# Monster Beverage Corp (MNST) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from Monster Beverage Corp's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/865752/000110465922028182/mnst-20211231x10k.htm Accession: 0001104659-22-028182 Filing date: 2022-02-28 Report date: 2021-12-31 Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub. Confidence: high Company profile: /company/MNST/ All MD&A years: /company/MNST/mda/ Next year: /company/MNST/mda/fy2022/ (FY 2022) Liquidity and Capital Resources As of the date of this filing, we expect to maintain substantial liquidity as we manage through the current environment as described in the “Liquidity and Capital Resources” section below. 45 Table of Contents Our Business Overview We develop, market, sell and distribute energy drink beverages and concentrates for energy drink beverages, primarily under the following brand names: [[GREPCENT_TABLE]] [["\u25cf Monster Energy\u00ae\u25cf Monster Energy Ultra\u00ae\u25cf Monster Rehab\u00ae\u25cf Monster Energy\u00ae Nitro\u25cf Java Monster\u00ae\u25cf Muscle Monster\u00ae\u25cf Espresso Monster\u00ae\u25cf Punch Monster\u00ae\u25cf Juice Monster\u00ae\u25cf Monster Hydro\u00ae Energy Water\u25cf Monster Hydro\u00ae Super Sport\u25cf Monster HydroSport Super Fuel\u00ae\u25cf Monster Super Fuel\u00ae\u25cf Monster Dragon Tea\u00ae\u25cf Reign Total Body Fuel\u00ae\u25cf Reign Inferno\u00ae Thermogenic Fuel","","\u25cf NOS\u00ae\u25cf Full Throttle\u00ae\u25cf Burn\u00ae\u25cf Mother\u00ae\u25cf Nalu\u00ae\u25cf Ultra Energy\u00ae\u25cf Play\u00ae and Power Play\u00ae (stylized)\u25cf Relentless\u00ae\u25cf BPM\u00ae\u25cf BU\u00ae\u25cf Gladiator\u00ae\u25cf Samurai\u00ae\u25cf Live+\u00ae\u25cf Predator\u00ae\u25cf Fury\u00ae\u25cf True North\u00ae"]] [[/GREPCENT_TABLE]] ​ The comparative results of operations for the twelve-months ended December 31, 2020 included a non-recurring tax benefit of approximately $165.1 million due to an intra-entity transfer of intangible assets between certain of the Company’s foreign subsidiaries, which resulted in a step-up of the tax-deductible basis in the transferred assets in a foreign jurisdiction, and created a temporary difference between the tax basis and the book basis for such intangible assets (the “Non-Recurring Tax Benefit”), as well as reduced marketing, sponsorships and certain other operating expenses, largely as a consequence of the COVID-19 pandemic. These items should be taken into consideration when evaluating comparative performance for the twelve-months ended December 31, 2021 as compared to the twelve-months ended December 31, 2020. Our net sales of $5.5 billion for the year ended December 31, 2021 represented record annual net sales. The comparative net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to product returns from our customers as a result of a European formulation issue with a limited number of products in Europe and a labeling issue concerning one product in Japan (the “Product Returns”). Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $61.9 million for the year ended December 31, 2021. The vast majority of our net sales are derived from our Monster Energy® Drinks segment. Net sales of our Monster Energy® Drinks segment were $5.22 billion for the year ended December 31, 2021. Net sales of our Strategic Brands segment were $294.8 million for the year ended December 31, 2021. Our Monster Energy® Drinks segment represented 94.2% and 93.6% of our net sales for the years ended December 31, 2021 and 2020, respectively. Our Strategic Brands segment represented 5.3% and 5.8% of our net sales for the years ended December 31, 2021 and 2020, respectively. Our Other segment represented 0.5% and 0.6% of our net sales for the years ended December 31, 2021 and 2020, respectively. The comparative net sales for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Net changes in foreign currency exchange rates had a favorable impact on our net sales of the Monster Energy® Drinks segment of approximately $57.6 million for the year ended December 31, 2021. Net changes in foreign currency 46 Table of Contents exchange rates had a favorable impact on net sales in the Strategic Brands segment of approximately $4.3 million for the year ended December 31, 2021. Our growth strategy includes expanding our international business. Net sales to customers outside the United States amounted to $2.04 billion, $1.51 billion and $1.33 billion for the years ended December 31, 2021, 2020 and 2019, respectively. Such sales were approximately 37%, 33% and 32% of net sales for the years ended December 31, 2021, 2020 and 2019, respectively. The comparative net sales to customers outside the United States for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Our customers are primarily full service beverage bottlers/distributors, retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, foodservice customers, value stores, e-commerce retailers and the military. Percentages of our gross billings to our various customer types for the years ended December 31, 2021, 2020 and 2019 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our full service beverage bottlers/distributors in the United States. Such full service beverage bottlers/distributors in turn sell certain of our products to some of the same customer types listed below. We limit our description of our customer types to include only our sales to our full service bottlers/distributors without reference to such bottlers/distributors’ sales to their own customers. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2021","","2020","","2019"],["U.S. full service bottlers/distributors","","51%","\u200b","56%","\u200b","58%"],["International full service bottlers/distributors","","39%","\u200b","34%","\u200b","33%"],["Club stores and e-commerce retailers","","8%","\u200b","8%","\u200b","7%"],["Retail grocery, direct convenience, specialty chains and wholesalers","","1%","\u200b","1%","\u200b","1%"],["Direct value stores and other","","1%","\u200b","1%","\u200b","1%"]] [[/GREPCENT_TABLE]] ​ Our customers include Coca-Cola Canada Bottling Limited, Coca-Cola Consolidated, Inc., Coca-Cola Bottling Company United, Inc., Reyes Coca-Cola Bottling, LLC, Great Lakes Coca-Cola Distribution, LLC, Coca-Cola Southwest Beverages LLC, The Coca-Cola Bottling Company of Northern New England, Inc., Swire Pacific Holdings, Inc. (USA), Liberty Coca-Cola Beverages, LLC, Coca-Cola Europacific Partners, Coca-Cola Hellenic, Coca-Cola FEMSA, Coca-Cola Amatil, Swire Coca-Cola (China), COFCO Coca-Cola, Coca-Cola Beverages Africa, Coca-Cola İçecek and certain other TCCC network bottlers, Asahi Soft Drinks, Co., Ltd., Wal-Mart, Inc. (including Sam’s Club), Costco Wholesale Corporation and Amazon.com, Inc. A decision by any large customer to decrease amounts purchased from us or to cease carrying our products could have a material adverse effect on our financial condition and consolidated results of operations. Coca-Cola Consolidated, Inc. accounted for approximately 12%, 12% and 13% of our net sales for the years ended December 31, 2021, 2020 and 2019, respectively. Reyes Coca-Cola Bottling, LLC accounted for approximately 10%, 11% and 11% of our net sales for the years ended December 31, 2021, 2020 and 2019, respectively. Coca-Cola Europacific Partners accounted for approximately 12%, 10% and 10% of our net sales for the years ended December 31, 2021, 2020 and 2019, respectively. We continue to incur expenditures in connection with the development and introduction of new products and flavors. CANarchy Acquisition On February 17, 2022, we completed our acquisition of CANarchy Craft Brewery Collective LLC (“CANarchy”), a craft beer and hard seltzer company, for $330.0 million in cash, subject to adjustments. The transaction allows us to enter the alcohol beverage 47 Table of Contents sector and brings the Cigar City family of brands including Jai Alai IPA and Florida Man IPA, the Oskar Blues family of brands including Dale’s Pale Ale and Wild Basin Hard Seltzers, the Deep Ellum family of brands including Dallas Blonde and Deep Ellum IPA, the Perrin Brewing family of brands including Black Ale, the Squatters family of brands including Hop Rising Double IPA and Juicy IPA and the Wasatch family of brands including Apricot Hefeweizen to our beverage portfolio. The transaction does not include CANarchy’s stand-alone restaurants. Our organizational structure for our existing energy beverage business will remain unchanged. CANarchy will function independently, retaining its own organizational structure and team. ​ Value Drivers of our Business We believe that the key value drivers of our business include the following: [[GREPCENT_TABLE]] [["","\u25cf","International Growth \u2013 The introduction, development and sustained profitability of our brands internationally remains a key value driver for our corporate growth. One or more of our products are distributed in approximately 154 countries and territories worldwide."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Profitable Growth \u2013 We believe \u201cfunctional\u201d value-added beverage brands supported by marketing and innovation and targeted to a diverse consumer base, drive profitable growth. We are focused on increasing the profit margins for both our Monster Energy\u00ae Drinks segment and our Strategic Brands segment, and believe that tailored branding, packaging, pricing and distribution channel strategies help achieve profitable growth. We are implementing these strategies with a view to continuing profitable growth."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Cost Management \u2013 The principal focus of cost management will continue to be on mitigating increases and/or reducing input procurement and production costs on a per-case basis, including raw material costs and co-packing fees, as well as reducing freight costs by securing additional co-packing facilities strategically localized. Another key area of focus is to decrease promotional allowances, selling and general and administrative costs, including sponsorships, sampling, promotional and marketing expenses, as a percentage of net sales."