Item 16. FORM 10-K SUMMARY

169K characters. Original on sec.gov · Markdown

Item 16. FORM 10-K SUMMARY

None

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 to Exhibit 2.1 to our Form 8-K dated August 18, 2014).
2.1.1	Amendment to Transaction Agreement, dated as of March 16, 2018, by and among Monster Beverage Corporation, New Laser Corporation, New Laser Merger Corp., The Coca-Cola Company and European Refreshments (incorporated by reference to Exhibit 2.1 to our Form 8-K dated March 20, 2018).
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 (incorporated by reference to 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 November 7, 2016).
3.2	Second Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to our Form 8-K dated April 16, 2018).
4.1*	Description of Common Stock.
10.1	Amended and Restated Distribution Coordination Agreement, dated as of June 12, 2015, between Monster Energy Company and The Coca-Cola Company (incorporated by reference to Exhibit 10.1 to our Form 10-Q dated August 10, 2015).
10.2	Amended and Restated International Distribution Coordination Agreement, dated as of June 12, 2015, between Monster Energy Ltd. and Monster Energy Company and The Coca-Cola Company (incorporated by reference to Exhibit 10.2 to our Form 10-Q dated August 10, 2015).
10.3	Form of Indemnification Agreement (to be provided by Monster Beverage Corporation to its directors and officers) (incorporated by reference to Exhibit 10.1 to our Form 8-K dated June 11, 2019).
10.4+	Hansen Natural Corporation 2001 Amended and Restated Stock Option Plan (incorporated by reference to Exhibit A to our Proxy Statement dated September 25, 2007).
10.5+	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 10.1 to our Form 10-K dated August 5, 2016).
10.6+	Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to our Form 10-Q dated August 9, 2011).
10.7+	Monster Beverage Corporation 2011 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to our Form 8-K dated May 24, 2011).
10.8+	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).
10.9+	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).
10.10+	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.10 to our Form 10-K dated March 1, 2018).
10.11+	Form of Stock Option Agreement of Chief Executive Officer and President and Chief Financial Officer (incorporated by reference to Exhibit 10.11 to our Form 10-K dated March 1, 2018).
10.12+	Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 4.1 to our Form S-8 dated June 21, 2017).

10.13+	Monster Beverage Corporation Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 4.2 to our Form S-8 dated June 21, 2017).
10.14+	Amended and Restated Monster Beverage Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.14 to our Form 10-K dated March 1, 2018).
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, 2019 are furnished herewith, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017, (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017, and (vi) Notes to Consolidated Financial Statements.
104*	The cover page from Monster Beverage Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.

*	Filed herewith.

+	Management contract or compensatory plans or arrangements.

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: February 28, 2020
		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	February 28, 2020
Rodney C. Sacks	Directors and Chief Executive
	Officer (principal executive officer)

/s/ HILTON H. SCHLOSBERG	Vice Chairman of the Board of	February 28, 2020
Hilton H. Schlosberg	Directors, President, Chief
	Operating Officer, Chief
	Financial Officer and Secretary
	(principal financial officer,
	controller and principal
	accounting officer)

/s/ KATHLEEN E. CIARAMELLO	Director	February 28, 2020
Kathleen E. Ciaramello

/s/ GARY P. FAYARD	Director	February 28, 2020
Gary P. Fayard

/s/ MARK J. HALL	Director	February 28, 2020
Mark J. Hall

/s/ JEANNE P. JACKSON	Director	February 28, 2020
Jeanne P. Jackson

/s/ STEVEN G. PIZULA	Director	February 28, 2020
Steven G. Pizula

/s/ BENJAMIN M. POLK	Director	February 28, 2020
Benjamin M. Polk

/s/ SYDNEY SELATI	Director	February 28, 2020
Sydney Selati

/s/ MARK S. VIDERGAUZ	Director	February 28, 2020
Mark S. Vidergauz

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE


	Page
MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm	72

Consolidated Balance Sheets as of December 31, 2019 and 2018	75

Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017	76

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017	77

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017	78

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	79

Notes to Consolidated Financial Statements	81

Financial Statement Schedule – Valuation and Qualifying Accounts for the years ended December 31, 2019, 2018 and 2017	118

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Monster Beverage Corporation

Corona, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Monster Beverage Corporation and subsidiaries (the “Company”) as of December 31, 2019 and 2018, 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, 2019, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit Committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Promotional Allowances — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company’s promotional and other allowances are calculated based on various programs with its bottlers/distributors and retail customers, and accruals are established during the year for its anticipated liabilities. These accruals are based on agreed-upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels. Promotional and other allowances primarily include consideration given to bottlers/distributors or retail customers, including, but not limited to, the following: (i) discounts granted off list prices to support price promotions to end consumers by retailers; (ii) reimbursements given to bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances, and other fees for both new and existing products; (iii) agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing, and promotional activities; (iv) agreed share of slotting, shelf space allowances, and other fees given directly to retailers, club stores and/or wholesalers; (v) incentives given to bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; (vi) discounted or free products; (vii) contractual fees given to bottlers/distributors related to sales made by the Company directly to certain customers that fall within the bottlers’/distributors’ sales territories; and (viii) certain commissions paid based on sales to bottlers/distributors. The length of promotional programs can vary from as little as one day, for one-time events, to as long as one year based on the agreed-upon terms. The nature of such programs is determined on a per retail customer basis, and in certain instances, the same program is set for multiple retail customers. The promotional expenditures are recorded as a reduction to net sales in the period the underlying sale occurs. Total promotional expenditures included as a reduction to net sales were $666.9 million for the year ended December 31, 2019, and accrued promotional allowances were $166.8 million as of December 31, 2019.

We identified accrued promotional allowances as a critical audit matter because of the extent and subjective nature of management judgment required with respect to estimating consumer participation and/or distributor and retail customer performance levels and future promotional claims.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures over accrued promotional allowances, with respect to management’s judgment regarding levels of consumer participation and/or distributor and retail customer performance levels and future promotional claims, included the following, among others:

	●	We tested the effectiveness of controls over accrued promotional allowances, including those controls pertaining to management’s estimation of future promotional claims.

	●	We selected a sample of accrued promotional allowances recorded for specific distributors and retail customers and sent confirmation requests of the accrual recorded and key terms of the agreement directly to the distributor or retail customer. We compared the confirmation response to the accrued amount recorded by the Company. In instances of nonreplies to our confirmation request from the distributor or retail customer, we performed alternative procedures as follows: (1) developing an expectation of the accrual using current-year claim and payment data, and/or (2) vouching known claim submissions, unpaid as of period-end, to underlying supporting documentation.

	●	We tested the promotional expenditure amount recorded as a reduction to net sales and assessed the reasonableness of management’s estimate by developing an expectation of the amount, based on historical promotional expenditure amounts recorded as a percentage of sales, and compared our expectation to the recorded promotional expenditure amount.

	●	We performed inquiries with the Company’s sales and marketing personnel to corroborate our understanding of new and existing promotional programs that may alter the relationship between gross sales and promotional allowances, as such programs are considered by management when estimating future promotional claims.

	●	We evaluated management’s ability to estimate promotional allowances by comparing the actual promotional allowances subsequently paid to the original estimates of management.

/s/ DELOITTE & TOUCHE LLP

Costa Mesa, California

February 28, 2020

We have served as the Company’s auditor since 1991.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2019 AND 2018 (In Thousands, Except Par Value)


	December 31,		December 31,
	2019		2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	797,957	$	637,513
Short-term investments		533,063		320,650
Accounts receivable, net		540,330		484,562
Inventories		360,731		277,705
Prepaid expenses and other current assets		54,868		44,909
Prepaid income taxes		29,360		38,831
Total current assets		2,316,309		1,804,170

INVESTMENTS		12,905		—
PROPERTY AND EQUIPMENT, net		298,640		243,051
DEFERRED INCOME TAXES		84,777		85,687
GOODWILL		1,331,643		1,331,643
OTHER INTANGIBLE ASSETS, net		1,052,105		1,045,878
OTHER ASSETS		53,973		16,462
Total Assets	$	5,150,352	$	4,526,891

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	274,045	$	248,760
Accrued liabilities		114,075		112,507
Accrued promotional allowances		166,761		145,741
Deferred revenue		44,237		44,045
Accrued compensation		47,262		39,903
Income taxes payable		14,717		10,189
Total current liabilities		661,097		601,145

DEFERRED REVENUE		287,469		312,224

OTHER LIABILITIES		30,505		2,621

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ EQUITY:
Common stock - $0.005 par value; 1,250,000 shares authorized;
636,460 shares issued and 536,698 shares outstanding as of December 31, 2019;
630,970 shares issued and 543,676 shares outstanding as of December 31, 2018		3,182		3,155
Additional paid-in capital		4,397,511		4,238,170
Retained earnings		5,022,480		3,914,645
Accumulated other comprehensive loss		(32,387)		(32,864)
Common stock in treasury, at cost; 99,762 and 87,294 shares as of December 31, 2019 and December 31, 2018, respectively		(5,219,505)		(4,512,205)
Total stockholders’ equity		4,171,281		3,610,901
Total Liabilities and Stockholders’ Equity	$	5,150,352	$	4,526,891

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(In Thousands, Except Per Share Amounts)


