audit

Audit Plan for

Monster Beverage Corporation

For the fiscal year ending December 31, 2015

Mitchell Bough

Anthony Carrillo

Jacob Conner

Jonathan Naple

Octavio Suarez Rincon

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Table of Contents

Understanding the Client Page Understanding the Business 3 Company History 3 Industry Overview 4 Competitive Landscape 4 Government Regulation 5 Litigation and Legal Proceedings 9 Risk Assessment Analyticals Year-to-Year Consolidated Income Statement 13 Monster-to-Rockstar 16 Year-to-Year Consolidated Balance Sheets 18 Financial Ratios 22 Risk Assessment Significant Risks

 Revenue 24

 Short-term Investments 25

 Debt 26 Other Risks

Audit Programs for Significant Accounts Revenue Inventory Debt Works Cited

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Understanding the Client

Understanding the Business

Monster Beverage Corporation (“Monster”) is a holding company which operates its business through its subsidiaries which include Monster Energy Company, Hansen Natural Corporation, and Hansen Beverage Company. These subsidiaries develop, market, sell and distribute “alternative” beverage category beverages in 13 different product lines such as Monster Energy®, Hansen’s®, and Junior Juice®. The Monster Energy® product lines represented 93.3% and 92.5% of net sales in 2014 and 2013, respectively. As of December 31, 2014, Monster employed a total of 2,001 employees in administrative, marketing, and operational capacities.

On August 14, 2014, MONSTER entered into definitive agreements for a long-term strategic relationship with The Coca-Cola Company (“TCCC”). As part of the transaction with TCCC, Monster (1) issued shares to Coca-Cola representing 16.67% of total outstanding shares; (2) acquired Coca-Cola’s worldwide energy drink business; (3) sold its own non-energy drink business to Coca-Cola; and (4) agreed to expand the distribution of its own energy drink business in the United States with Coca-Cola bottlers and to treat the international Coca-Cola bottlers as Monster’s preferred distribution partners. In turn, TCCC paid Monster a net cash amount of approximately $2.15 billion.

Monster will reorganize into a new holding company by merging with New Laser Merger Corp., a wholly owned subsidiary of New Laser Corporation. Monster will survive as a wholly owned subsidiary of New Laser Corporation and each outstanding share of Monster’s common stock will be converted into one share of New Laser Corporation’s common stock. Monster presently has more than 5,200 registered trademarks and pending applications in various countries worldwide, and they apply for new trademarks on an ongoing basis. The core trademarks of Monster include Monster®, Monster Energy®, M®, Monster Rehab®, Java Monster®, Muscle Monster®, Punch Monster®, Juice Monster™, Unleash the Beast®, Hansen’s Natural Cane Soda®, Hansen’s®, Peace Tea®, Blue Sky®, Hubert’s® and Junior Juice®. The business is clearly heading into the direction of developing, marketing, selling and distributing solely energy drinks. This is evident from the recent transaction with TCCC. By doing so, Monster expects to reduce their competition from the energy drink category and terminate its non-energy products which do not provide revenues that are material to its operations. In doing so, Monster will expect to gain a sustainable competitive advantage in the energy drink category. Company History Before its name changed to Monster Beverage Corporation in 2012, the company operated as Hansen Natural Corporation. Hansen’s Juices, Inc. was started by Hubert Hansen in the 1930’s in Los Angeles, CA and it subsequently became known as The Fresh Juice Company of California, Inc. A few years later in 1977, Tim Hansen, grandson of Hubert Hansen, formed Hansen Foods, Inc. (“HFI”) and expanded its product line from juices to include Hansen’s Natural Soda®. In 1990, California Co-Packers Corporation (d/b/a Hansen Beverage Company) acquired the rights to market the Hansen’s® brand name. Finally, in 1992, Monster (d/b/a Hansen Natural Corporation) acquired the Hansen’s® natural soda and apple juice business and has since expanded its product lines to a wide range of beverages within the growing “alternative” beverage category; in particular, energy drinks. The rights to manufacture, sell and distribute under the Hansen’s® trademark was purchased in 1999.

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Industry Overview

The “alternative” beverage industry combines energy drinks, non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices, ready-to-drink coffee drinks, sports drinks, and single- serve still water (flavored, unflavored and enhanced) with “new age” beverages, including sparkling juices and flavored sparkling beverages. Domestic U.S. wholesale sales in 2014 for the “alternative” beverage category of the market are estimated at approximately $38.8 billion, representing an increase of approximately 5.1% over the estimated domestic U.S. wholesale sales in 2013 of approximately $36.9 billion.

Sales of ready-to-drink beverages, in general, are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage industry may be affected by weather conditions. However, the energy drink category appears to be less seasonal than traditional beverages. Quarterly fluctuations may also be affected by other factors including the introduction of new products, the opening of new markets, particularly internationally, where temperature fluctuations may be more pronounced, the addition of new bottlers and distributors, changes in the mix of the sales of finished products and increased or decreased advertising and promotional expenses. Competitive Landscape There is a high degree of competition in the “alternative” beverage industry due to the wide variety of products and distributors. The main players include TCCC, PepsiCo Inc., The Dr. Pepper Snapple Group, Inc., and Red Bull Gmbh – many of which are much larger and better financed competitors. For example, TCCC has a market cap of $188M, PepsiCo $146M, and Monster is at $31M. However, TCCC and PepsiCo are focused mainly on their carbonated soda brands; their market share for energy drinks is much smaller. Although they seem to be a small player in the industry, Monster’s stock price sells well above PepsiCo and TCCC. On November 24, 2015, the last sale price for Monster was $152.26 while PepsiCo and TCCC sold at $100.63 and $43.36, respectively.1 The principal areas of competition are pricing, packaging, development of new products and flavors as well as promotional and marketing strategies. Important factors affecting Monster’s ability to compete successfully include taste and flavor of products, trade and consumer promotions, rapid and effective development of new, unique cutting edge products, attractive and different packaging, brand exposure and marketing as well as pricing. The industry continues to experience competition from new entrants in the energy drink and energy shot categories. A number of companies who market and distribute iced teas, juice cocktails and enhanced waters in larger volume packages, such as 16- and 20-ounce glass and plastic bottles, including Sobe, Sobe Life Water, Vitamin Water, Snapple, Arizona, Fuse, Ocean Spray, Honest Tea, Gold Peak Tea, Activate and Neuro, have added dietary ingredients to their products with a view to marketing their products as “functional” or energy beverages or as having “functional” benefits. However, Monster believes that many of those products contain lower levels of dietary ingredients, principally deliver refreshment and are positioned differently from their energy or “functional” drinks. Monster’s Peace Tea® ready-to-drink iced teas are positioned more closely against those products.