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Efficient Capital Structure \u2013 Our capital structure is designed to optimize our working capital in order to finance expansion, both domestically and internationally. We believe that with our strong capital position, our ability to raise funds, if necessary, at a relatively low effective cost of borrowings, provides a competitive advantage. The reduction of days outstanding for accounts receivable and inventory days on hand will remain an area of focus."]] [[/GREPCENT_TABLE]] We believe that, subject to increases in the costs of certain raw materials being contained, these value drivers, when implemented and/or achieved in the United States and internationally, will result in: (1) improving or maintaining our product gross profit margins; (2) providing additional leverage over time through reduced expenses as a percentage of net operating revenues; and (3) enhancing our cost of capital. The ultimate measure of success is and will be reflected in our current and future results of operations. Net sales, gross profit, operating income, net income and net income per share represent key measurements of the above value drivers. These measurements will continue to be a key management focus in 2022 and beyond (See “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations”). As of December 31, 2021, the Company had working capital of $3.72 billion compared to $2.39 billion as of December 31, 2020. The increase in working capital was primarily the result of the $1.38 billion of net income earned during the year ended December 31, 2021. For the year ended December 31, 2021, our net cash provided by operating activities was approximately $1.16 billion as compared to $1.36 billion for the year ended December 31, 2020. Principal uses of cash flows in 2021, were purchases of investments, development of our Monster Energy® brand internationally and 48 Table of Contents acquisitions of real property, property and equipment. These principal uses of cash flows are expected to be and remain our principal recurring use of cash and working capital funds in the future (See “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”). Opportunities, Challenges and Risks Looking forward, our management has identified certain challenges and risks for the beverage industry and the Company, including our significant commercial relationship with TCCC and TCCC’s status as a significant stockholder of the Company, in each case as described above under “Part I, Item 1A – Risk Factors.” In addition, legislation has been proposed and/or adopted at the U.S., state, county and/or municipal level and proposed and/or adopted in certain foreign jurisdictions to restrict the sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limit caffeine content, require certain product labeling disclosures and/or warnings, impose taxes, limit product sizes or impose age restrictions for the sale of energy drinks. In addition, articles critical of the caffeine content in energy drinks and their perceived benefits and articles indicating certain health risks of energy drinks have been published. The proposal and/or adoption of such legislation and the publication of such articles, or the future proposal and/or adoption of similar legislation or publication of similar articles, may adversely affect our Company. In addition, uncertainty and/or volatility in our domestic and/or our international economic markets could negatively affect both the stability of our industry and our Company. Furthermore, our growth strategy includes expanding our international business, which exposes us to risks inherent in conducting international operations, including the risks associated with foreign currency exchange rate fluctuations. Consumer discretionary spending also represents a challenge to the successful marketing and sale of our products. Increases in consumer and regulatory awareness of the health problems arising from obesity and inactive lifestyles continue to represent a challenge. We recognize that obesity is a complex and serious public health problem. Our commitment to consumers begins with our broad product line and a wide selection of diet, light and low calorie beverages within our energy drink product lines. We continuously strive to meet changing consumer needs through beverage innovation, choice and variety. (See “Part I, Item 1A – Risk Factors”). Our historical success is attributable, in part, to our introduction of different and innovative beverages which have been positively accepted by consumers. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages that meet consumer preferences, although there can be no assurance of our ability to do so. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of price, quality, method of distribution, brand image and intellectual property protection. The beverage industry is subject to changing consumer preferences that may adversely affect us if we misjudge such preferences. In addition, other key challenges and risks that could impact our Company’s future financial results include, but are not limited to: [[GREPCENT_TABLE]] [["","\u25cf","the continuation or worsening of the COVID-19 pandemic;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the risks associated with the realization of benefits from our relationship with TCCC;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","changes in consumer preferences and demand for our products;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","economic uncertainty in the United States, Europe and other countries in which we operate;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the risks associated with foreign currency exchange rate fluctuations;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","maintenance of our brand image, product quality and corporate reputation;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","increasing concern over various environmental, human rights and health matters, including obesity, caffeine consumption and energy drinks generally, and changes in regulation and consumer preferences in response to those concerns;"]] [[/GREPCENT_TABLE]] 49 Table of Contents [[GREPCENT_TABLE]] [["","\u25cf","profitable expansion and growth of our family of brands in the competitive market place (See \u201cPart I, Item 1 \u2013 Business \u2013 Competition\u201d and \u201cPart I, Item 1 \u2013 Business \u2013 Sales and Marketing\u201d);"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","costs of establishing and promoting our brands internationally;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the risks associated with entering into new sectors in the beverage industry, in particular the alcohol beverage sector, and making acquisitions to implement our growth strategy;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","increases in costs of raw materials used by us;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","restrictions on imports and sources of supply, duties or tariffs, changes in related government regulations and disruptions in the timely import or export of our products and/or ingredients including flavors, flavor ingredients and supplement ingredients, due to port strikes and/or port congestion, delays due to the COVID-19 pandemic, related labor issues or other importation impediments;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","protection of our existing intellectual property portfolio of trademarks and copyrights and the continuous pursuit to develop and protect new and innovative trademarks and copyrights for our expanding product lines;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","limitations on available quantities of aluminum cans;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the increased costs resulting from importing aluminum cans and other raw materials and ingredients;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","limitations on co-packing availability;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","increases in ocean and domestic freight rates;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","shortages of shipping containers and port congestion;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the long-term impact of Brexit on our business in Europe and the United Kingdom; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the imposition of additional regulation, including regulation restricting the sale of energy drinks, limiting caffeine content in beverages, requiring product labeling and/or warnings, imposing excise taxes and/or sales taxes, and/or limiting product size and/or age restrictions."]] [[/GREPCENT_TABLE]] See “Part I, Item 1A – Risk Factors” for additional information about risks and uncertainties facing our Company. We believe that the following opportunities exist for us: [[GREPCENT_TABLE]] [["","\u25cf","domestic and international growth potential of our products;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","growth potential of the energy drink category, both domestically and internationally;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","growth potential of the affordable energy drink category;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","planned and future new product and product line introductions with the objective of increasing sales and/or contributing to higher profitability;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the introduction of new package formats designed to generate strong revenue growth;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","package, pricing and channel opportunities to increase profitable growth;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","effective strategic positioning to capitalize on industry growth;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","broadening distribution/expansion opportunities in both domestic and international markets;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","launching and/or relaunching our products and new products into new domestic and international markets and channels;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","continued focus on reducing our cost base ; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","our entry into the alcohol category and development of our alcoholic portfolio."]] [[/GREPCENT_TABLE]] 50 Table of Contents Results of Operations This section of the Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. A detailed discussion of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The following table sets forth key statistics for the years ended December 31, 2021, 2020 and 2019, respectively. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(In thousands, except per share amounts)","","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","Percentage","\u200b","Percentage","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Change","\u200b","Change","\u200b"],["\u200b","","2021","","2020","","2019","","21 vs. 20","","20 vs. 19","\u200b"],["Net sales1","\u200b","$","5,541,352","\u200b","$","4,598,638","\u200b","$","4,200,819","\u200b","20.5%","\u200b","9.5%","\u200b"],["Cost of sales","\u200b","","2,432,839","\u200b","","1,874,758","\u200b","","1,682,234","\u200b","29.8%","\u200b","11.4%","\u200b"],["Gross profit*1","\u200b","","3,108,513","\u200b","","2,723,880","\u200b","","2,518,585","\u200b","14.1%","\u200b","8.2%","\u200b"],["Gross profit as a percentage of net sales","\u200b","","56.1%","\u200b","","59.2%","\u200b","","60.0%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating expenses","\u200b","","1,311,046","\u200b","","1,090,727","\u200b","","1,115,646","\u200b","20.2%","\u200b","(2.2)%","\u200b"],["Operating expenses as a percentage of net sales","\u200b","","23.7%","\u200b","","23.7%","\u200b","","26.6%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating income1","\u200b","","1,797,467","\u200b","","1,633,153","\u200b","","1,402,939","\u200b","10.1%","\u200b","16.4%","\u200b"],["Operating income as a percentage of net sales","\u200b","","32.4%","\u200b","","35.5%","\u200b","","33.4%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other income (expense), net","\u200b","","3,952","\u200b","","(6,996)","\u200b","","13,023","\u200b","(156.5)%","\u200b","(153.7)%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Income before provision for income taxes1","\u200b","","1,801,419","\u200b","","1,626,157","\u200b","","1,415,962","\u200b","10.8%","\u200b","14.8%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Provision for income taxes","\u200b","","423,944","\u200b","","216,563","\u200b","","308,127","\u200b","95.8%","\u200b","(29.7)%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Income taxes as a percentage of income before taxes","\u200b","","23.5%","\u200b","","13.3%","\u200b","","21.8%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income1","\u200b","$","1,377,475","\u200b","$","1,409,594","\u200b","$","1,107,835","\u200b","(2.3)%","\u200b","27.2%","\u200b"],["Net income as a percentage of net sales","\u200b","","24.9%","\u200b","","30.7%","\u200b","","26.4%","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income per common share:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Basic","\u200b","$","2.61","\u200b","$","2.66","\u200b","$","2.04","\u200b","(2.1)%","\u200b","30.3%","\u200b"],["Diluted","\u200b","$","2.57","\u200b","$","2.64","\u200b","$","2.03","\u200b","(2.4)%","\u200b","30.0%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Case sales (in thousands) (in 192\u2011ounce case equivalents)","\u200b","","613,441","\u200b","","504,821","\u200b","","448,770","\u200b","21.5%","\u200b","12.5%","\u200b"]] [[/GREPCENT_TABLE]] ​ ¹Includes $41.5 million, $42.1 million and $46.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, related to the recognition of deferred revenue. *Gross profit may not be comparable to that of other entities since some entities include all costs associated with their distribution process in cost of sales, whereas others exclude certain costs and instead include such costs within another line item such as operating expenses. We include out-bound freight and warehouse costs in operating expenses rather than in cost of sales. 51 Table of Contents Net Sales Net sales were $5.54 billion for the year ended December 31, 2021, an increase of approximately $942.7 million, or 20.5% higher than net sales of $4.60 billion for the year ended December 31, 2020. Net sales increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $61.9 million for the year ended December 31, 2021. The comparative net sales for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Net sales for the Monster Energy® Drinks segment were $5.22 billion for the year ended December 31, 2021, an increase of approximately $915.4 million, or 21.3% higher than net sales of $4.31 billion for the year ended December 31, 2020. Net sales for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had a favorable impact on net sales for the Monster Energy® Drinks segment of approximately $57.6 million for the year ended December 31, 2021. The comparative net sales for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Net sales for the Strategic Brands segment were $294.8 million for the year ended December 31, 2021, an increase of approximately $28.4 million, or 10.7% higher than net sales of $266.4 million for the year ended December 31, 2020. Net sales for the Strategic Brands segment increased primarily due to increased worldwide sales by volume of our Predator®, Burn® and Mother® brand energy drinks as a result of increased consumer demand. Shortages of certain NOS® concentrates negatively impacted net sales for the year ended December 31, 2021. Net changes in foreign currency exchange rates had a favorable impact on net sales of approximately $4.3 million for the Strategic Brands segment for the year ended December 31, 2021. Net sales for the Other segment were $25.9 million for the year ended December 31, 2021, a decrease of approximately $1.1 million, or 4.1% lower than net sales of $27.0 million for the year ended December 31, 2020. Case sales, in 192-ounce case equivalents, were 613.4 million cases for the year ended December 31, 2021, an increase of approximately 108.6 million cases or 21.5% higher than case sales of 504.8 million cases for the year ended December 31, 2020. The overall average net sales per case (excluding net sales of AFF Third-Party Products of $25.9 million and $27.0 million for the year ended December 31, 2021 and 2020, respectively, as these sales do not have unit case equivalents) decreased to $8.99 for the year ended December 31, 2021, which was 0.7% lower than the average net sales per case of $9.06 for the year ended December 31, 2020. The decrease in the average net sales per case was primarily the result of geographical sales mix. Gross Profit Gross profit was $3.11 billion for the year ended December 31, 2021, an increase of approximately $384.6 million, or 14.1% higher than the gross profit of $2.72 billion for the year ended December 31, 2020. The increase in gross profit dollars was primarily the result of the $942.7 million increase in net sales for the year ended December 31, 2021. Gross profit as a percentage of net sales decreased to 56.1% for the year ended December 31, 2021 from 59.2% for the year ended December 31, 2020. The decrease for the year ended December 31, 2021 was primarily the result of increased aluminum can costs attributable to higher aluminum commodity pricing, increased costs of certain other raw materials and ingredients, increased freight-in costs and geographical sales mix. 52 Table of Contents Operating Expenses Total operating expenses were $1.31 billion for the year ended December 31, 2021, an increase of approximately $220.3 million, or 20.2% higher than total operating expenses of $1.09 billion for the year ended December 31, 2020. As a percentage of net sales, operating expenses were 23.7% for both the years ended December 31, 2021 and 2020. The increase in operating expenses was primarily due to increased out-bound freight and warehouse costs of $86.1 million, increased payroll expenses of $42.5 million, increased expenditures of $38.1 million for sponsorships and endorsements, increased expenditures of $15.7 million for social media and digital marketing, and increased expenditures of $10.4 million for professional service expenses, including accounting and legal costs. The increase in operating expenses for the year ended December 31, 2021, was partially offset by $16.9 million due to the reversal of amounts previously accrued in connection with an intellectual property claim. During the comparative 2020 period, the Company decreased expenditures for sponsorship and endorsements and decreased expenditures for travel and entertainment, each largely as a consequence of the COVID-19 pandemic. The impact of the COVID-19 pandemic was less pronounced on our sales and marketing programs during the year ended December 31, 2021. Operating expenses for the year ended December 31, 2019 (pre COVID-19) were $1.12 billion, or 26.6% of net sales. Operating Income Operating income was $1.80 billion for the year ended December 31, 2021, an increase of approximately $164.3 million, or 10.1% higher than operating income of $1.63 billion for the year ended December 31, 2020. Operating income as a percentage of net sales decreased to 32.4% for the year ended December 31, 2021 from 35.5% for the year ended December 31, 2020. Operating income was $402.8 million and $279.7 million for the year ended December 31, 2021 and 2020, respectively, for our operations in EMEA, Asia Pacific, Latin America and the Caribbean. Operating income for the year ended December 31,2019 (pre COVID-19) was $1.4 billion, or 33.4% of net sales. Operating income for the Monster Energy® Drinks segment, exclusive of corporate and unallocated expenses, was $1.99 billion for the year ended December 31, 2021, an increase of approximately $170.4 million, or 9.4% higher than operating income of $1.82 billion for the year ended December 31, 2020. The increase in operating income for the Monster Energy® Drinks segment was primarily the result of the $915.4 million increase in net sales for the year ended December 31, 2021. Operating income for the Strategic Brands segment, exclusive of corporate and unallocated expenses, was $173.7 million for the year ended December 31, 2021, an increase of approximately $18.6 million, or 12.0% higher than operating income of $155.0 million for the year ended December 31, 2020. The increase in operating income for the Strategic Brands segment was primarily the result of the $28.4 million increase in net sales. Operating income for the Other segment, exclusive of corporate and unallocated expenses, was $6.9 million for the year ended December 31, 2021, an increase of approximately $1.0 million, or 16.9% higher than operating income of $5.9 million for the year ended December 31, 2020. Other Income (Expense), net Other income (expense), net, was $4.0 million for the year ended December 31, 2021, as compared to other income (expense), net, of ($7.0) million for the year ended December 31, 2020. Foreign currency transaction gains (losses) were $0.3 million and ($11.2) million for the year ended December 31, 2021 and 2020, respectively. Interest income was $4.2 million and $8.1 million for the year ended December 31, 2021 and 2020, respectively. 