	2019		2018		2017
NET SALES	$	4,200,819	$	3,807,183	$	3,369,045

COST OF SALES		1,682,234		1,511,808		1,231,355

GROSS PROFIT		2,518,585		2,295,375		2,137,690

OPERATING EXPENSES		1,115,646		1,011,756		938,903

OPERATING INCOME		1,402,939		1,283,619		1,198,787

OTHER INCOME, NET		13,023		9,653		2,836

INCOME BEFORE PROVISION FOR INCOME TAXES		1,415,962		1,293,272		1,201,623

PROVISION FOR INCOME TAXES		308,127		300,268		380,945

NET INCOME	$	1,107,835	$	993,004	$	820,678

NET INCOME PER COMMON SHARE:
Basic	$	2.04	$	1.78	$	1.45
Diluted	$	2.03	$	1.76	$	1.42

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
Basic		542,191		557,166		566,782
Diluted		546,608		564,254		577,141

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (In Thousands)


	2019		2018		2017
Net income, as reported	$	1,107,835	$	993,004	$	820,678
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax		194		(16,957)		7,238
Available-for-sale investments:
Change in net unrealized gains (losses)		283		752		(648)
Reclassification adjustment for net gains included in net income		—		—		—
Net change in available-for-sale investments		283		752		(648)
Other comprehensive income (loss)		477		(16,205)		6,590
Comprehensive income	$	1,108,312	$	976,799	$	827,268

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (In Thousands)


								Accumulated
								Other					Total
	Common stock			Additional		Retained		Comprehensive		Treasury stock			Stockholders’
	Shares	Amount		Paid-in Capital		Earnings		Loss		Shares	Amount		Equity
Balance, January 1, 2017	623,201	$	3,116	$	4,051,245	$	2,107,548	$	(23,249)	(56,635)	$	(2,808,951)	$	3,329,709
Stock-based compensation	—		—		52,282		—		—	—		—		52,282
Exercise of stock options	6,054		30		52,596		—		—	—		—		52,626
Unrealized loss on available-for-sale securities	—		—		—		—		(648)	—		—		(648)
Reversal of excess tax benefits from share based payment arrangements	—		—		(5,495)		—		—	—		—		(5,495)
Repurchase of common stock	—		—		—		—		—	(6,322)		(361,178)		(361,178)
Foreign currency translation	—		—		—		—		7,238	—		—		7,238
Net income	—		—		—		820,678		—	—		—		820,678
Balance, December 31, 2017	629,255	$	3,146	$	4,150,628	$	2,928,226	$	(16,659)	(62,957)	$	(3,170,129)	$	3,895,212
Stock-based compensation	—		—		57,111		—		—	—		—		57,111
Exercise of stock options	1,715		9		27,843		—		—	—		—		27,852
Unrealized gain on available-for-sale securities	—		—		—		—		752	—		—		752
Adjustment to excess tax benefits from prior periods	—				2,588		—		—	—		—		2,588
ASU No. 2016-16 adoption	—		—		—		(6,585)		—	—		—		(6,585)
Repurchase of common stock	—		—				—		—	(24,337)		(1,342,076)		(1,342,076)
Foreign currency translation	—		—				—		(16,957)	—		—		(16,957)
Net income	—		—				993,004		—	—		—		993,004
Balance, December 31, 2018	630,970	$	3,155	$	4,238,170	$	3,914,645	$	(32,864)	(87,294)	$	(4,512,205)	$	3,610,901
Stock-based compensation	—		—		63,356		—		—	—		—		63,356
Exercise of stock options	5,490		27		92,336		—		—	—		—		92,363
Unrealized gain on available-for-sale securities	—		—		—		—		283	—		—		283
Adjustment to excess tax benefits from prior periods	—		—		3,649		—		—	—		—		3,649
Repurchase of common stock	—		—		—		—		—	(12,468)		(707,300)		(707,300)
Foreign currency translation	—		—		—		—		194	—		—		194
Net income	—		—		—		1,107,835		—	—		—		1,107,835
Balance, December 31, 2019	636,460	$	3,182	$	4,397,511	$	5,022,480	$	(32,387)	(99,762)	$	(5,219,505)	$	4,171,281

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (In Thousands)


	2019		2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,107,835	$	993,004	$	820,678
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		64,814		56,979		48,887
Gain on disposal of property and equipment		(252)		(783)		(1,161)
Stock-based compensation		63,356		57,111		52,282
Deferred income taxes		1,263		(510)		67,935
Effect on cash of changes in operating assets and liabilities:
Accounts receivable		(66,411)		(48,370)		11,822
TCCC Transaction receivable		—		—		125,000
Distributor receivables		6,470		9,958		4,716
Inventories		(85,222)		(26,146)		(88,867)
Prepaid expenses and other assets		(13,774)		(6,682)		(2,396)
Prepaid income taxes		9,481		98,716		(71,332)
Accounts payable		28,832		9,852		29,579
Accrued liabilities		(14,297)		18,145		(4,499)
Accrued promotional allowances		21,943		11,719		21,135
Accrued distributor terminations		279		(91)		(8,172)
Accrued compensation		7,228		5,477		4,491
Income taxes payable		8,105		1,943		(3,590)
Other liabilities		(1,030)		1,526		1,095
Deferred revenue		(24,858)		(19,967)		(19,872)
Net cash provided by operating activities		1,113,762		1,161,881		987,731

CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of available-for-sale investments		851,436		1,181,484		533,183
Proceeds from sale of property and equipment		1,239		4,295		1,416
Purchases of available-for-sale investments		(1,067,736)		(826,084)		(971,813)
Purchases of property and equipment		(101,661)		(61,941)		(83,435)
Additions to intangibles		(8,737)		(12,984)		(9,693)
Increase in other assets		(1,265)		(11,814)		(1,199)
Net cash (used in) provided by investing activities		(326,724)		272,956		(531,541)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt		(13,569)		(1,886)		(2,583)
Issuance of common stock		92,363		27,851		52,626
Purchases of common stock held in treasury		(707,300)		(1,342,076)		(361,178)
Net cash used in financing activities		(628,506)		(1,316,111)		(311,135)

Effect of exchange rate changes on cash and cash equivalents		1,912		(9,835)		5,985

NET INCREASE IN CASH AND CASH EQUIVALENTS		160,444		108,891		151,040
CASH AND CASH EQUIVALENTS, beginning of year		637,513		528,622		377,582
CASH AND CASH EQUIVALENTS, end of year	$	797,957	$	637,513	$	528,622
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest	$	320	$	60	$	75
Income taxes	$	293,810	$	200,767	$	389,490

See accompanying notes to consolidated financial statements.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS:

Accrued liabilities included additions to intangibles of $12.8 million, $10.8 million and $3.7 million as of December 31, 2019, 2018 and 2017, respectively.

Accounts payable included purchases of available-for-sale short-term investments of $8.7 million as of December 31, 2019.

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)

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization – Monster Beverage Corporation (the “Company”) was incorporated in the state of Delaware. 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 energy drink beverages and concentrates for energy drink beverages, primarily under the following brand names: Monster Energy®, Monster Energy Ultra®, Monster Rehab®, Monster MAXX®, Java Monster®, Muscle Monster®, Espresso Monster®, Caffé Monster®, Punch Monster®, Juice Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Predator®, Reign Total Body FuelTM, Reign InfernoTM Thermogenic Fuel, Monster Dragon Tea®, NOS®, Full Throttle®, Burn®, Mother®, Nalu®, Ultra Energy®, Play® and Power Play® (stylized), Relentless®, BPM®, BU®, Gladiator®, Samurai® and Live+®.

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.

Business Combinations – Business acquisitions are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. FASB ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Adjustments to fair value assessments are recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.

Cash and Cash Equivalents – The Company considers all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. Throughout the year, the Company has had amounts on deposit at financial institutions that exceed the federally insured limits. The Company has not experienced any loss as a result of these deposits and does not expect to incur any losses in the future.

Investments – The Company’s investments in debt securities are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320. Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that the Company intends to sell in the near term. All other securities not included in the held-to-maturity or trading category are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost which approximates fair market value. Trading securities are carried at fair value with unrealized gains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive loss as a separate component of stockholders’ equity. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available (See Note 5).

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Under FASB ASC 320-10-35, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference being defined as the “Credit Loss”) or if the fair value of the security is less than the security’s amortized cost basis and the investor intends, or will be required, to sell the security before recovery of the security’s amortized cost basis. If an other-than-temporary impairment exists, the charge to earnings is limited to the amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive loss, net of applicable taxes. The Company evaluates whether the decline in fair value of its investments is other-than-temporary at each quarter-end. This evaluation consists of a review by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer’s financial condition and, if applicable, information on the guarantors’ financial condition. Factors considered in determining whether a loss is temporary include the length of time and extent to which the investment’s fair value has been less than its cost basis, the financial condition and near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and the Company’s intent and ability to retain the investment for a reasonable period of time sufficient to allow for any anticipated recovery of fair value.

Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. In accordance with FASB ASC 210-20-45, in its consolidated balance sheets, the Company has presented accounts receivable, net of promotional allowances, only for those customers that it allows net settlement. All other accounts receivable and related promotional allowances are shown on a gross basis.

Inventories – Inventories are valued at the lower of first-in, first-out, cost or market value (net realizable value).

Property and Equipment – Property and equipment are stated at cost. Depreciation of furniture and fixtures, office and computer equipment, computer software, equipment, and vehicles is based on their estimated useful lives (three to ten years) and is calculated using the straight-line method. Amortization of leasehold improvements is based on the lesser of their estimated useful lives or the terms of the related leases and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.