Many energy drink producers are also subject to increasing levels of regulatory issues particularly in relation to the registration and taxation of such products in certain new international markets, which

1 Nasdaq.com (2015)

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may put Monster at a competitive disadvantage. (See “Government Regulation” below for additional information).

Monster competes for (1) consumer preference and for (2) maximum marketing and sales efforts by multi-brand licensed bottlers, brokers and distributors, many of which have a principal affiliation with competing companies and brands. In addition to competing with TCCC and PepsiCo, Monster also competes with companies that are smaller or primarily local in operation and with private label brands such as those carried by grocery store chains, convenience store chains and club stores.

Domestically, Monster’s energy drinks compete directly with Red Bull, Rockstar, Full Throttle, No Fear, Amp, Adrenaline Rush, NOS, Venom, Redline, Red Devil, Rip It, Xenergy, 5-Hour Energy Shots, MiO Energy, Stacker2, VPX Redline Energy Shots, and many other brands. TCCC and PepsiCo also market and/or distribute additional products in that market segment such as Pepsi Max, Mountain Dew, Mountain Dew MDX, Mountain Dew Kickstart and Vault. Internationally, Monster’s energy drinks compete with Red Bull, Rockstar, Burn, V-Energy, Lucozade, and numerous local and private label brands that usually differ from country to country, such as Play, Power Play, Mother, Hell, Shock, Tiger, Boost and a host of other international brands.

Monster’s Java Monster® product line competes directly with Starbucks’ coffee drinks, Rockstar Roasted, Seattle’s Best and illy issimo coffee. Their Muscle Monster® product line competes directly with Muscle Milk, Core Power, ABB Pure Pro and Gatorade Recover Protein Shake. Their Peace Tea® product line competes directly with Arizona, Lipton, Snapple, Nestea, Xing Tea, Honest Tea, Gold Peak Tea, Fuze Tea and other tea brands. Monster’s natural sodas compete directly with traditional soda products, including those marketed by TCCC, PepsiCo, and the DPS Group, as well as with carbonated beverages marketed by smaller or primarily local companies such as Jones Soda Co. and Crystal Geyser and with private label brands such as those carried by grocery store chains, convenience store chains and club stores. Monster’s apple and other juice products compete directly with Tree Top, Mott’s, Martinelli’s, Welch’s, Ocean Spray, Tropicana, Minute Maid, Langers, Juicy Juice and also with other brands of apple juice and juice blends, including store brands.

In the TCCC Transaction, Monster will acquire the NOS, Burn, Full Throttle, Play, Power Play, Relentless, Mother, Nalu and Samurai brands and, as a result, Monster’s energy drink business will no longer compete with such brands. In addition, as a result of the TCCC Transaction, Monster will no longer sell ready-to-drink iced tea products, traditional soda products, carbonated beverages, apple juice, juice blends or lemonades. Government Regulation The production, distribution and sale in the United States of many of Monster’s products are subject to various U.S. federal and state regulations, various environmental statutes, and a number of other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, marketing, labeling and ingredients of such products. Internationally, the production, distribution and sale of many of their products are also subject to numerous statutes and regulations.

Monster also may in the future be affected by other existing, proposed and potential future regulations or regulatory actions which could adversely affect its business. Furthermore, legislation may be introduced in the United States and other countries at the federal, state and municipal level in respect to the following subject areas:

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Public Health:

Public health officials and health advocates are increasingly focused on the public health consequences associated with obesity, especially as the disease affects children, and are seeking legislative change to reduce the consumption of sweetened beverages. There also has been an increased focus on the caffeine content in beverages.

In January 2013, the FDA announced that it would be investigating the safety of caffeine in food products, particularly its effects on children and adolescents. Also in January 2013, Monster received a letter from Representative Edward J. Markey, Senator Richard J. Durbin and Senator Richard Blumenthal requesting information from Monster to enable them to better understand a number of issues relating in part to an investigation they said has been launched by the FDA examining energy drinks and potential health risks, particularly for groups of vulnerable individuals, including young people and those with pre-existing cardiac conditions. Monster provided a response to the public officials.

The Congressmen issued a report and recommendations in April 2013, most of which Monster had already implemented. In January 2015, the Congressmen released a follow-up report recommending inter alia that the energy drink industry not market to consumers under age 18 and not market these products for hydration, and that the FDA develop and release definitions and guidance for this market sector.

In July 2013, Monster received a letter from Michael M. Landa, the former director of the FDA’s Center for Food Safety and Applied Nutrition, asking for documents and information about the company’s judgment that caffeine in its energy drinks is generally recognized as safe for this use. Monster provided a response to this letter.

In August 2013, at the request of the FDA, the Institute of Medicine (“IOM”) conducted a public workshop to review the available science regarding safe levels of caffeine consumption in foods, beverages and dietary supplements and to identify data gaps. The IOM released a report summarizing the workshop proceedings in January 2014.

In January 2015, the European Food Safety Authority published a draft scientific opinion on the safety of caffeine, particularly in energy drinks. The draft opinion concluded inter alia that daily caffeine intakes from all sources up to 400 milligrams per day do not raise safety concerns for adults in the general population (200 milligrams per day for pregnant women). Product Labeling and Advertising:

Monster is subject to Proposition 65 in California, a law which requires that a specific warning appear on any product sold in California that contains a substance listed by that state as having been found to cause cancer or birth defects in excess of certain levels. If Monster were required to add warning labels to any of their products or place warnings in certain other locations where their products are sold, it is difficult to predict whether, or to what extent, such a warning would have an impact on sales of products in those locations or elsewhere.

In addition, the FDA is considering revising regulations with respect to serving size information and nutrition labeling on food and beverage products. If adopted, Monster may incur significant costs to alter its existing packaging materials to comply with new regulations. Additionally, revised serving size information may impact and/or reduce and/or otherwise affect the purchase and consumption of Monster’s products by consumers.

In July 2012, Monster received a subpoena from a state attorney general for the State of New York in connection with an investigation relating to the advertising, marketing, promotion, ingredients, usage and sale of its Monster Energy® brand energy drinks.

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In October 2012, Monster received a written request for information from the City Attorney for the City and County of San Francisco concerning the Company’s advertising and marketing of its Monster Energy® brand energy drinks and specifically concerning the safety of its products for consumption by adolescents. See (“Litigation” below for additional information.)