53 Table of Contents Provision for Income Taxes Provision for income taxes was $423.9 million for the year ended December 31, 2021, an increase of $207.4 million, or 95.8% higher than the provision for income taxes of $216.6 million for the year ended December 31, 2020. The effective combined federal, state and foreign tax rate was 23.5% and 13.3% for the year ended December 31, 2021 and 2020, respectively. The comparative provision for income taxes for the year ended December 31, 2020 included the Non-Recurring Tax Benefit of approximately $165.1 million. Net Income Net income was $1.38 billion for the year ended December 31, 2021, a decrease of $32.1 million, or 2.3% lower than net income of $1.41 billion for the year ended December 31, 2020. The decrease in net income for the year ended December 31, 2021 was primarily due to the $207.4 million increase in the provision for income taxes and the $220.3 million increase in operating expenses, partially offset by the $393.1 million increase in gross profit. Key Business Metrics We use certain key metrics and financial measures not prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) to evaluate and manage our business. For a further discussion of how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures and Other Key Metrics” below. Non-GAAP Financial Measures and Other Key Metrics Gross Billings** Gross billings were $6.42 billion for the year ended December 31, 2021, an increase of approximately $1.10 billion, or 20.6% higher than gross billings of $5.33 billion for the year ended December 31, 2020. Net changes in foreign currency exchange rates had a favorable impact on gross billings of approximately $83.1 million for the year ended December 31, 2021. The comparative gross billings for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Gross billings for the Monster Energy® Drinks segment were $6.06 billion for the year ended December 31, 2021, an increase of approximately $1.06 billion, or 21.3% higher than gross billings of $5.00 billion for the year ended December 31, 2020. Gross billings for the Monster Energy® Drinks segment increased primarily due to increased worldwide sales by volume of our Monster Energy® brand energy drinks as a result of increased consumer demand. Net changes in foreign currency exchange rates had a favorable impact on gross billings for the Monster Energy® Drinks segment of approximately $78.7 million for the year ended December 31, 2021. The comparative gross billings for the Monster Energy® Drinks segment for the year ended December 31, 2020 were negatively impacted by $15.2 million related to the Product Returns. Gross billings for the Strategic Brands segment were $340.2 million for the year ended December 31, 2021, an increase of $34.8 million, or 11.4% higher than gross billings of $305.4 million for the year ended December 31, 2020. Shortages of NOS® concentrate negatively impacted gross billings for the year ended December 31, 2021. Net changes in foreign currency exchange rates had a favorable impact on gross billings in the Strategic Brands segment of approximately $4.4 million for the year ended December 31, 2021. Gross billings for the Other segment were $25.9 million for the year ended December 31, 2021, a decrease of $1.1 million, or 4.1% lower than gross billings of $27.0 million for the year ended December 31, 2020. Promotional allowances, commissions and other expenses, as described in the footnote below, were $924.7 million for the year ended December 31, 2021, an increase of $152.6 million, or 19.8% higher than promotional allowances, 54 Table of Contents commissions and other expenses of $772.2 million for the year ended December 31, 2020. Promotional allowances as a percentage of gross billings decreased to 12.8% from 13.1% for the year ended December 31, 2021 and 2020, respectively. **Gross billings represent amounts invoiced to customers net of cash discounts and returns. Gross billings are used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and is useful to investors in evaluating overall Company performance. The use of gross billings allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross billings provides a useful measure of our operating performance. The use of gross billings is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross billings may not be comparable to similarly titled measures used by other companies, as gross billings has been defined by our internal reporting practices. In addition, gross billings may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers. The following table reconciles the non-GAAP financial measure of gross billings with the most directly comparable GAAP financial measure of net sales: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","","","\u200b","","","\u200b","","","Percentage","","Percentage"],["In thousands","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","Change","\u200b","Change"],["\u200b","","2021","","2020","","2019","","21 vs. 20","\u200b","20 vs. 19"],["Gross Billings","\u200b","$","6,424,632","\u200b","$","5,328,683","\u200b","$","4,821,411","","20.6%","\u200b","10.5%"],["Deferred Revenue","\u200b","\u200b","41,462","\u200b","\u200b","42,110","\u200b","\u200b","46,287","\u200b","(1.5%)","\u200b","(9.0%)"],["Less: Promotional allowances, commissions and other expenses***","\u200b","","(924,742)","\u200b","","(772,155)","\u200b","","(666,879)","","19.8%","\u200b","15.8%"],["Net Sales","\u200b","$","5,541,352","\u200b","$","4,598,638","\u200b","$","4,200,819","","20.5%","\u200b","9.5%"]] [[/GREPCENT_TABLE]] ​ ***Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the presentation thereof does not conform to GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to our bottlers/distributors or retail customers including, but not limited to the following: (i) discounts granted off list prices to support price promotions to end-consumers by retailers; (ii) reimbursements given to our bottlers/distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (iii) our agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities; (iv) our agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers; (v) incentives given to our bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals; (vi) discounted or free products; (vii) contractual fees given to our bottlers/distributors related to sales made by us direct to certain customers that fall within the bottlers’/distributors’ sales territories; and (viii) certain commissions paid based on sales to our bottlers/distributors. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances constitute a material portion of our marketing activities. Our promotional allowance programs with our numerous bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The primary drivers of our promotional and other allowance activities for the years ended December 31, 2021 and 2020 were (i) to increase sales volume and trial, (ii) to address market conditions, and (iii) to secure shelf and display space at retail. Sales The table set forth below discloses selected quarterly data regarding sales for the past three years. Data from any one or more quarters is not necessarily indicative of annual results or continuing trends. Sales of beverages are expressed in unit case volume. A “unit case” means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings). Unit case volume means the number of unit cases (or unit case equivalents) of finished products or concentrates, as if converted into finished products, sold by us. 55 Table of Contents Our quarterly results of operations reflect seasonal trends that are primarily the result of increased demand in the warmer months of the year. It has been our experience that beverage sales tend to be lower during the first and fourth quarters of each calendar year. In addition, our experience with our energy drink products suggests they are less seasonal than the seasonality expected from traditional beverages. Quarterly fluctuations may also be affected by other factors including the introduction of new products, the opening of new markets where temperature fluctuations are more pronounced, the addition of new bottlers/distributors and customers, changes in the sales mix of our products and changes in and/or increased advertising and promotional expenses. (See “Part I, Item 1 – Business – Seasonality”). [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2021","","2020","","2019"],["Net Sales (in Thousands)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Quarter 1","\u200b","$","1,243,816","\u200b","$","1,062,097","\u200b","$","945,991"],["Quarter 2","\u200b","","1,461,934","\u200b","","1,093,896","\u200b","","1,104,045"],["Quarter 3","\u200b","","1,410,557","\u200b","","1,246,362","\u200b","","1,133,577"],["Quarter 4","\u200b","","1,425,045","\u200b","","1,196,283","\u200b","","1,017,206"],["Total","\u200b","$","5,541,352","\u200b","$","4,598,638","\u200b","$","4,200,819"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Less: AFF third party net sales (in Thousands)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Quarter 1","\u200b","$","(5,727)","\u200b","$","(5,105)","\u200b","$","(5,321)"],["Quarter 2","\u200b","","(7,905)","\u200b","","(6,644)","\u200b","","(5,791)"],["Quarter 3","\u200b","","(6,316)","\u200b","","(8,618)","\u200b","","(5,860)"],["Quarter 4","\u200b","","(5,969)","\u200b","","(6,671)","\u200b","","(4,893)"],["Total","\u200b","$","(25,917)","\u200b","$","(27,038)","\u200b","$","(21,865)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted Net Sales (in Thousands)\u00b9","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Quarter 1","\u200b","$","1,238,089","\u200b","$","1,056,992","\u200b","$","940,670"],["Quarter 2","\u200b","","1,454,029","\u200b","","1,087,252","\u200b","","1,098,254"],["Quarter 3","\u200b","","1,404,241","\u200b","","1,237,744","\u200b","","1,127,717"],["Quarter 4","\u200b","","1,419,076","\u200b","","1,189,612","\u200b","","1,012,313"],["Total","\u200b","$","5,515,435","\u200b","$","4,571,600","\u200b","$","4,178,954"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Case Volume / Sales (in Thousands)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Quarter 1","\u200b","","138,566","\u200b","","115,598","\u200b","","101,284"],["Quarter 2","\u200b","","161,450","\u200b","","116,960","\u200b","","119,595"],["Quarter 3","\u200b","","159,975","\u200b","","139,922","\u200b","","121,854"],["Quarter 4","\u200b","","153,450","\u200b","","132,341","\u200b","","106,037"],["Total","\u200b","","613,441","\u200b","","504,821","\u200b","","448,770"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted Average Net Sales Per Case","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Quarter 1","\u200b","$","8.94","\u200b","$","9.14","\u200b","$","9.29"],["Quarter 2","\u200b","","9.01","\u200b","","9.30","\u200b","","9.18"],["Quarter 3","\u200b","","8.78","\u200b","","8.85","\u200b","","9.25"],["Quarter 4","\u200b","","9.25","\u200b","","8.99","\u200b","","9.55"],["Total","\u200b","$","8.99","\u200b","$","9.06","\u200b","$","9.31"]] [[/GREPCENT_TABLE]] ​ 1Excludes Other segment net sales of $25.9 million, $27.0 million and $21.