Goodwill – The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects. Goodwill is not amortized; instead goodwill is tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company determines that the fair value is less than the carrying value, the Company will use a two-step process to determine the amount of goodwill impairment. The first step requires comparing the fair value of the reporting unit to its net book value, including goodwill. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process, performed only if a potential impairment exists, involves determining the difference between the fair value of the reporting unit's net assets, other than goodwill, and the fair value

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

of the reporting unit. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the years ended December 31, 2019, 2018 and 2017 there were no impairments recorded.

Other Intangibles – Other Intangibles are comprised primarily of trademarks that represent the Company’s exclusive ownership of the Monster Energy®, ®, Monster Energy Ultra®, Monster Dragon Tea®, Unleash the Beast!®, Monster Rehab®, Monster MAXX®, Java Monster®, Muscle Monster®, Espresso Monster®, Caffé Monster®, Punch Monster®, Juice Monster®, Monster Hydro®, Monster HydroSport Super Fuel®, Caffé Monster®, Reign Total Body FuelTM, Reign InfernoTM, Predator®, NOS®, Full Throttle®, Burn®, Mother®, Nalu®, Ultra Energy®, Play® and Power Play® (stylized), Relentless®, BPM®, BU®, Gladiator® and Samurai® trademarks, all used in connection with the manufacture, sale and distribution of beverages. The Company also owns a number of other trademarks, flavors and formulas in the United States, as well as in a number of countries around the world. In accordance with FASB ASC 350, intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists. The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. The Company amortizes its trademarks with finite useful lives over their respective useful lives. For the years ended December 31, 2019, 2018 and 2017 there were no impairments recorded.

Leases – See Note 3.

Long-Lived Assets – Management regularly reviews property and equipment and other long-lived assets, including certain definite-lived intangible assets, for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks. Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. For the years ended December 31, 2019, 2018 and 2017, there were no impairment indicators identified. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.

Foreign Currency Translation and Transactions – The accounts of the Company’s foreign subsidiaries are translated in accordance with FASB ASC 830. Foreign currency transaction gains and losses are recognized in other expense, net, at the time they occur. Net foreign currency exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries whose functional currency is not the U.S. dollar are recorded as a part of accumulated other comprehensive loss in stockholders’ equity. Unrealized foreign currency exchange gains and losses on certain intercompany transactions that are of a long-term investment nature (i.e., settlement is not planned or anticipated in the foreseeable future) are also recorded in accumulated other comprehensive loss in stockholders’ equity. During the years ended December 31, 2019, 2018 and 2017, 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 outstanding as of December 31, 2019 have terms of three months or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The Company has not designated its foreign currency exchange contracts as hedge transactions under FASB ASC 815. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in other 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, 2019, 2018 and 2017, aggregate foreign currency transaction losses, including the gains or losses on forward currency exchange contracts, amounted to $4.1 million, $4.0 million and $3.3 million, respectively, and have been recorded in other income, net, in the accompanying consolidated statements of income.

Revenue Recognition – See Note 2.

Cost of Sales – Cost of sales consists of the costs of flavors, concentrates and/or beverage bases, the costs of raw materials utilized in the manufacture of beverages, co-packing fees, repacking fees, in-bound freight charges, as well as internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products and certain quality control costs. In addition, the Company includes in costs of sales certain costs such as depreciation, amortization and payroll costs that relate to the direct manufacture by the Company of certain flavors and concentrates. Raw materials account for the largest portion of cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.

Operating Expenses – Operating expenses include selling expenses such as distribution expenses to transport products to customers and warehousing expenses after manufacture, as well as expenses for advertising, sampling and in-store demonstration costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees including legal fees, termination payments made to certain of the Company’s prior distributors, depreciation and other general and administrative costs.

Freight-Out Costs – For the years ended December 31, 2019, 2018 and 2017, freight-out costs amounted to $122.5 million, $128.5 million and $91.9 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 the periodic performance compliance provisions of the contracts. Advertising and promotional expenses, including, but not limited to, production costs amounted to $391.6 million, $353.9 million and $324.0 million for the years ended December 31, 2019, 2018 and 2017, 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 FASB ASC 740. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies. If in the future the Company determines that it would not be able to realize its recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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 FASB 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 15.

Net Income Per Common Share – In accordance with FASB 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 endeavor to secure the availability of alternative sources for such components and minimize the risk of any disruption in production.

The Coca-Cola Company (“TCCC”), through certain wholly-owned subsidiaries (the “TCCC Subsidiaries”), accounted for approximately 2%, 3% and 18% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company’s percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the years ended December 31, 2019, 2018 and 2017.

Coca-Cola Consolidated, Inc. accounted for approximately 13% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017.

Reyes Coca-Cola Bottling, LLC accounted for approximately 11%, 12% and 6% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

Coca-Cola European Partners accounted for approximately 10%, 10% and 9% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Credit Risk – The Company sells its products nationally and internationally, primarily to bottlers and full service beverage distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, drug stores, foodservice customers, value stores, e-commerce retailers and the military. The Company 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

Recently issued accounting pronouncements not yet adopted

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes”, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of ASU No. 2019-12 on its financial position, results of operations and liquidity.

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles–Goodwill and Other–Internal–Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract, with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU No. 2018-15 was effective for the Company on a prospective or retrospective basis beginning on January 1, 2020. The adoption of ASU No. 2018-15 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

In August 2018, the FASB issued ASU No. 2018-14, “Compensation–Retirement Benefits–Defined Benefit Plans–General (Topic 715): Disclosure Framework–Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU No. 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and requires certain additional disclosures. ASU No. 2018-14 was effective for the Company on a retrospective basis beginning in the year ending December 31, 2020. The adoption of ASU No. 2018-14 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU No. 2018-13 removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. ASU No. 2018-13 disclosure requirements include disclosing the

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 was effective for the Company beginning on January 1, 2020. Certain disclosures in the new guidance will need to be applied on a retrospective basis and others on a prospective basis. The adoption of ASU No. 2018-13 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of ASU No. 2017-04 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-13 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The adoption of ASU No. 2016-13 is not expected to have a material impact on the Company’s financial position, results of operations and liquidity.

Recently adopted accounting pronouncements

In February 2018, the FASB issued ASU No. 2018-02 (ASU No. 2018-02), “Income Statement - Reporting Comprehensive Income (Topic 220)”, which amended the previous guidance to allow for certain tax effects “stranded” in accumulated other comprehensive income, which are impacted by the Tax Reform Act signed into law on December 22, 2017, to be reclassified from accumulated other comprehensive income into retained earnings. This amendment pertains only to those items impacted by the new tax law and does not apply to any future tax effects stranded in accumulated other comprehensive income. This standard was effective for fiscal years beginning after December 15, 2018, and allowed for early adoption. The adoption of ASU No. 2018-02 did not have an impact on the Company’s financial position, results of operations and liquidity.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU No. 2016-02 requires the recognition of lease assets and lease liabilities on the balance sheet for leases classified as operating leases under previous guidance. The accounting for finance leases (capital leases) was substantially unchanged. The original guidance required application on a modified retrospective basis with adjustments to the earliest comparative period presented. In August 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements to ASC 842,” which included an option to not restate comparative periods in transition and elect to use the effective date of ASU No. 2016-02 as the date of initial application, which the Company elected. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, and continues to be reported under previous guidance that did not require the recognition of operating lease liabilities and corresponding lease assets on the consolidated balance sheet. With the adoption of ASU No. 2016-02 on January 1, 2019, the Company recorded operating lease right-of-use assets of $26.3 million and operating lease liabilities of $22.6 million. The adoption of ASU No. 2016-02 had an immaterial impact on the Company’s consolidated statement of income and consolidated statement of cash flows for the year ended December 31, 2019. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the historical lease classification, not reassess prior conclusions related to expired or existing contracts that

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

are or that contain leases, and not reassess the accounting for initial direct costs. Additional information and disclosures required by ASU No. 2016-02 are contained in Note 3.

REVENUE RECOGNITION

Revenues are accounted for in accordance with ASC 606 “Revenue from Contracts with Consumers” for the years ended December 31, 2019 and 2018. For the year ended December 31, 2017, revenues were accounted for under prior accounting guidance, ASC 605 “Revenue Recognition.” Commissions paid to TCCC based on sales to certain of the Company’s bottlers/distributors who are (i) TCCC Subsidiaries, (ii) accounted for under the equity method by TCCC (the “TCCC Related Parties”) and (iii) those not included in (i) or (ii) (the “TCCC Independent Bottlers”) are accounted for as follows:


	Year Ended	Year Ended	Year Ended
	December 31, 2019	December 31, 2018	December 31, 2017
Commissions Related To:	(ASC 606)	(ASC 606)	(ASC 605)
TCCC Subsidiaries	Reduction to net sales	Reduction to net sales	Reduction to net sales
TCCC Related Parties	Reduction to net sales	Reduction to net sales	Operating expenses
TCCC Independent Bottlers	Operating expenses	Operating expenses	Operating expenses

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

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

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

The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Certain of the Company’s bottlers/distributors may also perform a separate function as a co-packer on the Company’s behalf. In such cases, control of the Company’s products passes to such bottlers/distributors when they notify the Company that they have taken possession or transferred the relevant portion of the Company’s finished goods. The Company’s general payment terms are short-term

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as of December 31, 2019 and December 31, 2018.

