SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2017

SEGMENT INFORMATION

SEGMENT INFORMATION

16.SEGMENT INFORMATION

The Company has three operating and reportable segments, (i) Monster Energy® Drinks segment (“Monster Energy® Drinks”), which is comprised of the Company’s Monster Energy® drinks, Monster HydroTM energy drinks and Mutant® Super Soda drinks, (ii) Strategic Brands segment (“Strategic Brands”), which is comprised of the various energy drink brands acquired from The Coca-Cola Company (“TCCC”) in 2015 and (iii) Other segment (“Other”), which is comprised of certain products sold by American Fruits & Flavors LLC, a wholly-owned subsidiary of the Company, to independent third-party customers.

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

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

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

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

The net revenues derived from the Company’s reportable segments and other financial information related thereto for the three- and six-months ended June 30, 2017 and 2016 are as follows:

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Net sales:
Monster Energy® Drinks(1)	$	815,261	$	743,453	$	1,483,831	$	1,365,381
Strategic Brands	85,633		77,400		153,669		135,852
Other	6,174		6,635		11,714		6,441
Corporate and unallocated	-		-		-		-
	$	907,068	$	827,488	$	1,649,214	$	1,507,674

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Operating Income:
Monster Energy® Drinks(1)(2)	$	356,223	$	298,942	$	635,654	$	566,329
Strategic Brands	53,175		48,019		95,281		87,095
Other	1,718		686		3,134		342
Corporate and unallocated	(61,075)		(59,124)		(119,766)		(110,529)
	$	350,041	$	288,523	$	614,303	$	543,237

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Income before tax:
Monster Energy® Drinks(1)(2)	$	356,316	$	298,974	$	635,651	$	566,412
Strategic Brands	53,174		48,008		95,268		87,068
Other	1,718		686		3,134		342
Corporate and unallocated	(63,718)		(59,367)		(121,643)		(110,199)
	$	347,490	$	288,301	$	612,410	$	543,623

(1) Includes $10.2 million and $12.1 million for the three-months ended June 30, 2017 and 2016, respectively, related to the recognition of deferred revenue. Includes $20.1 million and $20.2 million for the six-months ended June 30, 2017 and 2016, respectively, related to the recognition of deferred revenue.

(2) Includes $0.2 million and $25.3 million for the three-months ended June 30, 2017 and 2016, respectively, related to distributor termination costs. Includes $20.1 million and $28.7 million for the six-months ended June 30, 2017 and 2016, respectively, related to distributor termination costs.

	Three-Months Ended				Six-Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Depreciation and amortization:
Monster Energy® Drinks	$	6,873	$	5,795	$	13,413	$	11,573
Strategic Brands	1,842		1,778		3,638		3,548
Other	1,153		1,135		2,306		1,136
Corporate and unallocated	1,725		1,598		3,418		3,072
	$	11,593	$	10,306	$	22,775	$	19,329

	June 30, 2017		December 31, 2016
Goodwill and other intangible assets:
Monster Energy® Drinks	$	1,340,125	$	1,334,494
Strategic Brands	998,625		1,001,749
Other	25,767		28,035
Corporate and unallocated	-		-
	$	2,364,517	$	2,364,278

Corporate and unallocated expenses for the three-months ended June 30, 2017 include $38.4 million of payroll costs, of which $12.8 million was attributable to stock-based compensation expenses (see Note 13, “Stock-Based Compensation”), as well as $14.0 million attributable to professional service expenses, including accounting and legal costs, and $8.6 million of other operating expenses. Corporate and unallocated expenses for the three-months ended June 30, 2016 include $31.1 million of payroll costs, of which $11.5 million was attributable to stock-based compensation expenses (see Note 13, “Stock-Based Compensation”), as well as $19.6 million attributable to professional service expenses, including accounting and legal costs, and $8.7 million of other operating expenses.

Corporate and unallocated expenses for the six-months ended June 30, 2017 include $76.1 million of payroll costs, of which $26.0 million was attributable to stock-based compensation expenses (see Note 13, “Stock-Based Compensation”), as well as $26.4 million attributable to professional service expenses, including accounting and legal costs, and $17.3 million of other operating expenses. Corporate and unallocated expenses for the six-months ended June 30, 2016 include $59.5 million of payroll costs, of which $21.5 million was attributable to stock-based compensation expenses (see Note 13, “Stock-Based Compensation”), as well as $35.5 million attributable to professional service expenses, including accounting and legal costs, and $15.2 million of other operating expenses.

TCCC, through certain wholly-owned subsidiaries (the “TCCC Subsidiaries”), accounted for approximately 17% and 42% of the Company’s net sales for the three-months ended June 30, 2017 and 2016, respectively. The TCCC Subsidiaries accounted for approximately 25% and 44% of the Company’s net sales for the six-months ended June 30, 2017 and 2016, respectively. As part of TCCC’s North America Refranchising initiative (the “North America Refranchising”), the territories of certain TCCC Subsidiaries have been transitioned to certain independent/non wholly-owned TCCC bottlers/distributors. Accordingly, the Company’s percentage of net sales classified as sales to the TCCC Subsidiaries decreased for three- and six-months ended June 30, 2017.

Net sales to customers outside the United States amounted to $247.9 million and $200.2 million for the three-months ended June 30, 2017 and 2016, respectively. Net sales to customers outside the United States amounted to $438.8 million and $349.3 million for the six-months ended June 30, 2017 and 2016, respectively.