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents. 56 Table of Contents The following represents case sales by segment for the years ended December 31: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(In thousands, except average net sales per case)","","2021","","2020","","2019"],["Net sales","\u200b","$","5,541,352","\u200b","$","4,598,638","\u200b","$","4,200,819"],["Less: AFF third-party sales","\u200b","","(25,917)","\u200b","","(27,038)","\u200b","","(21,865)"],["Adjusted net sales1","\u200b","$","5,515,435","\u200b","$","4,571,600","\u200b","$","4,178,954"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Case sales by segment:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b"],["Monster Energy\u00ae Drinks","\u200b","","520,577","\u200b","","428,596","\u200b","","377,551"],["Strategic Brands","\u200b","","92,864","\u200b","","76,225","\u200b","","71,219"],["Other","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Total case sales","\u200b","","613,441","\u200b","","504,821","\u200b","","448,770"],["Average net sales per case","\u200b","$","8.99","\u200b","$","9.06","\u200b","$","9.31"]] [[/GREPCENT_TABLE]] ​ 1Excludes Other segment net sales of $25.9 million, $27.0 million and $21.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, comprised of sales of our AFF Third-Party Products to independent third parties as these sales do not have unit case equivalents. Inflation Inflation had a negative impact on our results of operations, leading to increased cost of sales and operating expenses for the year ended December 31, 2021. Inflation did not have a significant impact on our results of operations for the years ended December 31, 2020 or 2019. Liquidity and Capital Resources Cash and cash equivalents, short-term and long-term investments – As of December 31, 2021, we had $1.33 billion in cash and cash equivalents, $1.75 billion in short-term investments and $99.4 million in long-term investments, including certificates of deposit, commercial paper, U.S. government agency securities, U.S. treasuries, and to a lesser extent, municipal securities. We maintain our investments for cash management purposes and not for purposes of speculation. Our risk management policies emphasize credit quality (primarily based on short-term ratings by nationally recognized statistical rating organizations) in selecting and maintaining our investments. We regularly assess market risk of our investments and believe our current policies and investment practices adequately limit those risks. However, certain of these investments are subject to general credit, liquidity, market and interest rate risks. These risks associated with our investment portfolio may have an adverse effect on our future results of operations, liquidity and financial condition. Of our $1.33 billion of cash and cash equivalents held at December 31, 2021, $608.6 million was held by our foreign subsidiaries. No short-term or long-term investments were held by our foreign subsidiaries at December 31, 2021. We believe that cash available from operations, including our cash resources and our revolving line of credit, will be sufficient for our working capital needs, including purchase commitments for raw materials and inventory, increases in accounts receivable, payments of tax liabilities, expansion and development needs, purchases of shares of our common stock, as well as purchases of capital assets, equipment and properties, through at least the next 12 months. Based on our current plans, capital expenditures (exclusive of common stock repurchases) are currently estimated to be approximately $150.0 million through December 31, 2022. However, future business opportunities may cause a change in this estimate. Purchases of inventories, increases in accounts receivable and other assets, acquisition of property and equipment (including real property, personal property and coolers), leasehold improvements, advances for or the purchase of equipment for our bottlers, acquisition and maintenance of trademarks, payments of accounts payable, income taxes payable and purchases of our common stock are expected to remain our principal recurring use of cash. 57 Table of Contents The following summarizes our cash flows for the years ended December 31, 2021, 2020 and 2019 (in thousands): ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net cash provided by (used in):","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["\u200b","","\u200b","2021","","\u200b","2020","","\u200b","2019"],["Operating activities","\u200b","$","1,155,741","\u200b","$","1,364,163","\u200b","$","1,113,762"],["Investing activities","\u200b","$","(992,022)","\u200b","$","(472,487)","\u200b","$","(326,724)"],["Financing activities","\u200b","$","34,821","\u200b","$","(526,068)","\u200b","$","(628,506)"]] [[/GREPCENT_TABLE]] ​ Cash flows provided by operating activities. Cash provided by operating activities was $1.16 billion for the year ended December 31, 2021, as compared with cash provided by operating activities of $1.36 billion for the year ended December 31, 2020. For the year ended December 31, 2021, cash provided by operating activities was primarily attributable to net income earned of $1.38 billion and adjustments for certain non-cash expenses, consisting of $50.2 million of depreciation and amortization, and $70.5 million of stock-based compensation. For the year ended December 31, 2021, cash provided by operating activities also increased due to a $114.3 million increase in accounts payable, a $71.6 million increase in accrued liabilities, a $31.5 million increase in accrued promotional allowances, a $16.4 million increase in deferred income taxes, an $8.0 million increase in accrued compensation and a $7.2 million increase in income taxes payable. For the year ended December 31, 2021, cash used in operating activities was primarily attributable a $277.8 million increase in inventories, a $254.2 million increase in accounts receivable, a $29.3 million increase in prepaid expenses and other assets, a $22.7 million decrease in deferred revenue and a $10.9 million increase in prepaid income taxes. For the year ended December 31, 2020, cash provided by operating activities was primarily attributable to net income earned of $1.41 billion and adjustments for certain non-cash expenses, consisting of $57.0 million of depreciation and amortization, $70.3 million of stock-based compensation and $8.7 million of intangible impairments. For the year ended December 31, 2020, cash provided by operating activities also increased due to a $30.3 million decrease in inventories, a $26.4 million increase in accrued liabilities, an $18.7 million increase in accounts payable, a $13.8 million increase in accrued promotional allowances, a $10.4 million increase in income taxes payable, a $7.5 million increase in accrued compensation, a $5.5 million decrease in prepaid income taxes and a $1.0 million decrease in prepaid expenses and other assets. For the year ended December 31, 2020, cash used in operating activities was primarily attributable to a $156.9 million increase in deferred income taxes, a $120.1 million increase in accounts receivable and a $21.5 million decrease in deferred revenue. Cash flows used in investing activities. Net cash used in investing activities was $992.0 million for the year ended December 31, 2021 as compared to cash used in investing activities of $472.5 million for the year ended December 31, 2020. For both the years ended December 31, 2021 and 2020, cash provided by investing activities was primarily attributable to sales of available-for-sale investments. For both the years ended December 31, 2021 and 2020, cash used in investing activities was primarily attributable to purchases of available-for-sale investments. For both the years ended December 31, 2021 and 2020, cash used in investing activities also included the acquisition of fixed assets consisting of vans and promotional vehicles, coolers and other equipment to support our marketing and promotional activities, production equipment, furniture and fixtures, office and computer equipment, real property, computer software, equipment used for sales and administrative activities, certain leasehold improvements, improvements to real property as well as the acquisition, defense and maintenance of trademarks. We expect to continue to use a portion of our cash in excess of our requirements for operations for purchasing short-term and long-term investments, leasehold improvements, the acquisition of capital equipment (specifically, vans, trucks and promotional vehicles, coolers, other promotional equipment, merchandise displays, warehousing racks as well as items of production equipment required to produce certain of our existing and/or new products and to develop our brand in international markets) and for other corporate purposes. From time to time, we may also use cash to purchase additional real property related to our beverage business and/or acquire compatible businesses. 