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

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

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

	●	discounts granted off list prices to support price promotions to end-consumers by retailers;

	●	reimbursements given to the Company’s bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products;

	●	the Company’s agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities;

	●	the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers;

	●	incentives given to the Company’s bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals;

	●	discounted or free products;

	●	contractual fees given to the Company’s bottlers/distributors related to sales made directly by the Company to certain customers that fall within the bottlers’/distributors’ sales territories; and

	●	commissions paid to TCCC based on the Company’s sales to the TCCC Subsidiaries and/or to the TCCC Related Parties.

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

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

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

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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

Disaggregation of Revenue

The following table disaggregates the Company’s revenue by geographical markets and reportable segments:


	Year Ended December 31, 2019
							Latin
							America
	U.S. and						and
Net Sales	Canada		EMEA2		Asia Pacific		Caribbean		Total
Monster Energy® Drinks	$	2,799,701	$	599,706	$	326,684	$	177,938	$	3,904,029
Strategic Brands		173,968		74,803		25,060		1,094		274,925
Other		21,865		—		—		—		21,865
Total Net Sales	$	2,995,534	$	674,509	$	351,744	$	179,032	$	4,200,819


	Year Ended December 31, 2018
							Latin
							America
	U.S. and						and
Net Sales	Canada		EMEA2		Asia Pacific		Caribbean		Total
Monster Energy® Drinks	$	2,627,000	$	500,826	$	225,172	$	145,429	$	3,498,427
Strategic Brands		179,677		77,841		26,254		2,064		285,836
Other		22,920		—		—		—		22,920
Total Net Sales	$	2,829,597	$	578,667	$	251,426	$	147,493	$	3,807,183

2_Europe, Middle East and Africa (“EMEA”)_

Contract Liabilities

Amounts received from certain bottlers/distributors at inception of their distribution contracts or at the inception of certain sales/marketing programs are accounted for as deferred revenue. As of December 31, 2019 and 2018, the Company had $331.7 million and $356.3 million of deferred revenue, respectively, which is included in current and long-term deferred revenue in the Company’s consolidated balance sheet. During the years ended December 31, 2019, 2018 and 2017, $46.3 million, $44.3 million and $43.4 million, respectively, of deferred revenue, was recognized in net sales. See Note 10.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

LEASES

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

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

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

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

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

The Company’s leases have remaining lease terms of less than one year to 14 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of 12 months or less.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The components of lease cost for the year ended December 31, 2019 was as follows:


Operating lease cost	$	4,899

Short-term least cost		3,406

Variable lease cost		640

Finance leases:
Amortization of ROU assets		436
Interest on lease liabilities		56
Finance lease cost		492

Total lease cost	$	9,437

Rent expense under operating lease agreements was $6.1 million and $10.7 million for the years ended December 31, 2018 and 2017, respectively.

Supplemental cash flow information for leases for the year ended December 31, 2019 was as follows:


Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,077
Operating cash flows from finance leases		56
Financing cash flows from finance leases		2,223

ROU assets obtained in exchange for lease obligations:
Finance leases		2,866
Operating leases		34,931

ROU assets for operating and finance leases at December 31, 2019 were comprised of the following:


	Real Estate		Equipment		Total		Balance Sheet Location
Operating leases	$	30,926	$	416	$	31,342	Other Assets
Finance leases		—		2,632		2,632	Property and Equipment, net

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at December 31, 2019 was as follows:


	Operating Leases		Finance Leases
Weighted-average remaining lease term (years)	10.1		0.6
Weighted-average discount rate	3.1	%	2.9	%

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The following table reconciles the undiscounted future lease payments for operating and finance leases to the operating and finance lease liabilities recorded in the consolidated balance sheet at December 31, 2019:


	Undiscounted Future Lease Payments
	Operating Leases		Finance Leases
2020	$	3,661	$	1,500
2021		2,990		—
2022		3,213		—
2023		3,025		—
2024		2,737		—
2025 and thereafter		18,188		—
Total lease payments		33,814		1,500
Less imputed interest		(5,351)		(15)
Total	$	28,463	$	1,485

Accrued liabilities	$	2,812	$	1,485
Other liabilities		25,651		—

As of December 31, 2019, the Company had additional operating leases for office and warehouse space that had not yet commenced of $0.7 million. These operating leases will commence in 2020 with lease terms of three to five years. As of December 31, 2019, the Company did not have any significant additional finance leases that had not yet commenced.

The Company’s future minimum operating lease commitments, as of December 31, 2018, under ASC 840, the predecessor to ASC 842, were as follows:


Year Ending December 31:

2019	$	3,954
2020		2,949
2021		2,410
2022		2,114
2023		1,681
2024 and thereafter		14,860
	$	27,968

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

INVESTMENTS

The following table summarizes the Company’s investments at:


									Continuous		Continuous
			Gross		Gross				Unrealized		Unrealized
			Unrealized		Unrealized				Loss Position		Loss Position
	Amortized		Holding		Holding		Fair		less than 12		greater than 12
December 31, 2019	Cost		Gains		Losses		Value		Months		Months
Available-for-sale
Short-term:
Commercial paper	$	83,478	$	—	$	—	$	83,478	$	—	$	—
Certificates of deposit		28,049		—		—		28,049		—		—
Municipal securities		147,983		145		20		148,108		20		—
U.S. government agency securities		40,620		5		35		40,590		35		—
U.S. treasuries		211,055		134		31		211,158		31		—
Variable rate demand notes		21,680		—		—		21,680		—		—
Long-term:
Municipal securities		1,562		—		1		1,561		1		—
U.S. government agency securities		5,267		—		1		5,266		1		—
U.S. treasuries		6,077		1		—		6,078		—		—
Total	$	545,771	$	285	$	88	$	545,968	$	88	$	—


									Continuous		Continuous
			Gross		Gross				Unrealized		Unrealized
			Unrealized		Unrealized				Loss Position		Loss Position
	Amortized		Holding		Holding		Fair		less than 12		greater than 12
December 31, 2018	Cost		Gains		Losses		Value		Months		Months
Available-for-sale
Short-term:
Commercial paper	$	52,838	$	—	$	—	$	52,838	$	—	$	—
Certificates of deposit		14,075		—		—		14,075		—		—
Municipal securities		151,690		16		62		151,644		62		—
U.S. government agency securities		19,943		—		12		19,931		12		—
U.S. treasuries		78,189		—		32		78,157		32		—
Variable rate demand notes		4,005		—		—		4,005		—		—
Total	$	320,740	$	16	$	106	$	320,650	$	106	$	—

During the years ended December 31, 2019, 2018 and 2017, realized gains or losses recognized on the sale of investments were not significant.

The Company’s investments at December 31, 2019 and 2018 in commercial paper, certificates of deposit, municipal securities, U.S. government agency securities, U.S. treasuries and/or variable rate demand notes (“VRDNs”) 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.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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.

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


	December 31, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Less than 1 year:
Commercial paper	$	83,478	$	83,478	$	52,838	$	52,838
Municipal securities		147,983		148,108		151,690		151,644
U.S. government agency securities		40,620		40,590		19,943		19,931
Certificates of deposit		28,049		28,049		14,075		14,075
U.S. treasuries		211,055		211,158		78,189		78,157
Due 1 -10 years:
Municipal securities		1,562		1,561		—		—
U.S. treasuries		6,077		6,078		—		—
U.S. government agency securities		5,267		5,266		—		—
Variable rate demand notes		3,905		3,905		—		—
Due 11 - 20 years:
Variable rate demand notes		8,886		8,886		—		—
Due 21 - 30 years:
Variable rate demand notes		6,885		6,885		4,005		4,005
Due 31 - 40 years:
Variable rate demand notes		2,004		2,004		—		—
Total	$	545,771	$	545,968	$	320,740	$	320,650

FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

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

	●	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.

FASB 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.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The following tables present 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:


December 31, 2019	Level 1		Level 2		Level 3		Total
Cash	$	518,178	$	—	$	—	$	518,178
Money market funds		191,131		—		—		191,131
Certificates of deposit		—		28,049		—		28,049
Commercial paper		—		96,867		—		96,867
Variable rate demand notes		—		21,680		—		21,680
Municipal securities		—		167,224		—		167,224
U.S. government agency securities		—		73,634		—		73,634
U.S. treasuries		—		247,162		—		247,162
Foreign currency derivatives		—		(687)		—		(687)
Total	$	709,309	$	633,929	$	—	$	1,343,238

Amounts included in:
Cash and cash equivalents	$	709,309	$	88,648	$	—	$	797,957
Short-term investments		—		533,063		—		533,063
Accounts receivable, net		—		329		—		329
Investments		—		12,905		—		12,905
Accrued liabilities		—		(1,016)		—		(1,016)
Total	$	709,309	$	633,929	$	—	$	1,343,238


December 31, 2018	Level 1		Level 2		Level 3		Total
Cash	$	393,936	$	—	$	—	$	393,936
Money market funds		191,358		—		—		191,358
Certificates of deposit		—		14,075		—		14,075
Commercial paper		—		60,422		—		60,422
Variable rate demand notes		—		4,005		—		4,005
Municipal securities		—		177,118		—		177,118
U.S. government agency securities		—		39,092		—		39,092
U.S. treasuries		—		78,157		—		78,157
Foreign currency derivatives		—		(492)		—		(492)
Total	$	585,294	$	372,377	$	—	$	957,671

Amounts included in:
Cash and cash equivalents	$	585,294	$	52,219	$	—	$	637,513
Short-term investments		—		320,650		—		320,650
Accounts receivable, net		—		43		—		43
Investments		—		—		—		—
Accrued liabilities		—		(535)		—		(535)
Total	$	585,294	$	372,377	$	—	$	957,671

All of the Company’s short-term and long-term investments are classified within Level 1 or Level 2 within 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 municipal securities, commercial paper, U.S. treasuries, certificates of deposit, VRDNs and U.S. government agency securities, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

systems, mathematical tools and other relevant information for the same or similar securities. The Company’s valuation of its Level 2 foreign currency 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 years ended December 31, 2019 and 2018, and there were no changes in the Company’s valuation techniques.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to foreign currency exchange rate risks related primarily to its foreign business operations. During the years ended December 31, 2019, 2018 and 2017, 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 that were outstanding as of December 31, 2019 have terms of three months or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.

