive Plan.

The 2009 Directors Plan permits the granting of options, stock appreciation rights (each, an “SAR”), and other stock-based awards to purchase up to an aggregate of 1,600,000 shares of common stock of the Company to non-employee directors of the Company. The 2009 Directors Plan is administered by the Board of Directors. Each award granted under the 2009 Directors Plan will be evidenced by a written agreement and will contain the terms and conditions that the Board of Directors deems appropriate. The Board of Directors may grant such awards on the last business day prior to the date of the annual meeting of stockholders. Any award granted under the 2009 Directors Plan will vest, with respect to 100% of such award, on the last business day prior to the date of the annual meeting, in the calendar year following the calendar year in which such award is granted. The Board of Directors may determine the exercise price per share of the Company’s common stock under each option, but such price may not be less than 100% of the closing price of the Company’s common stock on the date an option is granted. Option grants may be made under the 2009 Directors Plan for 10 years from June 4, 2009. The Board of Directors may also grant SARs, independently, or in connection with an option grant. The Board of Directors may determine the exercise price per share of the Company’s common stock under each SAR, but such price may not be less than the greater of (i) the fair market value of a share on the date the SAR is granted and (ii) the price of the related option, if the SAR is granted in connection with an option grant. Additionally, the Board of Directors may grant other stock-based awards, which include awards of shares of the Company’s common stock, restricted shares of the Company’s common stock, and awards that are valued based on the fair market value of shares of the Company’s common stock. SARs and other stock-based awards are subject to the general provisions of the 2009 Directors Plan. The Board of Directors may amend or terminate the 2009 Directors Plan at any time. As of December 31, 2014, options to purchase 81,160 shares of the Company’s common stock had been granted under the 2009 Directors Plan, and options to purchase 1,518,840 shares of the Company’s common stock remained available for grant.

The Company recorded $28.6 million, $28.8 million and $28.4 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units during the years ended December 31, 2014, 2013 and 2012, respectively.

The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options, vesting of restricted stock units and restricted stock awards for the years ended December 31, 2014, 2013 and 2012 was $11.9 million, $30.3 million and $19.7 million, respectively.

Stock Options

Under the Company’s stock-based compensation plans, all stock options granted as of December 31, 2014 were granted at prices based on the fair value of the Company’s common stock on the date of grant. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.

The following weighted-average assumptions were used to estimate the fair value of options granted during:

		2014		2013		2012
Dividend yield		0.0 %		0.0 %		0.0 %
Expected volatility		41.4 %		47.5 %		48.1 %
Risk-free interest rate		1.55 %		0.98 %		0.74 %
Expected term		5.8 Years		5.7 Years		5.4 Years

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury zero coupon yield curve in effect at the time of grant for the expected term of the option.

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.

The following table summarizes the Company’s activities with respect to its stock option plans as follows:

Options		Number of Shares (In thousands)		Weighted- Average Exercise Price Per Share			Weighted- Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value
Outstanding at January 1, 2014		12,973		$	15.70		3.7		$	675,595
Granted 01/01/14 - 03/31/14		689		$	70.06
Granted 04/01/14 - 06/30/14		104		$	69.15
Granted 07/01/14 - 09/30/14		-		$	-
Granted 10/01/14 - 12/31/14		195		$	111.30
Exercised		(767)		$	22.38
Cancelled or forfeited		(128)		$	45.49
Outstanding at December 31, 2014		13,066		$	19.73		3.1		$	1,158,412
Vested and expected to vest in the future at December 31, 2014		12,670		$	18.31		2.9		$	1,141,163
Exercisable at December 31, 2014		10,566		$	10.24		1.8		$	1,036,675

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

The following table summarizes information about stock options outstanding and exercisable at December 31, 2014:

				Options Outstanding						Options Exercisable
Range of Exercise Prices ($)				Number Outstanding (In Thousands)		Weighted Average Remaining Contractual Term (Years)		Weighted Average Exercise Price ($)		Number Exercisable (In Thousands)		Weighted Average Exercise Price ($)
$3.29	-	$3.29		4,400		0.2		$3.29		4,400		$3.29
$5.72	-	$6.21		13		0.5		$6.18		13		$6.18
$8.44	-	$8.44		2,445		0.9		$8.44		2,445		$8.44
$13.37	-	$15.60		111		3.7		$13.56		111		$13.56
$15.86	-	$15.86		1,700		3.4		$15.86		1,700		$15.86
$15.94	-	$19.20		1,307		4.8		$17.83		1,307		$17.83
$19.23	-	$53.96		1,700		7.1		$41.19		558		$34.33
$55.92	-	$71.05		1,190		8.7		$66.22		33		$63.85
$74.78	-	$74.78		4		7.5		$74.78		-		$0.00
$111.30	-	$111.30		196		9.9		$111.30		-		$0.00
				13,066		3.1		$19.73		10,567		$10.24

The weighted-average grant-date fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was $31.49 per share, $22.57 per share and $25.21 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $47.1 million, $91.6 million and $248.8 million, respectively.

Cash received from option exercises under all plans for the years ended December 31, 2014, 2013 and 2012 was approximately $17.2 million, $21.3 million and $10.3 million, respectively.

At December 31, 2014, there was $48.5 million of total unrecognized compensation expense related to nonvested options granted to employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 2.8 years.

Restricted Stock Awards and Restricted Stock Units

Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit in cash, the award is classified as a liability and revalued at each balance sheet date. Total cash paid to settle restricted stock unit liabilities and the increase in the liabilities for future cash settlements during the years ended December 31, 2014 and 2013 were not material.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

The following table summarizes the Company’s activities with respect to non-vested restricted stock awards and non-vested restricted stock units as follows:

		Number of Shares (in thousands)			Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2014		391			$	49.27
Granted 01/01/14 - 03/31/14		-			-
Granted 04/01/14 - 06/30/14		10			69.00
Granted 07/01/14 - 09/30/14		-			-
Granted 10/01/14 - 12/31/14		6			111.30
Vested		(241	)		44.16
Forfeited/cancelled		(17	)		51.79
Non-vested at December 31, 2014		149			$	61.09

The weighted-average grant-date fair value of restricted stock units and restricted stock awards granted during the years ended December 31, 2014, 2013 and 2012 was $84.38, $53.50 and $61.73 per share, respectively. As of December 31, 2014, 0.1 million of restricted stock units and restricted stock awards are expected to vest.

At December 31, 2014, total unrecognized compensation expense relating to non-vested restricted stock awards and non-vested restricted stock units was $6.2 million, which is expected to be recognized over a weighted-average period of 2.2 years.

Employee and Non-Employee Share-Based Compensation Expense

The table below shows the amounts recognized in the consolidated financial statements for the twelve-months ended December 31, 2014, 2013 and 2012 for share-based compensation related to employees and non-employees. Employee and non-employee share-based compensation expense of $28.6 million for the year ended December 31, 2014 is comprised of $4.8 million that relates to incentive stock options and $23.8 million that relates to non-qualified stock options and restricted units and awards. Employee and non-employee share-based compensation expense of $28.8 million for the year ended December 31, 2013 is comprised of $5.2 million that relates to incentive stock options and $23.6 million that relates to non-qualified stock options and restricted units and awards. Employee and non-employee share-based compensation expense of $28.4 million for the year ended December 31, 2012 is comprised of $5.1 million that relates to incentive stock options and $23.3 million that relates to non-qualified stock options and restricted units and awards. The portion of share-based compensation expense that relates to incentive stock options has not been considered in the tax benefit computation below.

		2014			2013			2012
Operating expenses		$	28,552		$	28,764		$	28,413
Total employee and non-employee share-based compensation expense included in income, before income tax		28,552			28,764			28,413
Less: Amount of income tax benefit recognized in earnings		(2,932)			(7,730)			(8,933)
Amount charged against net income		$	25,620		$	21,034		$	19,480

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

14. INCOME TAXES

The domestic and foreign components of the Company’s income (loss) before provision for income taxes are as follows:

		Year Ended December 31,
		2014				2013				2012
Domestic*		$	711,917			$	596,899			$	568,225
Foreign*		33,871				(33,005		)		(19,071		)
Income before provision for income taxes		$	745,788			$	563,894			$	549,154

*After intercompany royalties, management fees and interest charges from the Company’s domestic to foreign entities of $34.9 million, $25.9 million and $22.9 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Components of the provision for income taxes are as follows:

		Year Ended December 31,
		2014				2013				2012
Current:
Federal		$	228,348			$	191,596			$	177,372
State		36,633				36,662				30,268
Foreign		7,467				4,052				3,951
		272,448				232,310				211,591
Deferred:
Federal		(8,473		)		(7,441		)		(743		)
State		(442		)		(1,443		)		(483		)
Foreign		3,476				(9,694		)		(7,373		)
		(5,439		)		(18,578		)		(8,599		)
Valuation allowance		(4,406		)		11,501				6,142
		$	262,603			$	225,233			$	209,134

The differences in the total provision for income taxes that would result from applying the 35% federal statutory rate to income before provision for income taxes and the reported provision for income taxes are as follows:

		Year Ended December 31,
		2014				2013				2012
U.S. Federal tax expense at statutory rates		$	261,025			$	197,363			$	192,204
State income taxes, net of federal tax benefit		23,859				22,640				20,252
Permanent differences		4,816				936				5,968
Domestic production deduction		(20,607		)		(16,039		)		(15,469		)
Other		(1,267		)		266				(388		)
Foreign rate differential		(817		)		8,566				425
Valuation allowance		(4,406		)		11,501				6,142
		$	262,603			$	225,233			$	209,134

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Major components of the Company’s deferred tax assets (liabilities) at December 31 are as follows:

		2014				2013
Deferred Tax Assets:
Reserve for sales returns		$	289			$	583
Reserve for doubtful accounts		36				62
Reserve for inventory obsolescence		3,030				2,060
Reserve for marketing development fund		9,118				9,470
Capitalization of inventory costs		2,527				1,949
State franchise tax		8,160				6,043
Accrued compensation		-				867
Accrued other liabilities		3,503				4,871
Deferred revenue		47,319				50,813
Stock-based compensation		25,268				21,963
Securities impairment		288				273
Foreign net operating loss carryforward		17,256				19,346
Prepaid supplies		4,195				4,639
Gain on intercompany transfer		8,347				-
Total gross deferred tax assets		$	129,336			$	122,939
Deferred Tax Liabilities:
Amortization of trademarks		$	(11,923	)		$	(10,393	)
Unrealized gain on available-for-sale investments		-				-
Other deferred tax liabilities		(327		)		(94		)
Depreciation		(5,022		)		(5,828		)
Total gross deferred tax liabilities		(17,272		)		(16,315		)
Valuation Allowance		(17,683		)		(22,089		)
Net deferred tax assets		$	94,381			$	84,535

During the years ended December 31, 2014, 2013 and 2012, the Company established full valuation allowances against certain deferred tax assets, resulting from cumulative net operating losses incurred by certain foreign subsidiaries of the Company. The effect of the valuation allowances and the subsequent related impact on the Company’s overall tax rate was to (decrease) increase the Company’s provision for income taxes by ($4.4) million, $10.8 million and $6.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014, the Company had net operating loss carryforwards of approximately $78.5 million. Of this amount, $65.0 million may be carried forward indefinitely. The remaining $13.5 million will begin to expire in 2017.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

The following is a rollforward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31, 2014, 2013 and 2012:

		Gross Unrealized Tax Benefits
Balance at January 1, 2012		$	1,910
Additions for tax positions related to the current year		-
Additions for tax positions related to the prior year		520
Decreases for tax positions related to prior years		(1,504)
Balance at December 31, 2012		$	926
Additions for tax positions related to the current year		-
Additions for tax positions related to the prior year		9
Decreases for tax positions related to prior years		-
Balance at December 31, 2013		$	935
Additions for tax positions related to the current year		-
Additions for tax positions related to the prior year		-
Decreases for tax positions related to prior years		-
Balance at December 31, 2014		$	935

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s consolidated financial statements. As of December 31, 2014, the Company had accrued approximately $0.4 million in interest and penalties related to unrecognized tax benefits. If the Company were to prevail on all uncertain tax positions it would not have a significant impact on the Company’s effective tax rate.

It is expected that the amount of unrecognized tax benefit change within the next 12 months will not be significant.

The Company is subject to U.S. federal income tax as well as to income tax in multiple state and foreign jurisdictions.

On March 8, 2013, the Internal Revenue Service (“IRS”) began its examination of the Company’s U.S. federal income tax returns for the years ended December 31, 2010 and 2011. The Company is also in various stages of examination with certain states. The 2012 and 2013 U.S. federal income tax returns are subject to IRS examination. State income tax returns are subject to examination for the 2010 through 2013 tax years.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

15. EARNINGS PER SHARE

A reconciliation of the weighted average shares used in the basic and diluted earnings per common share computations for the years ended December 31, 2014, 2013 and 2012 is presented below (in thousands):

		2014		2013		2012
Weighted-average shares outstanding:
Basic		167,257		166,679		173,712
Dilutive securities		7,028		6,708		9,371
Diluted		174,285		173,387		183,083

For the years ended December 31, 2014, 2013 and 2012, options and awards outstanding totaling 0.7 million shares, 1.3 million shares and 0.3 million shares respectively, were excluded from the calculations as their effect would have been antidilutive.

16. EMPLOYEE BENEFIT PLAN

Employees of the Company may participate in the Monster Beverage Corporation 401(k) Plan, a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 15% of their pretax salary up to statutory limits. The Company contributes 25% of the employee contribution, up to 8% of each employee’s earnings, which vest 20% each year for five years after the first anniversary date. Matching contributions were $0.6 million, $0.6 million and $0.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.

17. SEGMENT INFORMATION

The Company has two operating and reportable segments, namely Direct Store Delivery (“DSD”), the principal products of which comprise energy drinks, and Warehouse (“Warehouse”), the principal products of which comprise juice based and soda beverages. The DSD segment develops, markets and sells products primarily through an exclusive distributor network, whereas the Warehouse segment develops, markets and sells products primarily direct to retailers. Corporate and unallocated amounts that do not relate to DSD or Warehouse segments specifically have been allocated to “Corporate & Unallocated.” No asset information has been provided for the Company’s reportable segments as management does not measure or allocate assets on a segment basis. Following the consummation of the TCCC Transaction, the Company anticipates that it will have two operating and reporting segments: Concentrate, the principal products of which will likely include the various energy drink brands transferred to the Company from TCCC, and Finished Products, the principal products of which will likely include the Company’s Monster Energy® drink products that currently make up the majority of the DSD segment.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Per Share Amounts)

The net revenues derived from DSD and Warehouse segments and other financial information related thereto for the years ended December 31, 2014, 2013 and 2012 are as follows:

		Year Ended December 31, 2014
		DSD			Warehouse			Corporate and Unallocated			Total
Net sales		$	2,369,208		$	95,659		$	-		$	2,464,867
Contribution margin*		908,781			3,003			-			911,784
Corporate & unallocated expenses		-			-			(164,279)			(164,279		)
Operating income											747,505
Interest and other income, net		664			(3)			(2,378)			(1,717		)
Income before provision for income taxes											745,788
Depreciation & amortization		(19,778)			(293)			(5,540)			(25,611		)
Trademark amortization		-			(33)			(8)			(41		)

		Year Ended December 31, 2013
		DSD			Warehouse			Corporate and Unallocated			Total
Net sales		$	2,147,355		$	99,073		$	-		$	2,246,428
Contribution margin*		726,826			(1,652)			-			725,174
Corporate & unallocated expenses		-			-			(152,258)			(152,258		)
Operating income											572,916
Interest and other income, net		755			(2)			(9,775)			(9,022		)
Income before provision for income taxes											563,894
Depreciation & amortization		(19,023)			(244)			(3,446)			(22,713		)
Trademark amortization		-			(44)			(5)			(49		)

		Year Ended December 31, 2012
		DSD			Warehouse			Corporate and Unallocated			Total
Net sales		$	1,966,481		$	94,221		$	-		$	2,060,702
Contribution margin*		660,607			3,496			-			664,103
Corporate & unallocated expenses		-			-			(113,480)			(113,480		)
Operating income											550,623
Interest and other income, net		494			(2)			(1,961)			(1,469		)
Income before provision for income taxes											549,154
Depreciation & amortization		(15,660)			(139)			(4,714)			(20,513		)
Trademark amortization		-			(44)			(5)			(49		)

*Contribution margin is defined as gross profit less certain operating expenses deemed by management to be directly attributable to the respective reportable segment. Contribution margin is used by management as a key indicator of reportable segment profitability.

Revenue is derived from sales to external customers. Operating expenses that pertain to each segment are allocated to the appropriate segment.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Corporate and unallocated expenses were $164.3 million for the year ended December 31, 2014 and included $86.2 million of payroll costs, of which $28.6 million was attributable to stock-based compensation expense (see Note 13, “Stock-Based Compensation”), $43.8 million of professional service expenses, including accounting and legal costs, $7.4 million of insurance costs and $26.9 million of other operating expenses. Corporate and unallocated expenses were $152.3 million for the year ended December 31, 2013 and included $82.5 million of payroll costs, of which $28.8 million was attributable to stock-based compensation expense (see Note 13, “Stock-Based Compensation”), $38.7 million of professional service expenses, including accounting and legal costs, and $31.1 million of other operating expenses. Corporate and unallocated expenses were $113.5 million for the year ended December 31, 2012 and included $73.0 million of payroll costs, of which $28.4 million was attributable to stock-based compensation expense (see Note 13, “Stock-Based Compensation”), $19.7 million of professional service expenses, including accounting and legal costs, $4.4 million of depreciation and $16.4 million of other operating expenses.

CCR, a customer of the DSD segment, accounted for 29%, 29% and 28% of the Company’s net sales for the years ended December 31, 2014, 2013 and 2012, respectively.

Net sales to customers outside the United States amounted to $534.2 million, $467.2 million and $415.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. Such sales were approximately 21.7%, 20.8% and 20.2% of net sales for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company’s net sales by product line for years ended December 31, 2014, 2013 and 2012, respectively, were as follows:

Product Line		2014			2013			2012
Energy drinks		$	2,302,225		$	2,082,238		$	1,906,236
Non-carbonated (primarily juice based beverages)		119,204			120,145			110,217
Carbonated (primarily soda beverages)		28,425			29,245			31,044
Other		15,013			14,800			13,205
		$	2,464,867		$	2,246,428		$	2,060,702

18. RELATED PARTY TRANSACTIONS

Two directors and officers of the Company and their families are principal owners of a company that provides promotional materials to the Company. Expenses incurred with such company in connection with promotional materials purchased during the years ended December 31, 2014, 2013 and 2012 were $0.6 million, $1.0 million and $1.0 million, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

19. QUARTERLY FINANCIAL DATA (Unaudited)

											Net Income per Common Share
		Net Sales			Gross Profit			Net Income			Basic			Diluted
Quarter ended:
March 31, 2014		$	536,129		$	286,818		$	95,250		$	0.57		$	0.55
June 30, 2014		687,199			379,288			141,003			$	0.84		$	0.81
September 30, 2014		635,972			341,920			121,600			$	0.73		$	0.70
December 31, 2014		605,567			331,784			125,332			$	0.75		$	0.72
		$	2,464,867		$	1,339,810		$	483,185
Quarter ended:
March 31, 2013		$	484,223		$	252,039		$	63,496		$	0.38		$	0.37
June 30, 2013		630,934			336,262			106,873			$	0.64		$	0.62
September 30, 2013		590,422			307,470			92,187			$	0.55		$	0.53
December 31, 2013		540,849			277,160			76,105			$	0.46		$	0.44
		$	2,246,428		$	1,172,931		$	338,661

Certain of the figures reported above may differ from previously reported figures for individual quarters due to rounding.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (Dollars in Thousands)

Description		Balance at beginning of period			Charged to cost and expenses			Deductions			Balance at end of period
Allowance for doubtful accounts, sales returns and cash discounts:
2014		$	2,926		$	2,652		$	(3,874)		$	1,704
2013		$	1,430		$	4,894		$	(3,398)		$	2,926
2012		$	1,893		$	9,148		$	(9,611)		$	1,430
Allowance on Deferred Tax Assets and Unrecognized Tax Benefits:
2014		$	24,130		$	(4,344)		$	-		$	19,786
2013		$	12,579		$	11,551		$	-		$	24,130
2012		$	7,592		$	6,142		$	(1,155)		$	12,579