58 Table of Contents Cash flows provided by (used in) financing activities. Cash provided by financing activities was $34.8 million for the year ended December 31, 2021 as compared to cash used in financing activities of ($526.1) million for the year ended December 31, 2020. The cash flows provided by financing activities for both the years ended December 31, 2021, and 2020 was primarily attributable to the issuance of our common stock related to stock-based compensation. The cash flows used in financing activities for both the years ended December 31, 2021 and 2020 was primarily the result of the repurchases of our common stock related to stock-based compensation. The following represents a summary of the Company’s contractual commitments and related scheduled maturities as of December 31, 2021: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Payments due by period (in thousands)"],["\u200b","","\u200b","\u200b","","Less than","","1\u20113","","3\u20115","","More than"],["Obligations","\u200b","Total","\u200b","1 year","","years","","years","","5 years"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Contractual Obligations1","\u200b","$","305,053","\u200b","$","236,698","\u200b","$","68,345","\u200b","$","10","\u200b","$","\u2014"],["Finance Leases","\u200b","","1,006","\u200b","","964","\u200b","","34","\u200b","","8","\u200b","","\u2014"],["Operating Leases","\u200b","","24,714","\u200b","","4,605","\u200b","","6,799","\u200b","","3,361","\u200b","","9,949"],["Purchase Commitments2","\u200b","","273,422","\u200b","","273,422","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["\u200b","\u200b","$","604,195","\u200b","$","515,689","\u200b","$","75,178","\u200b","$","3,379","\u200b","$","9,949"]] [[/GREPCENT_TABLE]] ¹ Contractual obligations include our obligations related to sponsorships, other marketing activities and AFF new production facility construction costs. ² Purchase commitments include obligations made by us and our subsidiaries to various suppliers for raw materials used in the production of our products. These obligations vary in terms, but are generally satisfied within one year. In addition, no unrecognized tax benefits have been recorded as liabilities as of December 31, 2021. It is expected that the amount of unrecognized tax benefits will not significantly change within the next 12 months. Accounting Policies and Pronouncements Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions. See “Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 – Organization and Summary of Significant Accounting Policies” for a summary of our significant accounting policies. 59 Table of Contents The following summarizes our most significant critical accounting estimates: 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 reasonably determines that it is more-likely-than-not that the fair value is less than the carrying value, the Company performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Application of the goodwill impairment test requires significant judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated through the use of a discounted cash flow methodology. This analysis requires significant assumptions, including discount rate, projected future revenues, projected future operating margins and terminal growth rates. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. The Company will recognize an impairment for the amount by which the carrying amount exceeds a reporting unit’s fair value. For the years ended December 31, 2021, 2020 and 2019, there were no impairments recorded and there are no accumulated impairment balances. Other Intangibles – 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. Recoverability of indefinite-lived intangible assets is determined on a relief from royalty methodology, which is based on the implied royalty paid, at an appropriate discount rate, to license the use of an asset rather than owning the asset. The present value of the after-tax cost savings (i.e. royalty relief) indicates the estimated fair value of the asset. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess. This analysis requires significant assumptions, including discount rate, projected future revenues and terminal growth rates. A significant change in any or a combination of the assumptions used to estimate fair value of our indefinite-lived intangible assets could have a negative impact on the estimated fair values. The Company amortizes its trademarks with finite useful lives over their respective useful lives. For the years ended December 31, 2021 and 2019 no impairments were recorded. For the year ended December 31, 2020, an impairment charge of $8.7 million was recorded to intangibles. Revenue Recognition – 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: [[GREPCENT_TABLE]] [["","\u25cf","discounts granted off list prices to support price promotions to end-consumers by retailers;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","reimbursements given to the Company\u2019s 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;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the Company\u2019s agreed share of fees given to bottlers/distributors and/or directly to retailers for advertising, in-store marketing and promotional activities;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","the Company\u2019s agreed share of slotting, shelf space allowances and other fees given directly to retailers;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","incentives given to the Company\u2019s bottlers/distributors and/or retailers for achieving or exceeding certain predetermined sales goals;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","discounted or free products;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","contractual fees given to the Company\u2019s bottlers/distributors related to sales made directly by the Company to certain customers that fall within the bottlers\u2019/distributors\u2019 sales territories; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","commissions paid to TCCC based on our sales to certain wholly-owned subsidiaries of TCCC and/or to certain companies accounted for under the equity method by TCCC."]] [[/GREPCENT_TABLE]] 60 Table of Contents The Company’s promotional allowance programs with its bottlers/distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with bottlers/distributors and retail customers, and accruals are established during the year for its anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels. Differences between such 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. Recent Accounting Pronouncements See “Part II, Item 8 – Financial Statements and Supplementary Data – Note 1 – Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on the Company’s consolidated financial position, results of operations or liquidity. Forward-Looking Statements Certain statements made in this report may constitute forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) (the “Exchange Act”) regarding the expectations of management with respect to revenues, profitability, adequacy of funds from operations and our existing credit facility, among other things. All statements containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items, a statement of management’s plans and objectives for future operations, or a statement of future economic performance contained in management’s discussion and analysis of financial condition and results of operations, including statements related to new products, volume growth and statements encompassing general optimism about future operating results and non-historical information, are forward-looking statements within the meaning of the Exchange Act. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects,” “estimates” and similar expressions are intended to identify forward-looking statements. Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside our control and involve a number of risks, uncertainties and other factors, that could cause actual results and events to differ materially from the statements made including, but not limited to, the following: [[GREPCENT_TABLE]] [["\u25cf","Our ability to absorb, mitigate or pass on to our bottlers/distributors and/or consumers increases in commodity, freight and other costs;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The human and economic consequences of the COVID-19 pandemic, including new variants, as well as the measures taken or that may be taken in the future by governments, and consequently, businesses (including the Company and its suppliers, bottlers/ distributors, co-packers and other service providers) and the public at large to limit the COVID-19 pandemic;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Fluctuations in growth and/or growth rates and/or decline in sales of the domestic and international energy drink categories generally, including in the convenience and gas channel (which is our largest channel) and the impact on demand for our products resulting from deteriorating economic conditions and/or financial uncertainties due to the COVID-19 pandemic;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of temporary plant closures, production slowdowns and disruptions in operations experienced by our suppliers, bottlers/distributors and/or co-packers as a result of the COVID-19 pandemic, including any material disruptions on the production and distribution of our products;"]] [[/GREPCENT_TABLE]] 61 Table of Contents [[GREPCENT_TABLE]] [["\u25cf","The impact of the reduction in 2020 or future reductions of our sponsorship and endorsement activities as well as our sampling activities as a result of COVID-19 or other pandemics on our future sales and market share;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of countries being in lockdown due to the COVID-19 pandemic at various times;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Delays in the availability and/or administration and/or acceptance of vaccines may prolong the COVID-19 pandemic;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of vaccine mandates on our business and supply chain, including our ability to recruit and/or retain employees, and disruptions in the business of our co-packers, bottlers/distributors and/or suppliers."