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, 2019
Derivatives not designated as
hedging instruments under	Notional		Fair
FASB ASC 815-20	Amount		Value		Balance Sheet Location
Assets:
Foreign currency exchange contracts:
Receive EUR/pay USD	$	26,731	$	246	Accounts receivable, net
Receive RSD/pay USD		9,018		59	Accounts receivable, net
Receive NOK/pay USD		2,122		17	Accounts receivable, net
Receive USD/pay SGD		1,555		7	Accounts receivable, net

Liabilities:
Foreign currency exchange contracts:
Receive USD/pay GBP	$	38,406	$	(695)	Accrued liabilities
Receive USD/pay AUD		12,819		(172)	Accrued liabilities
Receive USD/pay RUB		12,777		(55)	Accrued liabilities
Receive USD/pay NZD		3,071		(33)	Accrued liabilities
Receive USD/pay ZAR		3,349		(32)	Accrued liabilities
Receive USD/pay COP		3,793		(18)	Accrued liabilities
Receive USD/pay DKK		1,283		(11)	Accrued liabilities


December 31, 2018
Derivatives not designated as
hedging instruments under	Notional		Fair
FASB ASC 815-20	Amount		Value		Balance Sheet Location
Assets:
Foreign currency exchange contracts:
Receive SGD/pay USD	$	8,341	$	30	Accounts receivable, net
Receive NOK/pay USD		902		13	Accounts receivable, net

Liabilities:
Foreign currency exchange contracts:
Receive USD/pay GBP	$	40,648	$	(323)	Accrued liabilities
Receive USD/pay AUD		15,124		(105)	Accrued liabilities
Receive USD/pay ZAR		8,618		(68)	Accrued liabilities
Receive USD/pay COP		2,931		(33)	Accrued liabilities
Receive USD/pay NZD		2,952		(4)	Accrued liabilities
Receive USD/pay EUR		6,894		(2)	Accrued liabilities

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The net gain (loss) on derivative instruments in the consolidated statements of income was as follows:


		Amount of gain (loss)
		recognized in income on
		derivatives
Derivatives not designated as	Location of gain (loss)	Year ended
hedging instruments under	recognized in income on	December 31,		December 31,		December 31,
FASB ASC 815-20	derivatives	2019		2018		2017
Foreign currency exchange contracts	Other income, net	$	(2,555)	$	9,737	$	(13,733)

INVENTORIES

Inventories consist of the following at December 31:


	2019		2018
Raw materials	$	134,885	$	94,421
Finished goods		225,846		183,284
	$	360,731	$	277,705

PROPERTY AND EQUIPMENT, Net

Property and equipment consist of the following at December 31:


	2019		2018
Land	$	78,275	$	44,261
Leasehold improvements		10,417		5,909
Furniture and fixtures		8,426		6,932
Office and computer equipment		22,766		18,717
Computer software		4,450		3,278
Equipment		214,293		183,727
Building		126,338		115,242
Vehicles		41,109		39,026
		506,074		417,092
Less: accumulated depreciation and amortization		(207,434)		(174,041)
	$	298,640	$	243,051

Total depreciation and amortization expense recorded was $49.1 million, $45.0 million and $37.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

GOODWILL AND OTHER INTANGIBLE ASSETS

The following is a roll-forward of goodwill for the years ended December 31, 2019 and 2018 by reportable segment:


	Monster
	Energy®		Strategic
	Drinks		Brands		Other		Total
Balance at December 31, 2018	$	693,644	$	637,999	$	—	$	1,331,643
Acquisitions		—		—		—		—
Balance at December 31, 2019	$	693,644	$	637,999	$	—	$	1,331,643


	Monster
	Energy®		Strategic
	Drinks		Brands		Other		Total
Balance at December 31, 2017	$	693,644	$	637,999	$	—	$	1,331,643
Acquisitions		—		—		—		—
Balance at December 31, 2018	$	693,644	$	637,999	$	—	$	1,331,643

Intangible assets consist of the following at:


	December 31,		December 31,
	2019		2018
Amortizing intangibles	$	66,949	$	71,350
Accumulated amortization		(49,128)		(38,311)
		17,821		33,039
Non-amortizing intangibles		1,034,284		1,012,839
	$	1,052,105	$	1,045,878

Amortizing intangibles primarily consist of customer relationships. 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, generally five to seven years. Total amortization expense recorded was $11.6 million, $11.9 million and $11.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The following is the future estimated amortization expense related to amortizing intangibles as of December 31, 2019:


Year Ending December 31:

2020	$	7,670
2021		4,429
2022		4,404
2023		1,111
2024		13
2025 and thereafter		194
	$	17,821

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

At December 31, 2019, non-amortizing intangibles primarily consist of indefinite-lived tradenames, flavors and formulas.

DISTRIBUTION AGREEMENTS

In accordance with FASB ASC No. 420 “Exit or Disposal Cost Obligations”, the Company expenses distributor termination costs in the period in which the written notification of termination occurs. As a result, the Company incurred termination costs of $11.3 million, $26.6 million and $35.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. Such termination costs have been expensed in full and are included in operating expenses for the years ended December 31, 2019, 2018 and 2017.

In the normal course of business, 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, are accounted for as deferred revenue and are recognized as revenue ratably over the anticipated life of the respective distribution agreement, generally 20 years. Revenue recognized was $25.0 million, $21.9 million and $22.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

DEBT

The Company entered into a credit facility with Comerica Bank (“Comerica”) consisting of a revolving line of credit, which was amended in June 2017, 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, 2020. Interest on borrowings under the line of credit is based on Comerica’s base (prime) rate minus 1.00% to 1.50%, 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, 2019. 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, 2019.

In December 2016, the Company entered into a credit facility with HSBC Bank (China) Company Limited, Shanghai Branch consisting of a non-collateralized working capital line of credit. In February 2018, the working capital line limit was increased to $15.0 million. At December 31, 2019, the interest rate on borrowings under the line of credit was 5.5%. As of December 31, 2019, the Company had no amounts outstanding on this line of credit.

COMMITMENTS AND CONTINGENCIES

The Company is obligated under various non-cancellable lease agreements providing for office space, warehouse space, vehicles and warehouse equipment that expire at various dates through the year 2033. See Note 3.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Contractual obligations – The Company has the following contractual obligations related primarily to sponsorships and other commitments as of December 31, 2019:


Year Ending December 31:

2020	$	121,675
2021		43,575
2022		13,146
2023		3,500
2024		—
2025 and thereafter		—
	$	181,896

Purchase Commitments – The Company has purchase commitments aggregating approximately $86.7 million at December 31, 2019, 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, supplement ingredients, containers, milk, glucose, sucralose, cream and protein, from a limited number of suppliers. 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, 2019, 2018 and 2017 was $335.3 million, $289.6 million and $273.6 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 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 – The Company is currently a defendant in a number of personal injury lawsuits, claiming that the death or other serious injury of the plaintiffs was caused by consumption of Monster Energy® brand energy drinks. The plaintiffs in these lawsuits allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The Company believes that each complaint is without merit and plans a vigorous defense. The Company also believes that any damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.

Furthermore, from time to time in the normal course of business, the Company is named in other litigation, including consumer class actions, intellectual property litigation and claims from prior distributors. 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 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)

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, 2019, the Company’s consolidated balance sheet includes accrued loss contingencies of approximately $15.5 million.

ACCUMULATED OTHER COMPREHENSIVE LOSS

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


	2019		2018
Accumulated net unrealized (gain) loss on available-for-sale securities	$	(194)	$	89
Foreign currency translation adjustments, net of tax		32,581		32,775
Total accumulated other comprehensive loss	$	32,387	$	32,864

TREASURY STOCK PURCHASE

On August 7, 2018, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “August 2018 Repurchase Plan”). During the year ended December 31, 2019, the Company purchased 2.9 million shares of common stock at an average purchase price of $54.68 per share, for a total amount of $159.6 million (excluding broker commissions), which exhausted the availability under the August 2018 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2019.

On February 26, 2019, the Company’s Board of Directors authorized a share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “February 2019 Repurchase Plan”). During the year ended December 31, 2019, the Company purchased 8.1 million shares of common stock at an average purchase price of $57.16 per share, for a total amount of $463.3 million (excluding broker commissions), under the February 2019 Repurchase Plan. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2019. As of February 28, 2020, $36.6 million remained available for repurchase under the February 2019 Repurchase Plan.

