STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2022

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

15.         STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which shares were available for grant at June 30, 2022: (i) the Monster Beverage Corporation 2020 Omnibus Incentive Plan, including the Monster Beverage Corporation Deferred Compensation Plan as a sub-plan thereunder, and (ii) the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors as Amended and Restated on February 23, 2022, including the Monster Beverage Corporation Deferred Compensation Plan for Non-Employee Directors as a sub-plan thereunder.

The Company recorded $16.3 million and $17.3 million of compensation expense relating to outstanding options, restricted stock units, performance share units and other share-based awards during the three-months ended June 30, 2022 and 2021, respectively. The Company recorded $32.6 million and $35.7 million of compensation expense relating to outstanding options, restricted stock units, performance share units and other share-based awards during the six-months ended June 30, 2022 and 2021, respectively.

The tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units and performance share units for the three-months ended June 30, 2022 and 2021 was $ 2.2 million and $2.7 million, respectively. The tax benefit for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units and performance share units for the six-months ended June 30, 2022 and 2021 was $2.7 million and $4.1 million, respectively.

Stock Options

Under the Company’s stock-based compensation plans, all stock options granted as of June 30, 2022 were granted at prices based on the fair value of the Company’s common stock on the date of grant. The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.

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

	Three-Months Ended June 30,				Six-Months Ended June 30,
	2022		2021		2022		2021
Dividend yield	0.0	%	0.0	%	0.0	%	0.0	%
Expected volatility	27.8	%	29.0	%	27.7	%	28.9	%
Risk-free interest rate	3.0	%	0.9	%	2.1	%	0.8	%
Expected term	6.2 years		5.9 years		6.0 years		5.8 years

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

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

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

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

				Weighted-
		Weighted-		Average
		Average		Remaining
	Number of	Exercise		Contractual	Aggregate
	Shares	Price Per		Term (in	Intrinsic
Options	(in thousands)	Share		years)	Value
Outstanding at January 1, 2022	13,860	$	48.19	5.1	$	663,148
Granted 01/01/22 – 03/31/22	2,489	$	73.96
Granted 04/01/22 – 06/30/22	8	$	88.05
Exercised	(520)	$	43.50
Cancelled or forfeited	(88)	$	74.32
Outstanding at June 30, 2022	15,749	$	52.29	5.4	$	636,392
Vested and expected to vest in the future at June 30, 2022	15,308	$	51.67	5.3	$	628,074
Exercisable at June 30, 2022	10,569	$	42.99	3.9	$	525,344

The weighted-average grant-date fair value of options granted during the three-months ended June 30, 2022 and 2021 was $29.92 per share and $26.89 per share, respectively. The weighted-average grant-date fair value of options granted during the six-months ended June 30, 2022 and 2021 was $23.23 per share and $25.79 per share, respectively.

The total intrinsic value of options exercised during the three-months ended June 30, 2022 and 2021 was $18.0 million and $21.0 million, respectively. The total intrinsic value of options exercised during the six-months ended June 30, 2022 and 2021 was $22.9 million and $28.2 million, respectively.

Cash received from option exercises under all plans for the three-months ended June 30, 2022 and 2021 was $18.1 million and $17.7 million, respectively. Cash received from option exercises under all plans for the six-months ended June 30, 2022 and 2021 was $22.6 million and $24.5 million, respectively.

At June 30, 2022, there was $86.1 million of total unrecognized compensation expense related to non-vested options granted to employees under the Company’s stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of 3.2 years.

Restricted Stock Units and Performance Share Units

The cost of stock-based compensation for restricted stock units and performance share units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit or performance share unit in cash, the award is classified as a liability and revalued at each balance sheet date.

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

		Weighted
	Number of	Average
	Shares (in	Grant-Date
	thousands)	Fair Value
Non-vested at January 1, 2022	910	$	69.02
Granted 01/01/22 - 03/31/221	484	$	71.88
Granted 04/01/22 - 06/30/22	15	$	87.52
Vested	(381)	$	64.24
Forfeited/cancelled	(9)	$	71.54
Non-vested at June 30, 2022	1,019	$	72.42

¹The grant activity for performance share units is recorded based on the target performance level earning 100% of target performance share units. The actual number of performance share units earned could range from 0% to 200% of target depending on the achievement of pre-established performance goals.

The weighted-average grant-date fair value of restricted stock units and/or performance share units granted during the three-months ended June 30, 2022 and 2021 was $87.52 and $92.14 per share, respectively. The weighted-average grant-date fair value of restricted stock units and/or performance share units granted during the six-months ended June 30, 2022 and 2021 was $73.95 and $89.12 per share, respectively.

As of June 30, 2022, 1.0 million of restricted stock units and performance share units are expected to vest over their respective terms.

At June 30, 2022, total unrecognized compensation expense relating to non-vested restricted stock units and performance share units was $50.6 million, which is expected to be recognized over a weighted-average period of 2.1 years.

Other Share-Based Awards

The Company has granted other share-based awards to certain employees that are payable in cash. These awards are classified as liabilities and are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement, with compensation expense being recognized in proportion to the completed requisite service period up until date of settlement. At June 30, 2022, other share-based awards outstanding included grants that vest over three years payable in the first quarters of 2023, 2024 and 2025.

At June 30, 2022, there was $0.3 million of total unrecognized compensation expense related to nonvested other share-based awards granted to employees under the Company’s stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of 0.5 years.