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Closures of, and continued restrictions on, on-premise retailers and other establishments which sell our products as the result of the COVID-19 pandemic;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The limitation or reduction by our suppliers, bottlers/distributors and/or co-packers of their activities and/or operations during the COVID-19 pandemic;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of the COVID-19 pandemic on our product sampling programs;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to introduce new products and the impact of the COVID-19 pandemic on our innovation activities;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to successfully adapt to the changing landscape of advertising, marketing, promotional, sponsorship and endorsement opportunities created by the COVID-19 pandemic;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Other effects of the COVID-19 pandemic on our employees, such as mental health challenges that employees may face;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of any reductions in productivity and disruptions to our business routines while most office-based employees of the Company are working remotely;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of logistical issues, including shortages of shipping containers, port of entry congestion and increased freight costs;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","We have extensive commercial arrangements with TCCC and, as a result, our future performance is substantially dependent on the success of our relationship with TCCC;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of TCCC\u2019s bottlers/distributors distributing Coca-Cola brand energy drinks and possible reductions in the number of our SKUs carried by such bottlers/distributors and/or such bottlers/distributors imposing limitations on distributing new product SKUs;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The effect of TCCC being one of our significant stockholders and the potential divergence of TCCC\u2019s interests from those of our other stockholders;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to maintain relationships with TCCC system bottlers/distributors and manage their ongoing commitment to focus on our products;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Disruption in distribution channels and/or decline in sales due to the termination and/or insolvency of existing and/or new domestic and/or international bottlers/distributors;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Lack of anticipated demand for our products in domestic and/or international markets;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Fluctuations in the inventory levels of our bottlers/distributors, planned or otherwise, and the resultant impact on our revenues;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Unfavorable regulations, including taxation requirements, age restrictions imposed on the sale, purchase, or consumption of our products, marketing restrictions, product registration requirements, tariffs, trade restrictions, container size limitations and/or ingredient restrictions;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The effect of inquiries from, and/or actions by, state attorneys general, the Federal Trade Commission (the \u201cFTC\u201d), the Food and Drug Administration (the \u201cFDA\u201d), municipalities, city attorneys, other government agencies, quasi-government agencies, government officials (including members of U.S. Congress) and/or analogous central and local agencies and other authorities in the foreign countries in which our products are manufactured and/or distributed, into the advertising, marketing, promotion, ingredients, sale and/or consumption of our energy drink products, including voluntary and/or required changes to our business practices;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to comply with laws, regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the General Data Protection Regulation and the California Consumer Privacy Act of 2018;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to achieve profitability and/or repatriate cash from certain of our operations outside the United States;"]] [[/GREPCENT_TABLE]] 62 Table of Contents [[GREPCENT_TABLE]] [["\u25cf","Our ability to manage legal and regulatory requirements in foreign jurisdictions, potential difficulties in staffing and managing foreign operations and potentially higher incidence of fraud or corruption and credit risk of foreign customers and/or bottlers/distributors;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Changes in U.S. tax laws as a result of any legislation proposed by the new U.S. Presidential Administration or U.S. Congress, which may include efforts to change or repeal the 2017 Tax Cuts and Jobs Act and the federal corporate income tax rate reduction;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to produce our products in international markets in which they are sold, thereby reducing freight costs and/or product damages;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to effectively manage our inventories and/or our accounts receivables;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our foreign currency exchange rate risk with respect to our sales, expenses, profits, assets and liabilities denominated in currencies other than the U.S. dollar, which will continue to increase as foreign sales increase;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The long-term impact of the United Kingdom\u2019s departure from the European Union (or \u201cBrexit\u201d);"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Changes in accounting standards may affect our reported profitability;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Implications of the Organization for Economic Cooperation and Development\u2019s base erosion and profit shifting project;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Any proceedings which may be brought against us by the Securities and Exchange Commission (the \u201cSEC\u201d), the FDA, the FTC or other governmental agencies or bodies;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The outcome and/or possibility of future shareholder derivative actions or shareholder securities litigation that may be filed against us and/or against certain of our officers and directors, and the possibility of other private shareholder litigation;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The outcome of product liability or consumer fraud litigation and/or class action litigation (or its analog in foreign jurisdictions) regarding the safety of our products and/or the ingredients in and/or claims made in connection with our products and/or alleging false advertising, marketing and/or promotion, and the possibility of future product liability and/or class action lawsuits;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Exposure to significant liabilities due to litigation, legal or regulatory proceedings;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Intellectual property injunctions;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Unfavorable resolution of tax matters;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Uncertainty and volatility in the domestic and global economies, including risk of counterparty default or failure;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to address any significant deficiencies or material weakness in our internal controls over financial reporting;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to continue to generate sufficient cash flows to support our expansion plans and general operating activities;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Decreased demand for our products resulting from changes in consumer preferences, including changes in demand for different packages, sizes and configurations, obesity and other perceived health concerns, including concerns relating to certain ingredients in our products or packaging, product safety concerns and/or from decreased consumer discretionary spending power;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Adverse publicity surrounding obesity and health concerns related to our products, product safety and quality, water usage, environmental impact and sustainability, human rights, our culture, workforce and labor and workplace laws;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Changes in demand that are weather related and/or for other reasons, including changes in product category and/or package consumption and changes in cost and availability of certain key ingredients including aluminum cans, as well as disruptions to the supply chain, as a result of climate change and extreme weather conditions;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of unstable political conditions, civil unrest, large scale terrorist acts, the outbreak or escalation of armed hostilities, major natural disasters and extreme weather conditions, or widespread outbreaks of infectious diseases (such as the COVID-19 pandemic);"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact on our business of competitive products and pricing pressures and our ability to gain or maintain our share of sales in the marketplace as a result of actions by competitors, including unsubstantiated and/or misleading claims, false advertising claims and tortious interference, as well as competitors selling misbranded products;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact on our business of trademark and trade dress infringement proceedings brought against us relating to our brands, including our Reign Total Body Fuel\u00ae high performance energy drinks, which could result in an injunction barring us from selling certain of our products and/or require changes to be made to our current trade dress;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to implement and/or maintain price increases, including through reductions in promotional allowances;"]] [[/GREPCENT_TABLE]] 63 Table of Contents [[GREPCENT_TABLE]] [["\u25cf","An inability to achieve volume growth through product and packaging initiatives;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to sustain the current level of sales and/or achieve growth for our Monster Energy\u00ae brand energy drinks and/or our other products, including our Strategic