COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2022

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

13.        COMMITMENTS AND CONTINGENCIES

Contractual Obligations – The Company had the following contractual obligations related primarily to sponsorships and other marketing activities as of December 31, 2022:

Year Ending December 31:
2023	$	239,350
2024		51,162
2025		14,153
2026		9,586
2027		—
2028 and thereafter		—
	$	314,251

Purchase Commitments – The Company had purchase commitments aggregating approximately $328.0 million at December 31, 2022, which represented commitments made by the Company and its subsidiaries to various suppliers of raw materials for the production of its products. These obligations vary in terms, but are generally satisfied within one year.

The Company purchases various raw material items, including, but not limited to, flavors, ingredients, supplement ingredients, containers, milk, glucose, sucralose and cream, from a limited number of suppliers. An interruption in supply from any of such resources could result in the Company’s inability to produce certain products for limited or possibly extended periods of time. The aggregate value of purchases from suppliers of such limited resources described above for the years ended December 31, 2022, 2021 and 2020 was $666.1 million, $698.0 million and $401.8 million, respectively.

Guarantees – The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) certain agreements with the Company’s officers, directors and employees under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship, (ii) certain distribution or purchase agreements under which the Company may have to indemnify the Company’s customers from any claim, liability or loss arising out of any actual or alleged injury or damages suffered in connection with the consumption or purchase of the Company’s products or the use of Company trademarks, and (iii) certain real estate leases, under which the Company may be required to indemnify property owners for liabilities and other claims arising from the Company’s use of the applicable premises. The terms of such obligations vary and typically, a maximum obligation is not explicitly stated. Generally, the Company believes that its insurance coverage is adequate to cover any resulting liabilities or claims.

Litigation – From time to time in the normal course of business, the Company is named in litigation, including labor and employment matters, personal injury matters, consumer class actions, intellectual property matters and claims from prior distributors. Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to the Company, management believes that such litigation in aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.

The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, and any related insurance reimbursements. As of December 31, 2022 and 2021, no loss contingencies were included in the Company’s accompanying consolidated balance sheets.

On September 29, 2022, a jury in the U.S. District Court for the Central District of California (the “District Court”) awarded Monster Energy Company (“MEC”) approximately $293 million in damages in its false advertising and trade secrets case against Vital Pharmaceuticals, Inc. (“VPX”), the maker of Bang Energy. The jury found VPX and its chief executive officer to have falsely advertised the “Super Creatine” ingredient of Bang Energy and to have acted willfully and deliberately in violating the federal Lanham Act. The jury also found that VPX stole trade secrets and interfered with MEC’s contracts over shelf space with certain key vendors. The parties are currently briefing post-verdict issues, including MEC’s motion for a permanent injunction relating to “Super Creatine” and request for enhanced and punitive damages.

In April 2022, MEC and Orange Bang, Inc. (“Orange Bang”) filed a joint motion in the District Court to confirm a final arbitration award against VPX that awarded MEC and Orange Bang $175.0 million and a 5% royalty on all future sales of VPX’s Bang Energy drink and other Bang-branded products as well as certain fees and costs. Pursuant to the terms of the agreement between MEC and Orange Bang, the award and future royalties will, after accounting for MEC’s expended fees and costs, be shared equally between MEC and Orange Bang. The arbitration arose from a settlement agreement that VPX entered into in 2010 with Orange Bang, a family-owned beverage business. Pursuant to the terms of that agreement, VPX is only permitted to use the Bang mark on “creatine-based” products or on Bang products that are marketed and sold only in the vitamin and dietary supplement sections of stores. On September 29, 2022, the District Court entered final judgment confirming the award. On October 28, 2022, VPX filed a notice of appeal of the District Court’s final judgment confirming the award.

On October 10, 2022, VPX, along with certain of its domestic subsidiaries and affiliates, filed for protection under Chapter 11 of the Bankruptcy Code in the Southern District of Florida. Due to such ongoing proceedings, VPX’s appeal of the District Court’s final judgment confirming the final arbitration award is stayed. While reserving all rights to appeal, VPX made its first royalty payment of $3.6 million on February 14, 2023, which is for sales of Bang Energy drink and other Bang-branded products from October 10, 2022 through December 31, 2022. This payment is subject to potential claw back if, among other things, the judgment and final arbitration award are overturned on appeal or VPX becomes administratively insolvent. In addition, per ASC 450 “Contingencies”, the Company will not recognize the September 2022 jury award or April 2022 arbitration award until the awards are realized or realizable. As of March 1, 2023, the proceedings have yet to progress to a stage where there is sufficient information for an accurate timeline of when the awards, including any royalty payments received, will be realized or realizable, if at all.