On November 6, 2019, the Company’s Board of Directors authorized a new share repurchase program for the purchase of up to $500.0 million of the Company’s outstanding common stock (the “November 2019 Repurchase Plan”). No shares were purchased during the year ended December 31, 2019 under the November 2019 Repurchase Plan. As of February 28, 2020, $500.0 million remained available for repurchase under the November 2019 Repurchase Plan.

During the year ended December 31, 2019, 1.4 million shares of common stock were purchased from employees in lieu of cash payments for options exercised or withholding taxes due for a total amount of $84.5 million. While such purchases are considered common stock repurchases, they are not counted as purchases against the Company's authorized share repurchase programs. Such shares are included in common stock in treasury in the accompanying consolidated balance sheet at December 31, 2019.

STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which shares were available for grant at December 31, 2019: the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”), including

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

the Monster Beverage Deferred Compensation Plan (the “Deferred Compensation Plan”) as a sub plan thereunder, and the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (the “2017 Directors Plan”), including the Monster Beverage Deferred Compensation Plan for Non-Employee Directors as a sub plan thereunder.

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 43,500,000 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 (as defined in the 2011 Omnibus Incentive Plan). 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 Executive Committee are not subject to approval or ratification by the Board of Directors 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, 2019, 24,555,792 shares of the Company’s common stock have been granted, net of cancellations, and 14,169,367 shares (as adjusted for Full Value Awards) of the Company’s common stock remain available for grant under the 2011 Omnibus Incentive Plan.

In 2016, the Company adopted the Deferred Compensation Plan (as a sub plan to the 2011 Omnibus Incentive Plan), pursuant to which eligible employees may elect to defer cash and/or equity based compensation and to receive the deferred amounts, together with an investment return (positive or negative), either at a pre-determined time in the future or upon termination of their employment with the Company or its subsidiaries or affiliates that are participating employers under the Deferred Compensation Plan, as provided under the Deferred Compensation Plan and in relevant deferral elections. Deferrals under the Deferred Compensation Plan are unfunded and unsecured. As of December 31, 2019, deferrals under the Deferred Compensation Plan are solely comprised of cash compensation and equity compensation and are not material in the aggregate.

In 2017, the Company adopted the 2017 Directors Plan, a successor plan to the 2009 Monster Beverage Corporation Stock Incentive Plan for Non-Employee Directors. The 2017 Directors Plan permits the granting of stock options, stock appreciation rights, restricted shares or restricted stock units, deferred awards, dividend equivalents, and other share based-awards up to an aggregate of 1,250,000 shares of common stock of the Company to non-employee directors of the Company.

Each calendar year, a non-employee director will receive an annual retainer and annual equity award, as provided for in the 2017 Directors Plan, which may be modified from time to time. Currently, with respect to equity awards, each non-employee director receives an award of restricted stock units at each annual meeting of the Company’s stockholders or promptly thereafter. A non-employee director’s annual award of restricted stock units will generally vest on the earliest to occur of: (a) the last business day immediately preceding the annual meeting of the Company’s stockholders in the calendar year following the calendar year in which the grant date occurs, (b) a Change of Control (as defined in the 2017 Directors Plan), (c) the non-employee director’s death, or (d) the date of the non-employee director’s separation from service due to disability, so long as the non-employee director remains a non-employee director through such date. The Board of Directors may in its discretion award non-employee directors stock options, stock appreciation rights, restricted stock and other share-

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

based awards in lieu of or in addition to restricted stock units. The Board of Directors may amend or terminate the 2017 Directors Plan at any time, subject to certain limitations set forth in the 2017 Directors Plan. As of December 31, 2019, 68,774 shares of the Company’s common stock had been granted under the 2017 Directors Plan, and 1,181,226 shares of the Company’s common stock remain available for grant.

In 2017, the Company adopted the Deferred Compensation Plan for Non-Employee Directors (as a sub plan to the 2017 Directors Plan), pursuant to which the Board of Directors may permit non-employee directors to elect, at such times and in accordance with rules and procedures (or sub-plan) adopted by the Board of Directors (which are intended to comply with Code Section 409A, as applicable), to receive all or any portion of such non-employee director’s compensation, whether payable in cash or in equity, on a deferred basis. Deferrals under the Deferred Compensation Plan for Non-Employee Directors are unfunded and unsecured. As of December 31, 2019, deferrals under the Deferred Compensation Plan for Non-Employee Directors are solely comprised of cash compensation and equity compensation and are not material in the aggregate. The 2017 Directors Plan was adopted to effectuate any such deferrals. The 2017 Directors Plan is administered by the Board of Directors. Each award granted under the 2017 Directors Plan will be evidenced by a written agreement and will contain the terms and conditions that the Board of Directors deems appropriate.

Under the 2017 Directors Plan, the Board of Directors requires each non-employee director to satisfy the share ownership guidelines set forth below, as may be amended by the Board of Directors from time to time. The current share ownership guidelines provide that non-employee directors of the Company must:

	●	Hold at least 9,000 shares of Company common stock. For this purpose, deferred shares or deferred restricted stock units will be deemed held, to the extent vested.

	●	The minimum stock ownership level must be achieved by each non-employee director by the third (3rd) anniversary of such non-employee director’s initial appointment to the Board of Directors.

	●	Once achieved, ownership of the guideline amount should be maintained for so long as the non-employee director retains his or her seat on the Board of Directors.

	●	There may be rare instances where these guidelines would place a hardship on a non-employee director. In these cases or in similar circumstances, the Board of Directors will make the final decision as to developing an alternative stock ownership guideline for a non-employee director that reflects the intention of these guidelines and his or her personal circumstances.

The Company recorded $63.4 million, $57.1 million and $52.3 million of compensation expense relating to stock options, restricted stock awards and restricted stock units during the years ended December 31, 2019, 2018 and 2017, respectively.

The tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units for the years ended December 31, 2019, 2018 and 2017 was $25.9 million, $8.5 million and $96.7 million, respectively.

Stock Options

Under the Company’s stock-based compensation plans, all stock options granted through December 31, 2019 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

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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 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:


	2019		2018		2017
Dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	30.2	%	34.7	%	36.5	%
Risk-free interest rate	2.37	%	2.81	%	2.11	%
Expected term	6.0 Years		6.0 Years		6.1 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:


				Weighted-
		Weighted-		Average
		Average		Remaining
	Number of	Exercise		Contractual	Aggregate
	Shares (in	Price Per		Term (In	Intrinsic
Options	thousands)	Share		years)	Value
Outstanding at January 1, 2019	18,890	$	34.61	5.8	$	303,627
Granted 01/01/19 - 03/31/19	1,570	$	59.52
Granted 04/01/19 - 06/30/19	—	$	—
Granted 07/01/19 - 09/30/19	52	$	58.54
Granted 10/01/19 - 12/31/19	50	$	56.39
Exercised	(5,224)	$	17.68
Cancelled or forfeited	(397)	$	50.83
Outstanding at December 31, 2019	14,941	$	42.88	6.3	$	308,884
Vested and expected to vest in the future at December 31, 2019	14,205	$	42.25	6.2	$	302,587
Exercisable at December 31, 2019	7,758	$	33.70	5.0	$	231,600

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, 2019:


					Options Outstanding				Options Exercisable
						Weighted
						Average	Weighted		Number	Weighted
					Number	Remaining	Average		Exercisable	Average
Range of Exercise					Outstanding (In	Contractual	Exercise		(In	Exercise
Prices ($)					Thousands)	Term (Years)	Price ($)		Thousands)	Price ($)
$	6.40	-	$	17.99	1,741	3.2	$	16.88	1,741	$	16.88
$	18.64	-	$	23.35	1,852	4.1	$	22.92	1,852	$	22.92
$	36.05	-	$	36.05	12	5.0	$	36.05	8	$	36.05
$	37.10	-	$	43.64	1,457	6.4	$	42.06	757	$	40.91
$	43.99	-	$	43.99	1,925	6.2	$	43.99	1,088	$	43.99
$	44.73	-	$	45.16	2,002	5.5	$	45.10	1,336	$	45.11
$	45.55	-	$	51.50	1,621	7.4	$	47.60	578	$	46.56
$	53.24	-	$	57.95	382	8.8	$	55.85	39	$	54.80
$	58.73	-	$	58.73	2,371	8.2	$	58.73	345	$	58.73
$	58.77	-	$	63.46	1,578	9.2	$	59.79	14	$	62.50
					14,941	6.3	$	42.88	7,758	$	33.70

The weighted-average grant-date fair value of options granted during the years ended December 31, 2019, 2018 and 2017 was $20.17 per share, $22.37 per share and $18.29 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 was $220.2 million, $56.8 million and $285.8 million, respectively.

Cash received from option exercises under all plans for the years ended December 31, 2019, 2018 and 2017 was $92.4 million, $25.9 million and $52.6 million, respectively.

At December 31, 2019, there was $80.3 million of total unrecognized compensation expense related to non-vested 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 2.3 years.

Restricted Stock Units

Stock-based compensation cost for 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.

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 units as follows:


		Weighted
	Number of	Average
	Shares (in	Grant-Date
	thousands)	Fair Value
Non-vested at January 1, 2019	529	$	51.55
Granted 01/01/19 - 03/31/19	548	$	59.66
Granted 04/01/19 - 06/30/19	18	$	63.48
Granted 07/01/19 - 09/30/19	1	$	66.00
Granted 10/01/19 - 12/31/19	1	$	55.73
Vested	(266)	$	50.12
Forfeited/cancelled	(6)	$	59.67
Non-vested at December 31, 2019	825	$	57.62

The weighted-average grant-date fair value of restricted stock units granted during the years ended December 31, 2019, 2018 and 2017 was $59.79, $57.59 and $46.74 per share, respectively. As of December 31, 2019, 0.7 million of restricted stock units are expected to vest.