Brands;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to implement our growth strategy, including expanding our business in existing and new sectors, such as the alcoholic beverage sector;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to successfully integrate CANarchy and other acquired businesses or assets;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of criticism of our energy drink products and/or the energy drink market generally and/or legislation enacted (whether as a result of such criticism or otherwise) that restricts the marketing or sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limits caffeine content in beverages, requires certain product labeling disclosures and/or warnings, imposes excise and/or sales taxes, limits product sizes and/or imposes age restrictions for the sale of energy drinks;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to comply with and/or resulting lower consumer demand and/or lower profit margins for energy drinks due to proposed and/or future U.S. federal, state and local laws and regulations and/or proposed or existing laws and regulations in certain foreign jurisdictions and/or any changes therein, including changes in taxation requirements (including tax rate changes, new tax laws, new and/or increased excise, sales and/or other taxes on our products and revised tax law interpretations) and environmental laws, as well as the Federal Food, Drug, and Cosmetic Act and regulations or rules made thereunder or in connection therewith by the FDA, as well as changes in any other food, drug or similar laws in the United States and internationally, especially those changes that may restrict the sale of energy drinks (including prohibiting the sale of energy drinks at certain establishments or pursuant to certain governmental programs), limit caffeine content in beverages, require certain product labeling disclosures and/or warnings, impose excise taxes, impose sugar taxes, limit product sizes, or impose age restrictions for the sale of energy drinks, as well as laws and regulations or rules made or enforced by the Bureau of Alcohol, Tobacco, Firearms and Explosives and/or the FTC or their foreign counterparts;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Disruptions in the timely import or export of our products and/or ingredients including flavors, flavor ingredients and supplement ingredients due to port congestion, strikes and related labor issues or otherwise;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to satisfy all criteria set forth in any model energy drink guidelines, including, without limitation, those adopted by the American Beverage Association, of which we are a member, and/or any international beverage associations and the impact of our failure to satisfy such guidelines may have on our business;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The effect of unfavorable or adverse public relations, press, articles, comments and/or media attention;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Changes in the cost, quality and availability of containers, packaging materials, aluminum cans, the Midwest and other premiums, raw materials, including flavors and flavor ingredients, and other ingredients and juice concentrates, and our ability to obtain and/or maintain favorable supply arrangements and relationships and procure timely and/or sufficient production of all or any of our products to meet customer demand;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Any shortages that may be experienced in the procurement of containers and/or other raw materials including, without limitation, flavors, flavor ingredients, supplement ingredients, aluminum cans generally, PET containers used for our Monster Hydro\u00ae energy drinks, 24-ounce aluminum cap cans and 550ml BRE aluminum cans with resealable ends;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Limitations in securing the supply of sufficient quantities of aluminum cans may cause us to focus on producing higher volume products. As a result, certain of our lower volume products may be temporarily discontinued by our bottlers/distributors and/or their retail customers, and we may not be able to reinstate all, or any, of such lower volume products in the future;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","In order to secure sufficient quantities of aluminum cans and sufficient co-packing availability in the future, we may be required to commit to minimum purchase volumes and/or minimum co-packing volumes. In the event that we over-estimate future demand for our products and therefore may not purchase such minimum quantities in full, or utilize such minimum co-packing volumes in full, we may incur claims and/or costs or losses in respect of such shortfalls;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact on our cost of sales of corporate activity among the limited number of suppliers from whom we purchase certain raw materials;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to pass on to our customers all or a portion of any increases in the costs of raw materials, ingredients, commodities and/or other cost inputs affecting our business;"]] [[/GREPCENT_TABLE]] 64 Table of Contents [[GREPCENT_TABLE]] [["\u25cf","Our ability to achieve both internal domestic and international forecasts, which may be based on projected volumes and sales of many product types and/or new products, certain of which are more profitable than others; there can be no assurance that we will achieve projected levels of sales as well as forecasted product and/or geographic mixes;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to penetrate new domestic and/or international markets and/or gain approval or mitigate the delay in securing approval for the sale of our products in various countries;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The effectiveness of sales and/or marketing efforts by us and/or by the bottlers/distributors of our products, most of whom distribute products that may be regarded as competitive with our products;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Unilateral decisions by bottlers/distributors, buying groups, convenience chains, grocery chains, mass merchandisers, specialty chain stores, e-commerce retailers, e-commerce websites, club stores and other customers to discontinue carrying all or any of our products that they are carrying at any time, restrict the range of our products they carry, impose restrictions or limitations on the sale of our products and/or devote less resources to the sale of our products;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The impact of possible trading disputes between our bottler/distributors and their customers and/or one or more buying groups which may result in the delisting of certain of the Company products, temporarily or otherwise;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The effects of retailer consolidation on our business and our ability to successfully adapt to the rapidly changing retail landscape;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to adapt to the changing retail landscape with the rapid growth in e-commerce retailers;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The effects of bottler/distributor consolidation on our business;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The costs and/or effectiveness, now or in the future, of our advertising, marketing and promotional strategies;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The success of our sports marketing, social media and other general marketing endeavors both domestically and internationally;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Unforeseen economic and political changes and local or international catastrophic events;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Possible product recalls and/or reformulations of certain of our products and/or market withdrawals of certain of our products due to defective and/or non-compliant formulas or production in one or more jurisdictions;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to make suitable arrangements and/or procure sufficient capacity for the co-packing of any of our products both domestically and internationally, the timely replacement of discontinued co-packing arrangements and/or limitations on co-packing availability, including for retort production;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our ability to make suitable arrangements for the timely procurement of non-defective raw materials;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Our inability to protect and/or the loss of our intellectual property rights and/or our inability to use our trademarks, trade names or designs and/or trade dress in certain countries;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Volatility of stock prices which may restrict stock sales, stock purchases or other opportunities as well as negatively impact the motivation of equity award grantees;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Provisions in our organizational documents and/or control by insiders which may prevent changes in control even if such changes would be beneficial to other stockholders;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","The failure of our bottlers and/or co-packers to manufacture our products on a timely basis or at all;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Any disruption in and/or lack of effectiveness of our information technology systems, including a breach of cyber security, that disrupts our business or negatively impacts customer relationships, as well as cybersecurity incidents involving data shared with third parties; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25cf","Recruitment and retention of senior management, other key employees and our employee base in general."]] [[/GREPCENT_TABLE]] The foregoing list of important factors and other risks detailed from time to time in our reports filed with the Securities and Exchange Commission is not exhaustive. See “Part I, Item 1A – Risk Factors,” for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, our actual results could be materially different from the results described or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty 65 Table of Contents to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.