Regulations took effect in Canada on January 11, 2013 that re-classified energy drinks from “natural health products” to “food.” As a result, energy drinks are required to carry a warning that they are not recommended for children or breast-feeding women and should not be mixed with alcohol.

On December 13, 2014, new European Union (the “EU”) regulations governing the labeling of food and beverages took effect. Monster has amended its EU labels to reflect these changes.

In the United States, as permitted under the FFDC Act and FDA regulations, Monster transitioned the labeling and marketing of its products sold under the Monster Energy®, Hansen’s Energy® and Blue Energy® brands from dietary supplements to conventional foods beginning in the first quarter of 2013. Age and Other Restrictions on Energy Drink Products:

Several proposals to limit or restrict the sale of energy drinks to minors or persons below

a specified age or restrict the venues in which energy drinks can be sold or to restrict the use of the Supplemental Nutrition Assistance Program (“SNAP”) (formerly food stamps) to purchase energy drinks have been raised and/or enacted in certain U.S. states, counties, municipalities or in certain foreign countries.

In January 2013, Chicago Alderman Ed Burke proposed a ban on the sale and distribution of energy drinks to all consumers, not just minors, in Chicago. The proposal defined “energy drink” to include “a canned or bottled beverage which has 180 milligrams or more of caffeine per singleserve container and contains Taurine or Guarana”. That proposal has not been enacted to date.

In March 2013, a bill was proposed in the Illinois General Assembly to ban the sale of energy drinks to anyone younger than 18 years of age. In January 2014, Los Angeles City Councilman Bernard Parks proposed a bill to ban anyone younger than 18 years of age from purchasing energy drinks. In addition, in February 2014, a bill was introduced in the Maryland General Assembly that would prohibit the sale of energy drinks to individuals younger than 18 years of age. These bills have not been enacted to date.

Internationally, In November 2014, Lithuania introduced legislation prohibiting the sale of non-alcoholic energy drinks with more than 150 milligrams of caffeine per liter to persons under the age of 18. Excise Taxes on Energy Drinks:

Legislation that would impose an excise tax on sweetened beverages has been proposed in Congress, in some state legislatures, and in some local governments, with excise taxes generally ranging between $0.01 and $0.02 per ounce of sweetened beverage. Berkeley, California, became the first jurisdiction to pass such a measure, by ballot question approved in November 2014. A general tax of $0.01 per ounce on certain sweetened drinks, including energy drinks, became effective in Berkeley on January 1, 2015. However, the implementation of this tax has been deferred until March 2015. The imposition of such taxes on Monster’s products would increase the cost of certain products or make certain products less affordable.

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Excise taxes on sweetened beverages already are in effect in certain foreign countries where Monster does business. On January 1, 2011, Mexico instituted a 25% excise tax on certain energy drinks and, in October 2013, Mexico passed a $1 MXN tax per liter on sugar-sweetened beverages, which became effective January 1, 2014.

Effective January 1, 2013, Hungary instituted an excise tax of approximately $0.18 (at current exchange rates) per liter on drinks containing more than 15 milligrams of caffeine per 100 milliliters.

In October 2013, the French Parliament passed legislation taxing energy drinks at a rate of €1 EUR per liter, which was approved by the French Supreme Court in December 2013 and went into effect on January 1, 2014. However, in September 2014, France’s Constitutional Council found the tax on energy drinks unconstitutional because it only affects energy drinks and does not apply to other beverages containing similar levels of caffeine. The Court gave the French government a January 1, 2015 deadline to remove or change the €1 EUR per liter levy. Accordingly, as of January 1, 2015, the law was amended to remove any reference to energy drinks. However, the tax on beverages containing more than 220 milligrams of caffeine per liter remains in place.

Monster adjusted the caffeine levels in certain Monster® Energy products that are sold in France to address this regulation. Limits on Caffeine Content:

Legislation has been proposed to limit the amount of caffeine that may be contained in beverages, including energy drinks. Some jurisdictions where Monster does business already have prescribed limited caffeine content for beverages.

On January 1, 2013, regulations took effect in Canada that limit the amount of caffeine contained in any beverage in a single-serving can or bottle to less than 180 milligrams. Monster adjusted the caffeine levels in certain Monster Energy® products that are sold in Canada to address these regulations, although the majority of their products were unaffected. Limitations on Container Size:

In September 2012, the Board of Health of New York City approved regulations

prohibiting the sale of certain sweetened drinks in containers larger than 16 ounces. The regulations were expected to take effect in March 2013, but a New York state court invalidated them as exceeding the Board of Health’s authority, and the state’s highest court agreed with this ruling on appeal. The mayor of Cambridge, Massachusetts has proposed a similar initiative. Monster currently packages certain Monster Energy® drinks and Peace Tea® iced teas in aluminum cans larger than 16 ounces. Container Deposits:

Various municipalities, states and foreign countries require that a deposit be charged for certain non-refillable beverage containers. The precise requirements imposed by these measures vary by jurisdiction. Other deposit, recycling or product stewardship proposals have been introduced in certain U.S. states, counties, municipalities and in certain foreign countries.

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Compliance with Environmental Laws:

Monster’s facilities in the United States are subject to federal, state and local environmental laws and regulations. Its operations in other countries are subject to similar laws and regulations that may be applicable in such countries. Compliance with these provisions has not had, nor do Monster expect such compliance to have, any material adverse effect upon its capital expenditures, net income or competitive position.

In California, Monster is required to collect redemption values from its customers and to remit such redemption values to the State of California Department of Resources Recycling and Recovery based upon the number of cans and bottles of certain carbonated and non-carbonated products sold. In certain other states and countries where its products are sold, Monster is also required to collect deposits from customers and to remit such deposits to the respective jurisdictions based upon the number of cans and bottles of certain carbonated and non- carbonated products sold in such states.

Litigation and Legal Proceedings Monster is a party to various litigation claims and legal proceedings including, but not limited to, intellectual property, fraud, unfair business practices, false advertising, product liability and breach of contract claims, securities actions and shareholder derivative actions. Defending these proceedings can result in significant ongoing expenditures and the diversion of management’s time and attention from the operation of its business, which could negatively affect business operations. Additionally, failure to successfully defend or settle any litigation or legal proceedings could result in liabilities that could have a material adverse effect on Monster’s financial condition, revenue and profitability, and could cause the market value of its common stock to decline. The following are considered by Monster to be material litigation claims and legal proceedings:

October 17, 2012: Wendy Crossland and Richard Fournier v. Monster Beverage Corporation

Wendy Crossland and Richard Fournier filed a lawsuit in the Superior Court of the State of California, County of Riverside, claiming that the death of their 14 year old daughter (Anais Fournier) was caused by her consumption of two 24-ounce Monster Energy® drinks over the course of two days in December 2011. The plaintiffs allege strict product liability, negligence, fraudulent concealment, breach of implied warranties and wrongful death. The plaintiffs claim general damages in excess of $25,000 and punitive damages. Monster filed a demurrer and a motion to strike the plaintiffs’ complaint on November 19, 2012, and the plaintiffs filed a first amended complaint on December 19, 2012. The Company filed its answer to the first amended complaint on June 7, 2013. The parties attended a court ordered mediation on January 23, 2014. Discovery has commenced and trial has been scheduled for August 21, 2015. Monster believes that any such damages, if awarded, would not have a material adverse effect on the Company’s financial position or results of operations.

Monster has also been named as a defendant in other complaints containing similar allegations to those presented in the Fournier lawsuit, each of which the company believes is also without merit and would not have a material adverse effect on its financial position or results of operations in the event any damages were awarded.

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CLASS ACTION SUITS September 11, 2008: Consolidated Class Action Complaint – Cunha v. Hansen Natural Corp., et al.

A federal securities class action complaint was filed in the United States District Court for

the Central District of California (the “District Court”). September 17, 2008: Consolidated Class Action Complaint – Brown v. Hansen Natural Corp., et al.

A second federal securities class action complaint was also filed in the District Court. After the District Court consolidated the two actions and appointed the Structural

Ironworkers Local Union #1 Pension Fund as lead plaintiff, a Consolidated Complaint for Violations of Federal Securities Laws was filed on August 28, 2009 (“Consolidated Class Action Complaint”).

The Consolidated Class Action Complaint was brought on behalf of a class of purchasers of Monster’s stock. It named as defendants Monster, Rodney C. Sacks, Hilton H. Schlosberg, and Thomas J. Kelly. The plaintiff principally alleged that the defendants made false and misleading statements relating to Monster’s distribution coordination agreements with Anheuser-Busch, Inc. (“AB”) and its sales of “Allied” energy drink lines, and engaged in sales of shares in Monster on the basis of material non-public information. The plaintiff also alleged that Monster’s financial statements for the second quarter of 2007 did not include certain promotional expenses. The Consolidated Class Action Complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sought an unspecified amount of damages.

The District Court dismissed the Consolidated Class Action Complaint, with leave to amend, on July 12, 2010. The plaintiff filed an Amended Class Action Complaint for Violations of Federal Securities Laws on August 27, 2010 (the “Amended Class Action Complaint”). While similar in many respects to the Consolidated Class Action Complaint, the Amended Class Action Complaint dropped certain of the allegations set forth in the Consolidated Class Action Complaint and made certain new allegations, including that Monster engaged in “channel stuffing” during the Class Period that rendered false or misleading Monster’s reported sales results and certain other statements made by the defendants. In addition, it no longer named Thomas J. Kelly as a defendant.

On September 4, 2012, the District Court dismissed certain of the claims in the Amended Class Action Complaint, including the plaintiff’s allegations relating to promotional expenses, but denied the defendants’ motion to dismiss with regard to the majority of plaintiff’s claims, including plaintiff’s channel stuffing allegations. The plaintiff filed a motion seeking class certification on December 6, 2012, which the court denied, without prejudice, on January 17, 2014.

Following a mediation conducted by an independent mediator, Monster entered into a Stipulation of Settlement on April 16, 2014 to resolve the litigation. Following a fairness hearing, on January 29, 2015, the District Court granted final approval of the settlement and entered a final judgment dismissing the action with prejudice.

Under the terms of the settlement, certain of Monster’s insurance carriers paid $16.25 million into an escrow account for distribution to a settlement class, certified by the District Court for settlement purposes only and consisting of all persons who purchased or otherwise acquired the Company’s stock during the Class Period. Under the settlement, defendants and several of their related persons and entities received a full release of all claims that were or could have been brought in the action.

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The settlement contained no admission of any liability or wrongdoing on the part of the defendants. Because the full amount of the settlement was paid by Monster’s insurance carriers, the settlement did not have an effect on Monster’s results of operations. July 2012: State Attorney General Inquiry

Monster received a subpoena from the Attorney General for the State of New York in connection with its investigation concerning the company’s advertising, marketing, promotion, ingredients, usage and sale of Monster Energy® brand of energy drinks. Production of documents pursuant to that subpoena was completed in approximately May 2014.

On August 6, 2014, New York’s Attorney General issued a second subpoena seeking additional documents and the deposition of an Monster employee. On September 8, 2014, Monster moved to quash the second subpoena. The motion has been fully briefed and argument has been scheduled on the motion for March 17, 2015. It is unknown what, if any, action the state attorney general may take against the Company or whether such proceeding could have a material adverse effect on Monster’s business, financial condition or results of operations. LITIGATION WITH SAN FRANCISCO CITY ATTORNEY October 31, 2012: San Francisco City Attorney Action

Monster received a written request for information from the City Attorney for the City and County of San Francisco concerning the company’s advertising and marketing of its Monster Energy® brand of energy drinks and specifically concerning the safety of its products for consumption by adolescents.

In a letter dated March 29, 2013, the San Francisco City Attorney threatened to bring suit against Monster if it did not agree to take a series of five steps immediately:

1. “Reformulate its products to lower the caffeine content to safe levels” 2. “Provide adequate warning labels” 3. “Cease promoting over-consumption in marketing” 4. “Cease use of alcohol and drug references in marketing” 5. “Cease targeting minors.”

April 29, 2013: Monster’s Response to SF City Attorney – Monster Beverage Corp., et al. v. Dennis

Herrera

Monster and its wholly owned subsidiary, Monster Energy Company, filed a complaint for declaratory and injunctive relief against the San Francisco City Attorney in United States District Court for the Central District of California. Monster sought a declaration from the Central District Court that the San Francisco City Attorney’s investigation and demands are impermissible and preempted, are unconstitutional in that they violate the First and Fourteenth Amendments’, and violate the Commerce Clause.

On June 3, 2013, the City Attorney filed a motion to dismiss Monster’s Action. On August 22, 2013, the Central District Court granted in part and denied in part the City Attorney’s motion. On October 17, the City Attorney filed a renewed motion to dismiss Monster’s Action and on December 16, 2013, the Central District Court granted the City Attorney’s renewed motion, dismissing Monster’s Action.

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Monster filed a Notice of Appeal to the Ninth Circuit on December 18, 2013. Monster filed its opening brief on November 28, 2014 and the City Attorney’s filed an answering brief on February 13, 2015. May 6, 2013: SF City Attorney’s Response to Monster – People of the State of California ex rel. Dennis Herrera, San Francisco City Attorney v. Monster Beverage Corporation

The San Francisco City Attorney filed a complaint for declaratory and injunctive relief, civil penalties and restitution for alleged violation of California’s Unfair Competition Law, Business & Professions Code sections 17200, et seq., in San Francisco Superior Court. The City Attorney alleges that Monster (1) mislabeled its products as a dietary supplement; (2) is selling an “adulterated” product because caffeine is not generally recognized as safe due to the alleged lack of scientific consensus concerning the safety of the levels of caffeine in Monster’s products; and (3) is engaged in unfair and misleading business.

The City Attorney sought a declaration that Monster has engaged in unfair and unlawful business acts and practices in violation of the Unfair Competition Law; an injunction from performing any acts in violation of the Unfair Competition Law; restitution; and civil penalties.

On June 3, 2013, the Company removed the San Francisco Action to the United States District Court for the Northern District of California. On July 3, 2013, the City Attorney filed a motion to remand the San Francisco Action back to state court. On September 18, 2013, the Northern District Court granted the City Attorney’s motion to remand the San Francisco Action back to state court.

On January 15, 2014, Monster filed a demurrer to and motion to strike allegations in the complaint in the City Attorney’s Action. On March 5, 2014, the Court overruled the demurrer, granted the motion to strike as to one theory for relief pleaded by the City Attorney, and lifted the stay on discovery.

After a series of complaints and motions to strike and demurrers going back and forth, on August 27, 2014, the Court issued an order setting the case for a two-week bench trial beginning on February 8, 2016.

Monster denies that it has violated the Unfair Competition Law or any other law and believes that the City Attorney’s claims and demands are preempted and unconstitutional. At this time, no evaluation of the likelihood of an unfavorable outcome or range of potential loss can be expressed. In addition to the above matters, the Company has been named as a defendant in various false advertising putative class actions and in a private attorney general action. Monster regards these cases and allegations as having no merit. Furthermore, the Company is subject to litigation from time to time in the normal course of business, including intellectual property litigation and claims from terminated distributors.

Monster evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that is accrued, if any, or in the amount of any related insurance reimbursements recorded. As of December 31, 2014 and December 31, 2013, Monster’s consolidated balance sheets include accrued loss contingencies of approximately $3.7 million and $17.0 million, respectively, and receivables for insurance reimbursements of approximately $0.0 million and $16.25 million, respectively.

Although it is not possible to predict the ultimate outcome of such litigation, based on the facts known to Monster, management believes that such litigation in the aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.

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Risk Assessment Analyticals

Year-To-Year Consolidated Income Statement (Monster 10-K)

Notable Accounts (Materiality >5% of Sales ($123,243) or >5% Change from 2013):

 Net Sales

 Cost of Sales

 Interest and other expense, net

Net Sales:

Net Sales (in thousands)

2014 2013 2012 2011 2010

$ 2,464,867 2,246,428 2,060,702 1,703,230 1,303,942

9.7% 9.0% 21.0% 30.6%

% Change from previous year

2014 2013 Variance % Change

Net Sales 2,464,867$ 2,246,428$ 218,439$ 9.7%

Cost of Sales 1,125,057 1,073,497 51,560 4.8%

Gross Profit 1,339,810 1,172,931 166,879 14.2%

Operating Expenses 592,305 600,015 (7,710) -1.3%

Operating Income 747,505 572,916 174,589 30.5%

Other (Expense) Income:

Interest and other (expense) income, net (1,676) (11,737) 10,061 -85.7%

(Loss) gain on investments and put option, net (41) 2,715 (2,756) -101.5%

Total other (expense) income (1,717) (9,022) 7,305 -81.0%

Income Before Provision for Income Taxes 745,788 563,894 181,894 32.3%

Provision for Income Taxes 262,603 225,233 37,370 16.6%

Net Income 483,185$ 338,661$ 144,524 42.7%

Net Income Per Common Share:

Basic 2.89$ 2.03$ 0.86$ 42.4%

Diluted 2.77$ 1.95$ 0.82$ 42.1%

Weighted Average Number of Shares of Common Stock

and Common Stock Equivalents:

Basic 167,257 166,679 578 0.3%

Diluted 174,285 173,387 898 0.5%

Monster Beverage Corporation and Subsidiaries

Consolidated Statements of Income

For the Years Ended December 31, 2014 and 2013

(In Thousands, Except Per Share Amounts)

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*Includes $15.0M, $14.8M, $13.2M, and $10.0M for the years ended December 31, 2014, 2013, 2012, 2011, and 2013, respectively, related to the recognition of

deferred revenue.

Net sales have been determined after deduction of promotional and other allowances in

accordance with ASC 605-50. A 9.7% growth rate is consistent with our expectation of the growth of the

company and the above historical data for Monster’s Net Sales (Monster 10-K). However, the company

has reported changes in revenue in the past of a material amount. Additionally, the inherent risks related

to the recognition of revenue require further procedures. Data from Monster’s 10-K is presented below:

Cost of Sales:

Raw materials and variable manufacturing overhead account for the largest portion of Monster’s

cost of sales. The cost and availability of raw materials, such as aluminum cans, PET plastic bottles, and

dietary ingredients are subject to fluctuations; therefore, unstable growth is expected.

A 4.8% growth rate is immaterial in terms of our expectations and consistent with the growth in

net sales. However, given the nature of the “alternative” beverage industry and the nature of

manufacturing firms in general, the cost of sales carries a medium degree of risk of potential

misstatement. Because of this, it is important to substantiate the inventory account (See “Inventory”

below for more information).

Interest and other expense, net:

Monster is exposed to foreign currency exchange rate risks related to its foreign business

operations. Foreign currency transaction losses were ($3.4) million and ($12.9) million for the years ended

December 31, 2014 and 2013, respectively. According to Monster, the decrease in foreign currency losses

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during the year ended December 31, 2014 was primarily related to its foreign currency transactions in

Australia, Japan, Ireland and South Africa. Interest income was $1.7 million and $1.0 million for the years

ended December 31, 2014 and 2013, respectively.

Monster does not designate its foreign currency exchange contracts as hedge transactions under

ASC 815. Therefore, gains and losses on derivatives are recognized in interest and other expense, net, and

are largely offset by the changes in fair values. Details of the foreign currency exchange contracts are

presented below (Monster 10-K):

We consider these contracts to be a routine operating activity in the normal course of business

for any company which operates internationally. With proper design and implementation of internal

controls, this activity is considered to have a low risk of potential misstatement.

Monster®-to-Rockstar®

Monster’s main source of revenue comes from the sales of its Monster® brand energy drinks. Its

main competitor is PepsiCo’s Rockstar® brand energy drinks. However, PepsiCo is a much larger and better

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financed company due to its operations in various industry categories such as snacks (Frito Lay), food

(Quaker), and soda (Pepsi). Presented below is PepsiCo, Inc.’s Consolidated Income Statement: 2

Notable Comparisons (Materiality >5% of Sales or >5% difference between companies):

 Cost of Sales

 Operating Expenses

 Amortization of intangible assets

 Provision for Income Taxes

2 PepsiCo, Inc. Form 10-K (2015)

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Cost of Sales:

Monster and PepsiCo are very close on their cost of sales as a percentage of sales. Monster is

slightly more efficient with controlling their costs. This might be due to Monster having less product lines

to monitor than PepsiCo. Overall, both companies are closely matched in this respect.

Operating Expenses:

The “% of Sales” balance for this account in Monster’s books is 15.3% lower than for PepsiCo. We

have attributed part of this difference to the number of employees and the benefits provided to them.

Monster employs 2,001 people worldwide and PepsiCo employs 271,000 people worldwide. It is

important to note that PepsiCo records its gains and losses on commodity derivatives that do not qualify

for hedge accounting treatment as either cost of sales or selling, general and administrative expenses,

depending on the underlying commodity. As mentioned previously, Monster records these gains and

losses in interest and other expense, net.

Amortization of Intangible Assets:

A notable difference from Monster’s income statement is the amortization of intangible assets.

Under the provisions of ASC 350, Monster discontinued amortization on indefinite-lived trademarks while

continuing to amortize remaining definite-lived trademarks over one to 25 years. The various trademarks

that Monster carries are amortized as follows (in thousands):

Comparative Income Statement MNST % of Sales PEP % of Sales

For the Year Ended December 31, 2014 2014 2014

Net Sales 2,464,867$ 66,683,000$

Cost of Sales 1,125,057 45.6% 30,884,000 46.3%

Gross Profit 1,339,810 35,799,000

Operating Expenses 592,305 24.0% 26,218,000 39.3%

Operating Income 747,505 9,581,000

Other (Expense) Income:

Interest and other (expense) income, net (1,676) (824,000)

(Loss) gain on investments and put option, net (41) -

Total other (expense) income (1,717) 0.07% (824,000) 1.24%

Income Before Provision for Income Taxes 745,788 8,757,000

Provision for Income Taxes 262,603 10.7% 2,199,000 3.3%

Net Income 483,185$ 6,558,000$

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PepsiCo amortizes its intangible assets as follows (in millions):

As a percentage of sales, Monster’s intangibles make up 2.05% ($50.748M/$2,464.867M) while

PepsiCo’s intangibles make up 2.17% ($1,449M/$66,683M). We have concluded that these intangibles are

not material in respect to the potential risk of misstatement as they closely relate to figures of comparable

companies and because the amortization of intangible assets is performed once per year.

Provision for Income Taxes:

The provision for income taxes is a much higher percentage of sales for Monster than for PepsiCo;

7.4% higher than its competitor. Both companies apply the 35% federal statutory rate to income before

provision for income taxes. However, Monster’s recent transaction with TCCC, as previously described,

and the amount of net deferred tax assets of $94,381,000 contribute to the 2014 provision for income

taxes. We believe there is a low risk for potential material misstatement on this account.

The details of Monster’s (left) and PepsiCo’s (right) provision for income taxes are shown below:

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Year-To-Year Consolidated Balance Sheets (Monster 10-K)

Notable Accounts (Materiality >5% variance from Total Assets or >$96,944):

 Cash and cash equivalents

 Short-term investments

 Accounts receivable, net

 Inventories

 Intangibles held for sale

2014 2013 Variance % Change

ASSETS

CURRENT ASSETS:

Cash and cash equiva lents 370,323$ 211,349$ 158,974$ 75.2%

Short-term investments 781,134 402,247 378,887 94.2%

Accounts receiva ble, net 280,203 291,638 (11,435) -3.9%

Distributor receiva bles 552 4,542 (3,990) -87.8%

Inventories 174,573 221,449 (46,876) -21.2%

Prepaid expenses and other current assets 19,673 21,376 (1,703) -8.0%

Intangibles held-for-sale 18,079 - 18,079

Prepaid income taxes 8,617 9,518 (901) -9.5%

Deferred income taxes 40,275 20,924 19,351 92.5%

Total current assets: 1,693,429 1,183,043 510,386 43.1%

INVESTMENTS 42,940 9,792 33,148 338.5%

PROPERTY and EQUIPMENT, net 90,156 88,143 2,013 2.3%

DEFERRED INCOME TAXES 54,106 63,611 (9,505) -14.9%

INTANGIBLES, net 50,748 65,774 (15,026) -22.8%

OTHER ASSETS 7,496 10,146 (2,650) -26.1% Total Assets 1,938,875$ 1,420,509$ 518,366$ 36.5%

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable 127,641$ 119,376$ 8,265$ 6.9%

Accrued liabilities 40,271 59,113 (18,842) -31.9%

Accrued promotional allowances 114,047 99,470 14,577 14.7%

Deferred revenue 49,926 13,832 36,094 260.9%

Accrued compensation 17,983 14,864 3,119 21.0%

Income taxes payable 5,848 9,359 (3,511) -37.5%

Total current liabilities: 355,716 316,014 39,702 12.6%

DEFERRED REVENUE 68,009 112,216 (44,207) -39.4%

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDER'S EQUITY:

Common stock - $0.005 par va lue; 240K shares authorized; 1,035 1,030 5 0.5%

Additional paid-in capital 426,145 368,069 58,076 15.8%

Retained earnings 2,330,510 1,847,325 483,185 26.2%

Accumulated other comprehensive loss (11,453) (1,233) (10,220) 828.9%

Treasury stock (1,231,087) (1,222,912) (8,175) 0.7%

Total stockholders' equity: 1,515,150 992,279 522,871 52.7% Total Liabilities and Stockholders' Equity 1,938,875.00$ 1,420,509.00$ 518,366.00$ 36.5%

Monster Beverage Corporation and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2014 and 2013

(In Thousands, Except Par Value)

20

 Accounts Payable

Cash and cash equivalents

This account represents 19.1% of Monster’s total assets and carries a high risk of potential

misstatement. It is anticipated that, following the TCCC Transaction, Monster will have a substantial

amount of cash and cash equivalents, and the company expects that a substantial portion of its cash and

cash equivalents will be used to return capital to its shareholders pursuant to share repurchases.

Monster intends to use cash available from operations for its working capital needs, such as:

purchase commitments for raw materials and inventory; increases in accounts receivable; payments of

tax liabilities; expansion and development needs; purchases of shares of its own common stock; purchases

of capital assets, equipment and properties. Monster has stated that capital expenditures are likely to be

less than $120.0 million through December 31, 2015. However, future business opportunities may cause

a change in this estimate.

We believe Monster’s policy on the use of cash and cash equivalents carries a medium risk of

potential misstatement due to the inherent nature of highly liquid accounts. Furthermore, we consider a

75.2% increase in cash and cash equivalents from 2013 to 2014 to be an aggressive approach to

sustainable growth.

Short-term investments

Monster has historically invested these amounts in U.S. Treasury bills, U.S. government agency

securities and municipal securities, certificates of deposit, commercial paper, variable rate demand notes

and money market funds meeting certain criteria. These investments carry a low to medium investment

risk. Also important to note is that Monster maintains its investments for cash management purposes and

not for purposes of speculation. Its risk management policies emphasize credit quality in selecting and

maintaining its investments.

We believe that Monster’s 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 Monster’s investment portfolio may have an adverse effect on its future

results of operations, liquidity and financial condition.

Accounts receivable, net

The balances in this account are consistent with our expectations. Although an immaterial

reduction to accounts receivable was achieved (3.9% less than 2013 amounts), our objectives include

being able to substantiate the existence of receivables and the occurrence of revenue transactions. We

are especially concerned with the presentation and disclosure of loans to officers, directors, and affiliated

companies. These related party transactions are commonly made for the convenience of the borrower

rather than to benefit the lending company.

We believe that Monster’s current controls adequately control risks related to the revenue cycle.

Management’s process of monitoring external factors, such as changes in economic conditions,

competition, customer demand, and regulations adequately address the company’s ability to continue

growing and expanding its product depth and lines.

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Inventories

Details of Raw Materials and Finished Goods regarding inventory are as follows:

Monster experienced a significant reduction in its year-end inventory with the 2014 amounts

being $24.8 million less than its 2013 amount. We believe this is in preparation for its transaction with

TCCC in which Monster will discontinue most of its non-energy beverage brand products as previously

described (See “Understanding the Business”).

We believe this account carries a high risk of potential misstatement because it affects the Cost

of sales account in addition to inventory. This is an important account that links many of the purchasing

accounts together. Risks associated with the valuation of inventory are (1) the availability of supply of

goods; (2) the stability of purchase prices; (3) the generation of sufficient cash flow to pay for purchases;

(4) changes in technology that affect manufacturing processes; and (5) the obsolescence of inventory.

Therefore, substantiation of this account is paramount.

Intangibles held-for-sale:

This is a notable account because it was created during the year 2014 in conjunction with the

TCCC transaction. Monster amortizes its intangibles on a straight-line basis over the number of years that

approximate their respective useful lives ranging from one to 25 years (weighted-average life of 17 years).

Beginning with December 31, 2014, future estimated amortization expense related to amortizing

intangibles through the year ending December 31, 2019 will be approximately $0.01 million per year. At

December 31, 2014, $18.0 million of non-amortizing intangibles and $0.1 million of amortizing intangibles

(net of accumulated amortization) are subject to divestiture under the TCCC Transaction. This amount

($18,079,000) is represented on the balance sheet as of December 31, 2014.

Accounts payable:

This account takes up 35.9% of current liabilities. Included in accounts payable are treasury stock

purchases of $9.4 million and equipment purchased of $0.7 million, and $0.1 million as of December 31,

2014 and 2013, respectively. A 6.9% increase from 2013 to 2014 is consistent with our expectations given

Monster’s historical growth and future outlook.

We are primarily concerned with the understatement or omission of liabilities. The inherent risks

related to this account, such as the risk of payment of unauthorized payables, and the relative size to

current obligations makes the audit of accounts payable necessary.

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Financial Ratios

Comparison of Financial Ratios to Competitor, PepsiCo, Inc.

Inventory Turnover

2014 2013 2012 2011 2010

Monster 5.68 5.06 5.55 5.24 4.77

PepsiCo 9.43 8.94 8.45 8.78 8.87

(CNN Money, 2015)

Inventory turnover measures the number of times on average the inventory is sold and replaced during the fiscal year. Monster’s inventory turnover ratio has consistently been lower than its key competitor, PepsiCo. However, Monster’s turnover ratio is high considering it is a much smaller company than its counterpart. This high turnover shows strong sales performance by Monster and it demonstrates that its products are in high demand.

Receivables Turnover

2014 2013 2012 2011 2010

Monster 1.97 1.69 1.79 2.28 2.73

PepsiCo 2.66 2.68 2.65 2.64 2.68

(YCharts, 2015)

Receivables turnover measures a firm’s effectiveness of extending credit as well as collecting debts. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Monster’s low ratio implies the company should re- assess its credit policies in order to ensure timely collection of credit. Compared to PepsiCo, their receivables turnover is slightly lower but not significantly lower. This low ratio is consistent with the beverage industry. The chart below illustrates the 5-year receivables turnover for both companies:

23

Days Inventory Outstanding

2014 2013 2012 2011 2010

Monster 64.24 72.18 65.79 69.68 76.48

PepsiCo 38.72 40.83 43.21 41.59 41.14

(YCharts, 2015)

The days inventory outstanding value, or DIO, is a financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory into sales. Generally, a low ratio is preferred. PepsiCo turns its inventory into sales in a much shorter time than Monster. This high ratio implies that Monster should re-assess its sales policies in order to ensure timely turnover of inventory into realized sales. Compared to PepsiCo, their DIO is significantly lower. However, the variance from year to year is consistent with no major fluctuations.

Comparison of Revenue to Competitor, PepsiCo (in millions)

2014 2013 2012

Monster $2,465 2,246 2,061

Pepsico $66,680 66,420 65,490

Variance $64,215 64,174 63,429

(YCharts, 2015)

Though Monster generates considerably less revenue than PepsiCo, the variance from year to year is consistent with no major fluctuations. PepsiCo has many more subsidiaries than Monster and has been a major player in the beverage industry for many more years.

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Risk Assessment

We have based the following risks on our understanding of the client and their environment. We

believe they are important to ascertaining the accuracy of the client’s financial statements. They are

divided into two separate categories: ‘significant risks’ and ‘other risks’.

Significant Risks:

 Revenue

 Short Term Investments

 Debt

Revenue:

Revenue carries a significant risk of material misstatement due to the following:

 Account carries very substantial balance

 Increased growth

 Pressure on management related to growth

 Effect on the financial statements

Account’s Substantial Balance:

For the year ended Dec. 31 2014 Monster’s net sales were $2.5 billion. This is by far the largest balance

on the financial statements, and therefore is at significant risk for material misstatement. It’s balance

over the past years show that this is one of the most significant accounts on the financial statements.

Increased Growth:

Net sales for the year ended December 31, 2014 increased 9.7 percent to $2.5 billion from $2.2 billion in

the prior year. Net sales from the year ended December 31, 2013 increased to $2.2 billion from just

over $2 billion. The growth is a significant risk because it’s in the area of Revenue, which is at high risk

of material misstatement. The client’s growth is seen here:

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Pressure on Management Related to Growth:

The pressure of the continual growth within revenue can be a significant factor in how management

tries to continually grow. Possible management pressures related to this require a more significant

focus on revenue. Due to high chance of fraud, more time is needed with a high focus on revenue.

Effect on the Financial Statements

Revenue carries such a high balance that can effect multiple areas of the financial statements. Minor

mistakes in revenue can significantly increase material misstatement in other areas.

Short Term Investments:

Short term investments carry significant risk of material statement due to the following:

 Increased growth over past 3 years

 Obtaining the Fair Value

 Substantive Balance under estimated balances (Fair Value)

Increased Growth Over Past 3 Years

The balances for that past 3 years were (in thousands): $97,042 for 2012, $402,247for 2013 and

$781,134 for 2014. From 2012 to 2013, the client’s year-end balance more than quadrupled; and from

2013 to 2014 it almost doubled. This significant growth over a short period signals a higher risk of

material misstatement.

Level of Fair Value

In 2013, over 95% of the client’s short term investments fell under ASC 820’s ‘Level 2’, which indicate

that they aren’t quoted price estimates, although based on some market activity that is closely related

to the investments. The remaining percentage fell under ‘Level 3’, which are estimates without any

known market activity to estimate from. Similarly, in 2014 about 99% of the client’s short term

investments fell under Level 2 which was $777,224 (in thousands) while the remaining $3,910 (in

thousands) were under ‘Level 3’. Since there weren’t any optimal (Level 1) estimates, then there is a

higher level of risk for material misstatement.

The Company’s valuation of its Level 2 investments, which include certificates of deposit, commercial

paper, municipal securities, U.S. government agency securities and VRDNs, is based on other observable

inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical

tools and other relevant information for the same or similar securities.

Substantive Balance (under estimated assets and liabilities)

When reviewing all assets that fall under ASC 820’s fair value estimates, the client’s short term

investments carry the second highest balance in 2014 and the highest balance on the 2013’s financial

statements. Due to the high balance of this asset, there is increased risk for material misstatement,

especially because it is based on fair value estimates.

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Debt:

Debt carries significant risk of material misstatement due to the following:

- Long term debt and other debt may be misstated

- Misclassification of short-term and long term debt

Long Term Debt and Other Debt Potentially Understated

Due to the inherent risk associated with any company’s debt, it is at a higher risk for material

misstatement. Misstatements can have significant impact on the financial statements and financial

position presented in those financial statements. Although liabilities seem to be increasing uniformly

with the increase in assets, there are many factors involved with debt that can negatively affect financial

statements.

Misclassification of Debt

There is risk due to the misclassification of debt due to the potential manipulation of short term and

long term classifications to improve the company’s financial position. There can also be oversight on the

classification, increasing the risk material misstatement.

Other Risks:

The following are mainly made of the client’s inherent risks that are significant enough to document.

 The recent deal with The Coca-Cola Company (TCCC)

 Fluctuations in foreign currency exchange rates can effect operations

Recent Deal with TCCC

Recently (2015) the client agreed to work with certain distributors (TCCC and its affiliates) and terminate

agreements with some of their previous distributors. The current agreement with TCCC will provide for

the transition of third parties’ rights to distribute the Company’s products in most territories in the U.S.

to members of TCCC’s distribution network. Since Monster is a holding company that conducts no

operating business except through its consolidated subsidiaries, this deal with TCCC is very important.

Fluctuations in Foreign Currency Exchange Rates Can Effect Operations

Gross sales to customers outside of the United States were approximately 23%, 23% and 22% of

consolidated gross sales for the years ended December 31, 2014, 2013 and 2012, respectively. Decline

of outside sales could drastically effect the company.

27

Works Cited

Financial Metrics, Monster Beverage Corporation. (2015). YCharts. Retrieved from

https://ycharts.com/companies/MNST

Financial Metrics, PepsiCo, Inc. (2015). YCharts. Retrieved from

https://ycharts.com/companies/PEP

Fox, J. (2015). Still Sweet on Coke and Pepsi?. BloombergView. Retrieved from

http://www.bloombergview.com/articles/2015-01-21/still-sweet-on-coke-and-pepsi-

Fundamental Analysis, Monster Beverage Corporation. (2015). GuruFocus. Retrieved from

http://www.gurufocus.com/analysis/MNST

Fundamental Analysis, PepsiCo, Inc. (2015). GuruFocus. Retrieved from

http://www.gurufocus.com/analysis/PEP

Market Summary, Monster Beverage Corporation. (2015). CNN Money. Retrieved from

http://money.cnn.com/quote/quote.html?symb=MNST

Monster Beverage Corporation Form 10-K. (2015). U.S. Securities and Exchange Commission. Retrieved

from

http://investors.monsterbevcorp.com/secfiling.cfm?filingID=1104659-15-15731&CIK=865752

PepsiCo, Inc. Form 10-K. (2015). U.S. Securities and Exchange Commission. Retrieved from

http://www.sec.gov/Archives/edgar/data/77476/000007747615000012/pepsico201410-k.htm

Nasdaq.com Stock Comparison, PEP, MNST, DPS, KO. (2015). Nasdaq.com. Retrieved from

http://www.nasdaq.com/symbol/ko/stock-comparison