At December 31, 2019, total unrecognized compensation expense relating to non-vested restricted stock units was $29.3 million, which is expected to be recognized over a weighted-average period of 2.6 years.

Employee and Non-Employee Share-Based Compensation Expense

The table below shows the amounts recognized in the consolidated financial statements for the years ended December 31, 2019, 2018 and 2017 for share-based compensation related to employees and non-employees. Employee and non-employee share-based compensation expense of $63.4 million for the year ended December 31, 2019 is comprised of $10.0 million relating to incentive stock options and $53.4 million relating to non-qualified stock options and restricted units. Employee and non-employee share-based compensation expense of $57.1 million for the year ended December 31, 2018 is comprised of $10.0 million relating to incentive stock options and $47.1 million relating to non-qualified stock options and restricted units. Employee and non-employee share-based compensation expense of $52.3 million for the year ended December 31, 2017 is comprised of $8.7 million relating to incentive stock options and $43.6 million relating to non-qualified stock options and restricted units.


	2019		2018		2017
Operating expenses	$	63,356	$	57,111	$	52,282
Total employee and non-employee share-based compensation expense included in income, before income tax		63,356		57,111		52,282
Less: Amount of income tax benefit recognized in earnings		(36,326)		(14,892)		(100,635)
Amount charged against net income	$	27,030	$	42,219	$	(48,353)

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

INCOME TAXES

On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. A company may select between one of three scenarios to determine a reasonable estimate for certain income tax effects arising from the Tax Reform Act. Those scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable estimate leaving the measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. The Company was able to provide a reasonable estimate for the revaluation of deferred taxes and the effects of the toll charge on undistributed foreign subsidiary earnings and profits (“E&P”). As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its net deferred tax assets at December 31, 2017, resulting in a provisional $39.8 million charge included in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided for a one-time deemed mandatory repatriation of post-1986 E&P through the year ended December 31, 2017. As a result, the Company recognized a provisional $2.1 million charge in the provision for income taxes for the year ended December 31, 2017 related to such deemed mandatory repatriation. The Company completed its analysis of the Tax Reform Act during 2018 and adjusted the 2017 provisional estimate to the final amounts in accordance with Staff Accounting Bulletin No. 118. The measurement window begins in the reporting period that includes the enactment date and ends when an entity has obtained, prepared and analyzed the information needed in order to complete the accounting requirements under ASC 740. For the year ended December 31, 2018, the Company made an adjustment to the provisional amount and recognized an additional $1.8 million provision for income tax related to the deemed mandatory repatriation.

The Company has not made additional measurement window adjustments to these items during the year ended December 31, 2019.

The Company evaluated the various provisions of the Tax Reform Act, including, the global intangible low-taxed income (“GILTI”) and the foreign derived intangible income provisions. The Company will treat any U.S. tax on foreign earnings under GILTI as a current period expense when incurred.

The Company currently considers the earnings of its foreign entities (excluding Japan) to be permanently reinvested outside the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. Accordingly, deferred income taxes have not been recorded for the undistributed earnings of the Company’s foreign subsidiaries excluding Japan. Deferred income taxes have not been recorded for Japan, as any federal, state, or foreign withholding taxes associated with the repatriation of those earnings would be immaterial.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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


	Year Ended December 31,
	2019		2018		2017
Domestic*	$	1,196,883	$	1,100,487	$	1,062,713
Foreign*		219,079		192,785		138,910
Income before provision for income taxes	$	1,415,962	$	1,293,272	$	1,201,623

*After intercompany royalties, management fees and interest charges from the Company’s domestic to foreign entities of $51.2 million, $40.5 million and $42.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Components of the provision for income taxes are as follows:


	Year Ended December 31,
	2019		2018		2017
Current:
Federal	$	212,068	$	209,147	$	243,127
State		39,982		41,934		43,252
Foreign		55,167		42,541		27,522
		307,217		293,622		313,901

Deferred:
Federal		8,320		9,804		61,797
State		(6,878)		1,644		3,062
Foreign		(4,219)		(8,778)		(4,579)
		(2,777)		2,670		60,280

Valuation allowance		3,687		3,976		6,764
	$	308,127	$	300,268	$	380,945

A reconciliation of the total provision for income taxes after applying the U.S. federal statutory rate of 21% for 2019 and 2018 and 35% for 2017 to income before provision for income taxes to the reported provision for income taxes are as follows:


	Year Ended December 31,
	2019		2018		2017
U.S. Federal tax expense at statutory rates	$	297,352	$	271,587	$	420,568
State income taxes, net of federal tax benefit		30,098		36,312		27,569
Permanent differences		(2,128)		3,606		10,356
Stock based compensation		(13,473)		(370)		(79,687)
Domestic production deduction		—		—		(22,229)
Deferred tax asset reduction (Tax Reform Act)		—		—		39,763
Other		(12,423)		(8,438)		3,736
Foreign rate differential		5,014		(6,405)		(25,895)
Valuation allowance		3,687		3,976		6,764
	$	308,127	$	300,268	$	380,945

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, 2019 and 2018 are as follows:


	2019		2018
Deferred Tax Assets:
Reserve for sales returns	$	140	$	137
Reserve for inventory obsolescence		2,066		2,836
Reserve for marketing development fund		8,469		4,666
Capitalization of inventory costs		2,310		1,210
State franchise tax - current		2,346		2,663
Accrued compensation		1,944		574
Accrued other liabilities		5,674		5,276
Deferred revenue		81,903		87,573
Stock-based compensation		22,665		25,439
Foreign net operating loss carryforward		30,187		28,030
Prepaid supplies		5,799		7,476
Termination payments		69,467		71,918
Operating lease liabilities		6,155		—
Other deferred tax assets		17,615		11,010
Total gross deferred tax assets	$	256,740	$	248,808

Deferred Tax Liabilities:
Amortization of trademarks	$	(35,227)	$	(31,445)
Intangibles		(76,047)		(82,544)
State franchise tax - deferred		(7,173)		(7,093)
Operating lease ROU assets		(6,155)		—
Other deferred tax liabilities		(93)		(99)
Depreciation		(6,765)		(5,123)
Total gross deferred tax liabilities		(131,460)		(126,304)

Valuation Allowance		(40,503)		(36,816)

Net deferred tax assets	$	84,777	$	85,688

During the years ended December 31, 2019, 2018 and 2017, 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 increase the Company’s provision for income taxes by $3.7 million, $4.0 million and $6.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019, the Company had net operating loss carryforwards of approximately $112.4 million. Of this amount, $77.5 million may be carried forward indefinitely. The remaining $34.8 million of net operating loss carryforwards will begin to expire in 2020.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

The following is a roll-forward of the Company’s total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31, 2019, 2018 and 2017:


	Gross Unrecognized Tax
	Benefits
Balance at January 1, 2017	$	9
Additions for tax positions related to the current year		—
Additions for tax positions related to the prior year		6,540
Decreases for tax positions related to prior years		(9)
Balance at December 31, 2017	$	6,540
Additions for tax positions related to the current year		—
Additions for tax positions related to the prior year		1,159
Decreases for tax positions related to prior years		(2,664)
Balance at December 31, 2018	$	5,035
Additions for tax positions related to the current year		—
Additions for tax positions related to the prior year		1,833
Decreases for tax positions related to prior years		(3,875)
Balance at December 31, 2019	$	2,993

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, 2019, 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 October 18, 2016, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2014. On March 27, 2017, the IRS began its examination of the Company’s U.S. federal income tax return for the year ended December 31, 2015. Both examinations were completed in November 2019 with no material adjustments.

The Company is in various stages of examination with certain states and certain foreign jurisdictions including the United Kingdom and Ireland. The Company’s 2016 through 2018 U.S. federal income tax returns are subject to examination by the IRS. The Company’s state income tax returns are subject to examination for the 2014 through 2018 tax years.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

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, 2019, 2018 and 2017 is presented below (in thousands):


	2019	2018	2017
Weighted-average shares outstanding:
Basic	542,191	557,166	566,782
Dilutive securities	4,417	7,088	10,359
Diluted	546,608	564,254	577,141

For the years ended December 31, 2019, 2018 and 2017, options and awards outstanding totaling 4.4 million shares, 3.2 million shares and 7.9 million shares, respectively, were excluded from the calculations as their effect would have been antidilutive.

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 into a traditional plan with pretax salary or into a Roth plan with after tax salary up to statutory limits. The Company contributes 50% of the employee contribution, up to 6% of each employee’s earnings (8% starting January 1, 2020), which vest over four years (2 years of service = 50%, 3 years of service = 75%, 4 years of service = 100%). Matching contributions were $3.4 million, $2.9 million and $2.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

SEGMENT INFORMATION

The Company has three operating and reportable segments; (i) Monster Energy® Drinks segment, which is primarily comprised of the Company’s Monster Energy® drinks and Reign Total Body FuelTM high performance energy drinks, (ii) Strategic Brands segment, which is comprised primarily of the various energy drink brands acquired from TCCC in 2015 as well as the Company’s affordable energy brands, and (iii) Other segment, which is comprised of the AFF Third-Party Products.

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

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

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Generally, the Monster Energy® Drinks segment generates higher per case net operating revenues, but lower per case gross profit margin percentages than the Strategic Brands segment.

Corporate and unallocated amounts that do not relate to a reportable segment have been allocated to “Corporate & Unallocated.” No asset information, other than goodwill and other intangible assets, has been provided in the Company’s reportable segments, as management does not measure or allocate such assets on a segment basis.

The net revenues derived from the Company’s reportable segments and other financial information related thereto for the years ended December 31, 2019, 2018 and 2017 are as follows:


	2019		2018		2017
Net sales:
Monster Energy® Drinks(1)	$	3,904,029	$	3,498,427	$	3,047,596
Strategic Brands		274,925		285,836		299,844
Other		21,865		22,920		21,605
Corporate and unallocated		—		—		—
	$	4,200,819	$	3,807,183	$	3,369,045


	2019		2018		2017
Operating Income:
Monster Energy® Drinks(1) (2)	$	1,565,977	$	1,371,062	$	1,264,579
Strategic Brands		164,053		176,520		174,458
Other		3,650		5,362		5,583
Corporate and unallocated		(330,741)		(269,325)		(245,833)
	$	1,402,939	$	1,283,619	$	1,198,787


	2019		2018		2017
Income before tax:
Monster Energy® Drinks(1) (2)	$	1,567,022	$	1,372,001	$	1,264,555
Strategic Brands		164,049		176,540		174,442
Other		3,655		5,362		5,583
Corporate and unallocated		(318,764)		(260,631)		(242,957)
	$	1,415,962	$	1,293,272	$	1,201,623

	(1)	Includes $46.3 million, $44.3 million and $43.4 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to the recognition of deferred revenue.

	(2)	Includes $11.3 million, $26.6 million and $35.4 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to distributor termination costs.


	2019		2018		2017
Depreciation and amortization:
Monster Energy® Drinks	$	39,397	$	36,387	$	29,591
Stategic Brands		7,935		7,774		7,443
Other		4,637		4,657		4,608
Corporate and unallocated		8,758		8,161		7,245
	$	60,727	$	56,979	$	48,887

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Corporate and unallocated expenses were $330.7 million for the year ended December 31, 2019 and included $203.3 million of payroll costs, of which $63.4 million was attributable to stock-based compensation expense (See Note 15, “Stock-Based Compensation”), $78.5 million of professional service expenses, including accounting and legal costs, $6.1 million of insurance costs and $42.8 million of other operating expenses.

Corporate and unallocated expenses were $269.3 million for the year ended December 31, 2018 and included $174.9 million of payroll costs, of which $57.1 million was attributable to stock-based compensation expense (See Note 15, “Stock-Based Compensation”), $53.6 million of professional service expenses, including accounting and legal costs, $6.0 million of insurance costs and $34.8 million of other operating expenses.

Corporate and unallocated expenses were $245.8 million for the year ended December 31, 2017 and included $156.3 million of payroll costs, of which $52.3 million was attributable to stock-based compensation expense (See Note 15, “Stock-Based Compensation”), $51.8 million of professional service expenses, including accounting and legal costs, $6.0 million of insurance costs and $31.7 million of other operating expenses.

TCCC, through the TCCC Subsidiaries, accounted for approximately 2%, 3% and 18% of the Company's net sales for the years ended December 31, 2019, 2018 and 2017, respectively. As part of the North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company's percentage of net sales classified as sales to the TCCC Subsidiaries decreased for the years ended December 31, 2019, 2018 and 2017.

Coca-Cola Consolidated, Inc. accounted for approximately 13% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017.

Reyes Coca-Cola Bottling, LLC accounted for approximately 11%, 12% and 6% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

Coca-Cola European Partners accounted for approximately 10%, 10% and 9% of the Company’s net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

Net sales to customers outside the United States amounted to $1.33 billion, $1.09 billion and $909.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. Such sales were approximately 32%, 29% and 27% of net sales for the years ended December 31, 2019, 2018 and 2017, respectively.

Goodwill and other intangible assets for the Company’s reportable segments as of December 31, 2019 and 2018 are as follows:


	2019		2018
Goodwill and other intangible assets:
Monster Energy® Drinks	$	1,384,940	$	1,368,620
Strategic Brands		984,393		989,944
Other		14,415		18,957
Corporate and unallocated		—		—
	$	2,383,748	$	2,377,521

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

RELATED PARTY TRANSACTIONS

TCCC controls approximately 19.0% of the voting interests of the Company. The TCCC Subsidiaries, the TCCC Related Parties and the TCCC Independent Bottlers, purchase and distribute the Company’s products in domestic and certain international markets. The Company also pays TCCC a commission based on certain sales within the TCCC distribution network.

TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, for the year ended December 31, 2019 were $50.1 million, and are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Independent Bottlers for the year ended December 31, 2019 were $17.7 million, and are included in operating expenses.

TCCC commissions, based on sales to the TCCC Subsidiaries and the TCCC Related Parties, for the year ended December 31, 2018 were $48.0 million, and are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Independent Bottlers for the year ended December 31, 2018 were $14.8 million, and are included in operating expenses.

TCCC commissions, based on sales to the TCCC Subsidiaries, for the year ended December 31, 2017 were $9.8 million, and are included as a reduction to net sales. TCCC commissions, based on sales to the TCCC Related Parties and the TCCC Independent Bottlers, for the year ended December 31, 2017 were $45.0 million, and are included in operating expenses.

Upon adoption of ASC 606, commissions paid to TCCC, based on sales to the TCCC Related Parties, are included as a reduction to net sales. Prior to January 1, 2018, such commissions, based on sales to the TCCC Related Parties, were included in operating expenses.

Net sales to the TCCC Subsidiaries for the years ended December 31, 2019, 2018 and 2017 were $79.5 million, $132.5 million and $594.1 million, respectively. As part of the North America Refranchising, the territories of certain TCCC Subsidiaries have been transitioned to certain independent TCCC bottlers/distributors and/or TCCC Related Parties. Accordingly, the Company’s net sales classified as sales to the TCCC Subsidiaries significantly decreased for the years ended December 31, 2019, 2018 and 2017.

The Company also purchases concentrates from TCCC which are then sold to certain of the Company's bottlers/distributors. Concentrate purchases from TCCC were $25.4 million, $27.5 million and $26.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Certain TCCC Subsidiaries also contract manufacture certain of the Company’s Monster Energy® brand energy drinks. Such contract manufacturing expenses were $17.1 million, $22.8 million and $11.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

MONSTER BEVERAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular Dollars in Thousands, Except Per Share Amounts)

Accounts receivable, accounts payable and accrued promotional allowances related to the TCCC Subsidiaries are as follows at:


	December 31,		December 31,
	2019		2018
Accounts receivable, net	$	21,670	$	25,312
Accounts payable	$	(18,217)	$	(54,430)
Accrued promotional allowances	$	(5,321)	$	(4,044)

One director of the Company and his family, and one director's family, 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, 2019, 2018 and 2017 were $1.5 million, $1.8 million and $2.2 million, respectively.

In December 2018, the Company and a director of the Company entered into a 50-50 partnership that purchased land, and real property thereon, in Kona, Hawaii for the purpose of producing coffee products. The Company’s initial 50% contribution of $1.9 million was accounted for as an equity investment and is included in other assets (non-current) in the accompanying consolidated balance sheet at December 31, 2018. During the year ended December 31, 2019, the Company made an additional $0.05 million capital contribution, made a loan of $0.15 million and recorded an equity loss of $0.09 million. As of December 31, 2019, the Company’s equity investment is $1.9 million and is included in other assets (non-current) in the accompanying consolidated balance sheet at December 31, 2019.

QUARTERLY FINANCIAL DATA (Unaudited)


							Net Income per Common
							Share
	Net Sales		Gross Profit		Net Income		Basic		Diluted
Quarter ended:
March 31, 2019	$	945,991	$	573,532	$	261,485	$	0.48	$	0.48
June 30, 2019		1,104,045		661,283		292,473	$	0.54	$	0.53
September 30, 2019		1,133,577		673,002		298,923	$	0.55	$	0.55
December 31, 2019		1,017,206		610,768		254,954	$	0.47	$	0.47
	$	4,200,819	$	2,518,585	$	1,107,835
Quarter ended:
March 31, 2018	$	850,921	$	515,257	$	216,050	$	0.38	$	0.38
June 30, 2018		1,015,873		620,258		270,116	$	0.48	$	0.48
September 30, 2018		1,016,160		607,659		267,733	$	0.48	$	0.48
December 31, 2018		924,229		552,201		239,105	$	0.43	$	0.43
	$	3,807,183	$	2,295,375	$	993,004

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, 2019, 2018 AND 2017 (Dollars in Thousands)


	Balance at		Charged to				Balance at
	beginning		cost and				end of
Description	of period		expenses		Deductions		period
Allowance for doubtful accounts, sales returns and cash discounts:

2019	$	1,589	$	9,583	$	(9,127)	$	2,045
2018	$	1,105	$	7,890	$	(7,406)	$	1,589
2017	$	1,121	$	8,364	$	(8,380)	$	1,105

Allowance on Deferred Tax Assets and Unrecognized Tax Benefits:

2019	$	42,748	$	1,105	$	—	$	43,853
2018	$	40,680	$	2,068	$	—	$	42,748
2017	$	26,086	$	14,594	$	—	$	40,680

Previous: Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES