ITEM 1. BUSINESS

Overview

Monster Beverage Corporation was incorporated in Delaware on April 25, 1990. Our principal place of business is located at 550 Monica Circle, Suite 201, Corona, California 92880 and our telephone number is (951) 739-6200. When this report uses the words “Monster Energy Company”, “Monster”, “Hansen”, “Hansen Natural Corporation”, “Hansen Beverage Company”, “the Company”, “we”, “us”, and “our”, these words refer to Monster Beverage Corporation and its subsidiaries, unless the context otherwise requires. We are a holding company and conduct no operating business except through our consolidated subsidiaries.

We develop, market, sell and distribute “alternative” beverage category beverages primarily under the following brand names:

· Monster Energy®	· Hansen’s®
· Monster Rehab®	· Hansen’s Natural Cane Soda®
· Monster Energy Extra Strength Nitrous Technology®	· Junior Juice®
· Java Monster®	· Blue Sky®
· X-Presso Monster®	· Hubert’s®
· Worx Energy®	· Vidration®
· Peace Tea®

Our Monster Energy® brand energy drinks, which represented 92.3%, 91.2% and 89.9% of our net sales for the years ended December 31, 2012, 2011 and 2010, respectively, include the following:

· Monster Energy®	· Java Monster® Kona Blend
· Lo-Carb Monster Energy®	· Java Monster® Loca Moca®
· Monster Energy® Assault®	· Java Monster® Mean Bean®
· Monster Khaos®	· Java Monster® Vanilla Light
· Monster M-80® (named Ripper® in certain countries)	· Java Monster® Irish Blend®
· Monster MIXXD®	· Java Monster® Toffee
· Monster Energy® Absolutely Zero · Monster Energy® Import	· Monster Energy Extra Strength Nitrous Technology® Super Dry™
· Monster Energy® Import Light · Monster Energy® Dub Edition Baller’s Blend	· Monster Energy Extra Strength Nitrous Technology® Anti-Gravity®
· Monster Energy® Dub Edition Mad Dog · Monster Rehab® Tea + Lemonade + Energy	· Monster Energy Extra Strength Nitrous Technology® Black Ice™
· Monster Rehab® Rojo Tea + Energy	· X-Presso Monster® Hammer
· Monster Rehab® Green Tea + Energy	· X-Presso Monster® Midnite
· Monster Rehab® Protean + Energy	· Monster Cuba-Lima®
· Monster Rehab® Tea + Orangeade + Energy	· Monster Energy® Zero Ultra
· M3® Monster Energy® Super Concentrate	· Übermonster® Energy Brew

Industry Overview

The “alternative” beverage category combines non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages, ready-to-drink dairy and coffee drinks, energy drinks, sports drinks, and single-serve still water (flavored, unflavored and enhanced) with “new age” beverages, including sodas that are considered natural, sparkling juices and flavored sparkling beverages. According to Beverage Marketing Corporation, domestic U.S. wholesale sales in 2012 for the

“alternative” beverage category of the market are estimated at approximately $34.4 billion, representing an increase of approximately 8.3% over the estimated domestic U.S. wholesale sales in 2011 of approximately $31.8 billion (revised from a previously reported estimate of $31.9 billion).

Corporate History

In the 1930s, Hubert Hansen and his sons started a business to sell fresh non-pasteurized juices in Los Angeles, California. This business eventually became Hansen’s Juices, Inc., which subsequently became known as The Fresh Juice Company of California, Inc. (“FJC”). FJC retained the right to market and sell fresh non-pasteurized juices under the Hansen’s trademark. In 1977, Tim Hansen, one of the grandsons of Hubert Hansen, perceived a demand for shelf stable pasteurized natural juices and juice blends and formed Hansen Foods, Inc. (“HFI”). HFI expanded its product line from juices to include Hansen’s Natural Soda® brand sodas. In 1990, California Co-Packers Corporation (d/b/a Hansen Beverage Company) (“CCC”) acquired certain assets of HFI, including the right to market the Hansen’s® brand name. In 1992, we acquired the Hansen’s® brand natural soda and apple juice business from CCC. Under our ownership, the Hansen beverage business has significantly expanded and includes a wide range of beverages within the growing “alternative” beverage category including, in particular, energy drinks. In 1999, we acquired all of FJC’s rights to manufacture, sell and distribute fresh non-pasteurized juice products under the Hansen’s® trademark together with certain additional rights. In 2012, we changed our name from Hansen Natural Corporation to Monster Beverage Corporation.

Reportable Segments

We have two reportable segments, namely Direct Store Delivery (“DSD”), whose principal products comprise energy drinks, and Warehouse (“Warehouse”), whose principal products comprise juice-based and soda beverages. The DSD segment develops, markets and sells products primarily through an exclusive distributor network, whereas the Warehouse segment develops, markets and sells products primarily directly to retailers. Corporate and unallocated amounts that do not relate to the DSD or Warehouse segments specifically, have been allocated to “Corporate and Unallocated.” Our DSD segment represented 95.4%, 94.4% and 93.0% of our consolidated net sales for the years ended December 31, 2012, 2011 and 2010, respectively. Our Warehouse segment represented 4.6%, 5.6% and 7.0% of our consolidated net sales for the years ended December 31, 2012, 2011 and 2010, respectively.

For financial information about our reporting segments and geographic areas, refer to Note 16 of Notes to the Consolidated Financial Statements set forth in “Part II, Item 8 – Financial Statements and Supplementary Data” of this report, incorporated herein by reference. For certain risks with respect to our energy drinks see “Part I, Item 1A – Risk Factors” below.

2012 Product Introductions

During 2012, we continued to expand our existing product lines and flavors and further develop our distribution markets. In particular, we continued to focus on developing and marketing beverages that fall within the category generally described as the “alternative” beverage category. During 2012, we introduced a number of new products, including the following:

· Monster Rehab® Tea + Orangeade + Energy, a non-carbonated energy drink with electrolytes (February 2012).

· Übermonster® Energy Brew, a non-alcoholic energy drink, manufactured using a brewed fermentation process (February 2012).

· Hansen’s® Coconut Water, in original and tropical flavors, packaged in re-sealable Tetra Prisma boxes (March 2012).

· Peace Tea® Cranberry, Pink Lemonade and Texas-Style Sweet Tea, ready-to-drink iced teas (March 2012).

· Monster Energy® Zero Ultra, a carbonated energy drink which contains zero calories and zero sugar (August 2012).

· Monster Cuba-Lima®, a carbonated lime flavored non-alcoholic energy drink (September 2012).

· Monster Energy® “Dub Edition” Baller’s Blend, a carbonated punch + energy drink (October 2012).

· Monster Energy® “Dub Edition” Mad Dog, a carbonated punch + energy drink (October 2012).

In the normal course of business we discontinue certain products and/or product lines. Those products or product lines discontinued in 2012, either individually or in aggregate, did not have a material adverse impact on our financial position, results of operations or liquidity.

Products – Packaging

We package our products in a variety of different package types and sizes including, but not limited to, aluminum cans, sleek aluminum cans, glass bottles, polyethylene terephthalate (PET) plastic bottles, high density polyethylene plastic bottles, aseptic boxes and stick packs.

Products – DSD Segment

Monster Energy® Brand Energy Drinks:

Monster Energy® Drinks - In 2002, we launched a new carbonated energy drink under the Monster Energy® brand name in 16-ounce cans, which was almost double the size of our original Hansen’s® brand energy drinks (in 8.3-ounce cans) and the vast majority of competitive energy drinks on the market at that time. Our Monster Energy® drinks contain vitamins, minerals, nutrients, herbs and other dietary ingredients (collectively, “dietary ingredients”) and are marketed through our full service distributor network. We offer the following products under the Monster Energy® drink product line: Monster Energy®, Lo-Carb Monster Energy®, Monster Energy® Assault®, Monster Khaos®, Monster M-80® (named Ripper® in certain countries), Monster MIXXD®, Monster Energy® Absolutely Zero, Monster Energy® Import and Import Light, Monster Energy® Dub Edition Baller’s Blend, Monster Energy® Dub Edition Mad Dog, M3® Monster Energy® Super Concentrate energy drinks, Übermonster® Energy Brew, Monster Energy® Zero Ultra and Monster Cuba-Lima®.

Java Monster® Coffee + Energy Drinks - A line of non-carbonated dairy based coffee + energy drinks. We offer the following products under the Java Monster® product line: Java Monster® Kona Blend, Java Monster® Loca Moca®, Java Monster® Mean Bean®, Java Monster® Vanilla Light, Java Monster® Irish Blend® and Java Monster® Toffee.

Monster Energy Extra Strength Nitrous Technology® Energy Drinks - A line of carbonated energy drinks containing nitrous oxide. We offer the following products under the Monster Energy Extra Strength Nitrous Technology® product line: Super Dry™, Anti Gravity® and Black Ice™.

X-Presso Monster® Coffee + Energy Drinks - A line of non-carbonated dairy based coffee + energy drinks. We offer the following products under the X-Presso Monster® coffee + energy drinks product line: X-Presso Monster® Hammer and X-Presso Monster® Midnite.

Monster Rehab® Tea + Energy Drinks - A line of non-carbonated energy drinks with electrolytes. We offer the following products under the Monster Rehab® drink line: Monster Rehab® Tea + Lemonade + Energy, Monster Rehab® Rojo Tea + Energy, Monster Rehab® Green Tea + Energy, Monster Rehab® Protean + Energy and Monster Rehab® Tea + Orangeade + Energy.

Other:

Worx Energy® Energy Shots - A line of energy supplements which contains zero calories and zero sugar. We offer the following products under the Worx Energy® energy shot product line: Original Formula and Extra Strength.

Peace Tea® Iced Teas - A line of ready-to-drink iced teas. We offer the following products under the Peace Tea® product line: green tea, imported Ceylon tea, sweet lemon tea, razzleberry tea, cranberry tea, pink lemonade tea, Texas-style sweet tea and “Caddy Shack” tea + lemonade.

Products – Warehouse Segment

Hansen’s® Brand Sodas - Hansen’s® brand sodas have been a leading natural soda brand on the West Coast of the United States for more than 30 years and are made with natural flavors. Hansen’s® brand sodas, sweetened with cane sugar, and Hansen’s® Diet Sodas, sweetened with Splenda® no calorie sweetener and Acesulfame-K, contain no preservatives, sodium, caffeine or artificial colorings. We offer the following sodas under the Hansen’s® brand name: Hansen’s® Sodas, Hansen’s® Diet Sodas and Hansen’s® Natural Mixers, as well as Hansen’s® Sparkling Waters, in a variety of flavors.

Blue Sky® Products - Our Blue Sky® products contain no preservatives, artificial sweeteners, caffeine (other than our Blue Sky® energy drinks) or artificial coloring and are made with sugar and natural flavors. We offer the following products under the Blue Sky® product line: Blue Sky® Natural Soda, Blue Sky® Zero Calorie Sodas (sweetened with Truvia® brand stevia extract, an all natural sweetener), Blue Sky® Premium Sodas, Blue Sky® Organic Natural Sodas, Blue Sky® Seltzer Waters, Blue Sky® Blue Energy® drinks, Blue Sky® Zero Calorie Blue Energy® drinks, Blue Sky® Café Energy drinks and Blue Sky Recover Energy® drinks.

Hansen’s® Energy Drinks - Our original Hansen’s® energy drinks compete in the “functional” beverage category, namely, beverages that provide a benefit in addition to simply delivering refreshment. We offer the following products under the Hansen’s® energy drink product line: Hansen’s® Natural Energy Pro, Hansen’s® Energy Diet Red and Hansen’s® Natural Stamina™ Pro.

Hansen’s® Juice Products and Smoothies - Our fruit juice product line includes Hansen’s® Natural Apple Juice, Hansen’s® Natural Grape Juice, White Grape Juice, Pineapple Juice, Apple Grape Juice, Apple Strawberry Juice, Orange Juice, Cranberry Juice, Cranberry-Apple Juice, Cranberry-Grape Juice, Ruby Red Grapefruit Juice, and Organic Apple Juice. In March 2012, we added Hansen’s® Natural Apple Orange Pineapple Juice which contains 100% juice as well as 120% of the United States Recommended Daily Allowances (the “USRDA”) for vitamin C. We also offer Hansen’s® Natural Lo-Cal juice cocktails, a line of all natural, low-calorie cocktails in four flavors. The Lo-Cal juice cocktails are sweetened with Truvia® sweetener. Hansen’s® juice products compete in the shelf-stable juice category.

Hansen’s® Aseptic Juices - We offer a number of aseptically packed boxed juice products, including our dual-branded multi-vitamin 100% juice line, which we sell in conjunction with Costco Wholesale Corporation (“Costco”) through Costco stores. We offer our Hansen’s® Natural line of multi-vitamin 100% juices to other customers. These multi-vitamin juices contain eleven essential vitamins and six essential minerals and are available in a variety of flavors. In February 2012, we added Hansen’s® Natural Organic Apple Juice, a 100% USDA Certified Organic Apple Juice with 100% of the USRDA for vitamin C.

Our Hansen’s® Junior Juice® product line is a 100% juice line targeted at toddlers and preschoolers. These juices have added calcium and all flavors contain 100% of the daily recommended allowance of vitamin C. We also offer organic juices as well as Hansen’s® Organic Junior Water®, a

lightly flavored reduced calorie beverage, both of which contain 100% of the daily recommended allowance of vitamin C. In addition, we offer Junior Juice Coconut Water Twist®, a line of fruit and coconut water juices containing 100% of the daily recommended allowance of vitamin C.

Hubert’s® Lemonades - Our Hubert’s® Lemonade is a line of premium ready-to-drink lemonades. Hubert’s® Lemonade is sweetened with cane sugar and Truvia® sweetener. Hubert’s® Lemonade is all natural and contains no preservatives, artificial sweeteners, caffeine, or artificial colorings. We offer the following products under the Hubert’s® Lemonade product line: Strawberry Lemonade, Limeade, Mango Lemonade, Honey Lemonade, Raspberry Lemonade and Original Lemonade. We added Cherry Limeade and Blackberry Lemonade flavors to the product line in February 2012 and October 2012, respectively. In July 2012, we introduced 4-count multi-packs of select flavors.

We also market Hubert’s® Half & Half, a line of premium ready-to-drink lemonade + tea drinks, in a variety of flavors. Hubert’s® Half & Half is sweetened with cane sugar and Truvia® sweetener, and contains no preservatives, artificial sweeteners, or artificial colorings.

Hansen’s® Natural Fruit Stix® and Tea Stix™ - Our Fruit and Tea Stix™ product line is an all-natural, low-calorie powder drink mix line, sweetened naturally with Truvia® sweetener.

Vidration® Enhanced Waters - Our zero calorie, vitamin enhanced flavored water line is offered under the Vidration® brand name. This line includes the following products: Defense, Recover, Energy, Multi-V and Power.

Angeleno® Aguas Frescas - Our Angeleno® Aguas Frescas is a line of premium ready-to-drink aguas frescas. Angeleno® Aguas Frescas are sweetened with cane sugar and real fruit juice and contain no preservatives, artificial sweeteners, caffeine, or artificial colorings. We offer the following flavors under the Angeleno® Aguas Frescas product line: Mango, Melon, Pineapple, Jamaica (Hibiscus) and Tamarindo.

PRE® Beverages and Drink Mixes - Our Hansen’s® Natural PRE® products include a line of prebiotic and probiotic digestive wellness ready-to-drink beverages and powder drink mixes, containing specially formulated blends by Jarrow Formulas. PRE® prebiotic ready-to-drink beverages are sweetened with either cane sugar or stevia. PRE® probiotic powder drink mixes are sweetened with cane sugar and stevia.

Hansen’s® Natural Coconut Water - In March 2012, we introduced Hansen’s® Natural Coconut Water, a line of premium 100% Coconut Waters available in Pure and Tropical flavors.

Other Products

We continue to evaluate and, where considered appropriate, introduce additional flavors and types of beverages to complement our existing product lines. We may also evaluate, and where considered appropriate, introduce additional types of consumer products we consider are complementary to our existing products and/or to which our brand names are able to add value.

We also develop and supply, on a limited exclusive basis, selected beverages in different formats to a limited number of customers, with the objective of solidifying and/or enhancing our relationship with those customers.

Manufacture and Distribution

We do not directly manufacture our products, but instead outsource the manufacturing process to third party bottlers and contract packers.

We purchase concentrates, sweeteners, juices, flavors, dietary ingredients, cans, bottles, aseptic boxes, caps, labels, trays, boxes and other ingredients for our beverage products from our suppliers, which are delivered to our various third party bottlers and co-packers. Depending on the product, the third party bottlers or packers add filtered water and/or other ingredients (including dietary ingredients) for the manufacture and packaging of the finished products into our approved containers in accordance with our formulas. Depending on the beverage, the bottler/packer may also add carbonation to the products as part of the production process.

Co-Packing Arrangements

All of our beverage products are manufactured by various third party bottlers and co-packers situated throughout the United States and abroad, under separate arrangements with each party. The majority of our co-packaging arrangements are generally on a month-to-month basis or are terminable upon request and do not generally obligate us to produce any minimum quantities of products within specified periods.

In some instances subject to agreement, certain equipment may be purchased by us and installed at the facilities of our co-packers to enable them to produce certain of our products. In general, such equipment remains our property and is returned to us upon termination of the packing arrangements with such co-packers, unless we are reimbursed by the co-packer via a per case credit over a pre-determined number of cases that are produced at the facilities concerned.

We are generally responsible for arranging for the purchase and delivery to our third party bottlers and co-packers of the containers in which our beverage products are packaged.

We pack certain of our products in a number of locations both domestically and internationally, including Australia, Brazil, Canada, Europe, Mexico and the United States, to enable us to produce products closer to the markets where they are sold with the objective of reducing freight costs. As distribution volumes increase in both our domestic and international markets, we will continue to source additional packing arrangements closer to such markets to further reduce freight costs. Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products and/or are unable to secure sufficient ingredients or raw materials including, but not limited to aluminum cans, PET plastic bottles, aseptic boxes, glass, labels, flavors, juice concentrates, dietary ingredients, other ingredients and certain sweeteners, and/or procure adequate packing arrangements and/or obtain adequate or timely shipment of our products, we might not be able to satisfy demand on a short-term basis. (See “Part I, Item 1A – Risk Factors”).

Our production arrangements are generally of short duration or are terminable upon our request. For certain of our products, including our Monster Energy® brand energy drinks, our Worx Energy® energy shots, our Peace Tea® products, our Hansen’s ® brand energy drinks, our Hubert’s® lemonades and our aseptic juice products, there are limited co-packing facilities in our domestic and international markets with adequate capacity and/or suitable equipment to package our products. We believe a short disruption or delay in production would not significantly affect our revenues; however, as alternative co-packing facilities in our domestic and international markets with adequate long-term capacity may not be available for such products, either at commercially reasonable rates and/or within a reasonably short time period, if at all, a lengthy disruption or delay in production of any of such products could significantly affect our revenues.

We continue to actively seek alternative and/or additional advantageously located co-packing facilities in Asia, Canada, Central America, Europe, the Middle East, South Africa, South America and the United States with adequate capacity and capability for the production of our various products to minimize transportation costs and transportation-related damages as well as to mitigate the risk of a disruption in production.

Distribution Agreements

During 2012, we continued to expand distribution of our products in both our domestic and international markets, and our Monster Energy® drinks are now sold in approximately 90 countries and territories around the world. We have entered into agreements with various distributors providing for the distribution of our products during initial terms of up to twenty years, which may be renewed thereafter for additional terms ranging from one to five years. Such agreements remain in effect for their then current term as long as our products are being distributed, but may be terminated by either party upon written notice. We are generally entitled to terminate such agreements at anytime without cause upon payment of a termination fee.

Certain of our material distribution agreements, as amended from time to time, are described below:

(a) Monster Beverages Off-Premise Distribution Coordination Agreement and the Allied Products Distribution Coordination Agreement (jointly, the “Off-Premise Agreements”) with Anheuser-Busch, Inc., a Missouri corporation (“AB”), under which select Anheuser-Busch distributors (the “AB Distributors”) distribute and sell, primarily our Monster Energy® drinks, as well as additional products that may be agreed between the parties in various territories within the United States.

(b) On-Premise Distribution Coordination Agreement (the “On-Premise Agreement”) with AB, under which select AB Distributors distribute and sell our Monster Energy® drinks to food service on-premise accounts.

(c) Monster Energy Distribution Coordination Agreement (the “TCCC North American Coordination Agreement”) with The Coca-Cola Company (“TCCC”), pursuant to which we have designated, and in the future may designate, subject to TCCC’s approval, territories in Canada and the United States in which bottlers from TCCC’s network of wholly or partially-owned and independent bottlers, including Coca-Cola Refreshments USA, Inc. (“CCR”),(formerly known as Coca-Cola Enterprises, Inc. (“CCE”)), Coca-Cola Bottling Company (“CCBC”), CCBCC Operations, LLC (“Consolidated”), United Bottling Contracts Company, LLC (“United”), and other TCCC independent bottlers (collectively, the “TCCC North American Bottlers”) will distribute and sell primarily our Monster Energy® drinks.

(d) Monster Energy Distribution Agreement with CCR, pursuant to which CCR distributes, directly and through certain sub-distributors, primarily our Monster Energy® drinks in portions of the United States. On October 2, 2010, TCCC completed its acquisition of the North American business operations of CCE (now CCR), through a merger with a wholly owned subsidiary of TCCC. The surviving wholly owned subsidiary was subsequently renamed CCR, and currently distributes our Monster Energy® drinks in those portions of the United States in which CCE previously distributed such drinks. Concurrently with this acquisition, a new entity, which retained the name Coca-Cola Enterprises, Inc. (“New CCE”) was formed, which currently distributes our Monster Energy® drinks in certain European territories (see paragraph (h) below).

(e) Distribution agreements with Consolidated, United and other TCCC North American Bottlers for the distribution of our Monster Energy® drinks in various territories within the United States.

(f) Monster Energy Canadian Distribution Agreement with CCBC (now Coca-Cola Refreshments Canada, Ltd. (“CCRC”)), pursuant to which CCBC was appointed to distribute and sell, directly and through certain sub-distributors, our Monster Energy® drinks in Canada.

(g) Monster Energy International Coordination Agreement (the “TCCC International Coordination Agreement”) with TCCC, pursuant to which we have designated, and in the future may designate, countries in which we wish to appoint TCCC distributors to distribute and sell our Monster Energy® drinks, subject to TCCC’s approval.

(h) Monster Energy International Distribution Agreement and Monster Energy Belgium Distribution Agreement with New CCE, pursuant to which New CCE was appointed to distribute directly, and through certain sub-distributors, our Monster Energy® drinks in Great Britain, France, Belgium, the Netherlands, Luxembourg, Monaco and Sweden.

(i) Distribution agreements with bottlers of the Coca-Cola Hellenic group (“Coca-Cola Hellenic”) for the distribution of certain of our Monster Energy® drinks in Austria, Bulgaria, Czech-Republic, Hungary, Slovakia, Cyprus, Greece, Latvia, Lithuania, Estonia, Switzerland and Poland.

Distribution levels vary by product and geographic location. Gross sales outside the United States accounted for $513.9 million, $381.0 million and $240.6 million for the years ended December 31, 2012, 2011 and 2010, respectively.

We continually seek to expand distribution of our products by entering into agreements with other regional bottlers or direct store delivery distributors with established sales, marketing and distribution organizations. Many of our bottlers and distributors are affiliated with and manufacture and/or distribute other beverage products. In many cases, such products compete directly with our products.

Raw Materials and Suppliers

The principal raw materials used in the manufacturing of our products are aluminum cans, PET plastic and glass bottles as well as flavors, juice concentrates, sugar, sucralose, milk, cream, dietary ingredients and other packaging materials, the costs of which are subject to fluctuations. Overall prices of our raw materials increased in 2012 as compared to 2011 and certain raw material costs are continuing to increase in 2013. We have contracted for the majority of our projected aluminum can requirements for the first half of 2013 at comparable pricing to 2012, however, we anticipate our aluminum can pricing will increase in the second half of 2013 based on current market trends. Our cost of apple juice concentrate was higher in 2012 as compared with 2011, and we anticipate our 2013 cost will be higher than in 2012. We have secured a large portion of our sugar requirements for 2013 at lower average prices than 2012. PET plastic bottle pricing has remained relatively stable. We are experiencing some cost increases for certain juice concentrates and other ingredients in 2013.

We purchase beverage flavors, concentrates, juices, dietary ingredients, cane sugar, sucrose, sucralose and other sweeteners as well as other ingredients from independent suppliers located in the United States and abroad.

Generally, raw materials utilized by us in our business are readily available from numerous sources. However, certain raw materials are manufactured by only one company. We purchase flavors, vitamin blends and herbs, certain other dietary ingredients and sucralose, as well as certain other ingredients, from single manufacturers. Additionally, certain of our containers and flavors are only manufactured by single companies.

With regard to our Java Monster® product line, the dairy industry is subject to shortages and increased demand from time to time, which may result in higher prices.

With regard to our fruit juice and juice-drink products, the fruit juice industry is subject to variability in demand and weather conditions, which may result in higher prices and/or lower consumer demand for juices.

Generally, flavor suppliers own the proprietary rights to their flavor formulas which they make available to customers for specific use in the production of their customers’ products. Consequently, we do not have possession of the list of flavor ingredients or flavor formulas used in the production of our products and certain of our blended concentrates (our “Product Flavor Formulas”) and we may be unable to obtain comparable flavors or concentrates from alternative suppliers on short notice. Our flavor suppliers generally do not make flavors used in our products available to third parties. We have also entered into agreements with certain of our flavor suppliers who have agreed, subject to the terms of such agreements, to maintain our Product Flavor Formulas in confidence, not to use our Product Flavor Formulas in the production of other customers’ products and to provide us with access to our Product Flavor Formulas under certain circumstances, such as the bankruptcy of the flavor supplier. We have identified alternative suppliers for many of the ingredients contained in many of our beverages. However, industry-wide shortages of certain fruits and fruit juices, coffee, tea, dietary ingredients and sweeteners have been, and could from time to time in the future be, encountered, which could interfere with and/or delay production of certain of our products.

We continually endeavor to develop back-up sources of supply for certain of our flavors and concentrates as well as to negotiate arrangements with suppliers, which would enable us to obtain access to certain concentrates or our flavor formulas in certain circumstances. We have been partially successful in these endeavors. Additionally, in a limited number of cases, contractual restrictions and/or the necessity to obtain regulatory approvals and licenses may limit our ability to enter into agreements with alternative suppliers, manufacturers and/or distributors.

In connection with the development of new products and flavors, independent suppliers bear a large portion of the expense of product development, thereby enabling us to develop new products and flavors at what we consider to be reasonable economic levels. We have historically developed and successfully introduced new products, flavors and packaging for our products and intend to continue to develop and introduce additional new beverages, flavors and innovative packaging.

Competition

The beverage industry is highly competitive. The principal areas of competition are pricing, packaging, development of new products and flavors as well as promotional and marketing strategies. Our products compete with a wide range of drinks produced by a relatively large number of companies, many of which have substantially greater financial, marketing and distribution resources than we do.

Important factors affecting our 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. We also compete for distributors who will give our products more focus than those of our competitors, provide stable and reliable distribution and secure adequate shelf space in retail outlets. Competitive pressures in the “alternative”, energy, coffee and “functional” beverage categories could cause our products to be unable to gain or to lose market share or we could experience price erosion, which could have a material adverse effect on our business and results of operations.

We have experienced and continue 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. We believe that many of those products contain lower levels of dietary ingredients, principally deliver refreshment and are positioned differently from our energy or “functional” drinks. Our Peace Tea® ready-to-drink iced teas are positioned more closely against those products.

We are also subject to increasing levels of regulatory issues particularly in relation to the registration and taxation of our products in certain new international markets, which may put us at a competitive disadvantage. (See “Government Regulation” below for additional information).

We compete not only for consumer preference, but also for 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. Our products compete with all liquid refreshments and in many cases with products of much larger and substantially better financed competitors, including the products of numerous nationally and internationally known producers such as TCCC, PepsiCo, Inc. (“PepsiCo”), The Dr. Pepper Snapple Group, Inc. (the “DPS Group”), Red Bull Gmbh, Kraft Foods, Inc., GlaxoSmithKline plc, Nestle Beverage Company, Tree Top Inc. (“Tree Top”) and Ocean Spray Cranberries Inc. (“Ocean Spray”). We also compete with companies that are smaller or primarily local in operation. Our products also compete with private label brands such as those carried by grocery store chains, convenience store chains and club stores.

Domestically, our energy drinks compete directly with Red Bull, Rockstar, Full Throttle, No Fear, Amp, Adrenaline Rush, NOS, Venom, Redline, 180, Red Devil, Rip It, Xenergy, 5-Hour Energy Shots, MiO Energy, Stacker 2, 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 and Vault. Internationally, our energy drinks compete with Red Bull, Rockstar, Burn, V-Energy, Lucozade, Adrenaline Rush, Relentless and numerous local and private label brands that usually differ from country to country, such as Power Play, Mother, Hell, Shock, Tiger, Boost, Gladiator, TNT, Shark, Hot 6, Nalu, Battery, Bullit, Flash Up, Black, Non-Stop, Bomba, Semtex and a host of other international brands.

Our Java Monster® and X-Presso Monster® product lines compete directly with Starbucks Frappuccino, Starbucks Double Shot, Starbucks Double Shot Energy Plus Coffee and other Starbucks coffee drinks, Rockstar Roasted, Seattle’s Best, illy issimo coffee and Full Throttle Coffee.

Our Peace Tea® ready-to-drink iced tea product line competes directly with Arizona, Lipton, Snapple, Nestea, Xing Tea, Honest Tea, Gold Peak Tea, Fuze Tea and other tea brands.

Our natural sodas compete directly with traditional soda products, including those marketed by TCCC, PepsiCo, the DPS Group, Cott Corporation and National Beverage Corporation, as well as with carbonated beverages marketed by smaller or primarily local companies such as Jones Soda Co., Crystal Geyser, J.M. Smucker Company, Reeds, Inc., Zevia and with private label brands such as those carried by grocery store chains, convenience store chains and club stores.

Our apple and other juice products compete directly with Tree Top, Mott’s, Martinelli’s, Welch’s, Ocean Spray, Tropicana, Minute Maid, Langers, Apple and Eve, Seneca, Northland, Juicy Juice, Old Orchard and also with other brands of apple juice and juice blends, including store brands.

Our Hubert’s® Lemonades and Hubert’s® Half & Half lemonade + teas compete directly with Calypso, Simply Lemonade, Minute Maid, Cabana, Tropicana and Newman’s Own.

Our Hansen’s® Natural Coconut Water competes directly with Vita Coco, ZICO and O.N.E.

Sales and Marketing

Our sales and marketing strategy for all our beverages is to focus our efforts on developing brand awareness through image enhancing programs and product sampling. We use our branded vehicles and other promotional vehicles at events where we offer samples of our products to consumers. We utilize “push-pull” methods to enhance shelf and display space exposure in sales outlets (including advertising, in-store promotions and in-store placement of point-of-sale materials, racks, coolers and barrel coolers) to increase demand from consumers for our products. We also support our brands with prize promotions, price promotions, competitions, endorsements from selected public and extreme sports figures, personality endorsements (including from television and other well known sports personalities), coupons, sampling and sponsorship of selected causes, events, athletes and teams. In-store posters, outdoor posters, print, radio and television exposure (directly and through our sponsorships and endorsements) and coupons may also be used to promote our brands.

We believe that one of the keys to success in the beverage industry is differentiation, making our brands and products visually distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different, better and unique. The labels and graphics for many of our products are redesigned from time to time to maximize their visibility and identification, wherever they may be placed in stores, which we will continue to reevaluate from time to time.

Where appropriate, we partner with retailers to assist our marketing efforts.

We increased expenditures for our sales and marketing programs by approximately 11.9% in 2012 compared to 2011. As of December 31, 2012, we employed 1,786 employees in sales and marketing activities, of which 826 were employed on a full-time basis.

Customers

Our customers are primarily full service beverage distributors, retail grocery and specialty chains, wholesalers, club stores, drug chains, mass merchandisers, convenience chains, health food distributors, food service customers and the military. Gross sales to our various customer types for the years ended December 31, 2012, 2011 and 2010 are reflected below. Such information includes sales made by us directly to the customer types concerned, which include our full service beverage distributors in the United States. Such full service beverage distributors in turn sell certain of our products to the same customer types listed below. We limit our description of our customer types to include only our sales to such full service distributors without reference to such distributors’ sales to their own customers.

	2012	2011	2010
Full service distributors	63%	64%	64%
Club stores, drug chains & mass merchandisers	9%	10%	12%
Outside the U.S.	22%	20%	16%
Retail grocery, specialty chains and wholesalers	4%	4%	6%
Other	2%	2%	2%

Our customers include the TCCC North American Bottlers, Wal-Mart, Inc. (including Sam’s Club), AB Distributors, New CCE, certain bottlers of Coca-Cola Hellenic, Kalil Bottling Group, Trader Joe’s, John Lenore & Company, Swire Coca-Cola, Costco, The Kroger Co. and Safeway, Inc. CCR accounted for approximately 28% and 29% of our net sales for the years ended December 31, 2012 and 2011, respectively. CCE, which included their operations in the U.S. for the relevant periods (see Distribution Agreements (d) in “Item I – Business - Distribution Agreements”), accounted for approximately 28% of our net sales for the year ended December 31, 2010.

Seasonality

Sales of ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage business 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 our finished products and increased or decreased advertising and promotional expenses.

Intellectual Property

We presently have approximately 3,700 registered trademarks and pending applications in various countries worldwide, and we apply for new trademarks on an ongoing basis. We regard our trademarks, service marks, copyrights, domain names, trade dress, and similar intellectual property as very important to our business. We consider Monster® (registered outside of the United States), Monster Energy®, ®, M Monster Energy®, Monster Rehab®, Java Monster®, Monster Energy Extra Strength Nitrous Technology®, X-Presso Monster®, Hansen’s Natural Soda®, Hansen’s®, Peace Tea®, Worx Energy®, Blue Sky®, Hubert’s®, Junior Juice® and Vidration® to be our core trademarks.

We protect our trademarks by applying for registrations and registering our trademarks with the United States Patent and Trademark Office and with government agencies in other countries around the world, particularly where our products are distributed and sold. We assert copyright ownership of the statements, graphics and content appearing on the packaging of our products.

Depending upon the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can generally be renewed as long as the trademarks are in use.

We enforce and protect our trademark rights against third parties infringing or denigrating our trademarks by opposing registration of conflicting trademarks, and initiating litigation as necessary.

Government Regulation

The production, distribution and sale in the United States of many of our products are subject to various U.S. federal and state regulations, including but not limited to: the Federal Food, Drug and Cosmetic Act, including as amended by the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and a number of other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products. Outside the United States, the production, distribution and sale of many of our products are also subject to numerous similar and other statutes and regulations.

We also may in the future be affected by other existing, proposed and potential future regulations or regulatory actions, including those described below, any of which could adversely affect our business, financial condition and results of operations. See “Part I, Item 1A – Risk Factors – Changes in government regulation, or failure to comply with existing regulations, could adversely affect our business, financial condition and results of operations” below for additional information.

Furthermore, legislation may be introduced in the United States and other countries at the federal, state and municipal level in respect of each of the subject areas discussed below. 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 caffeine content in beverages, as discussed below.

In January 2013, we received a letter from Representative Edward J. Markey, Senator Richard J. Durbin and Senator Richard Blumenthal requesting information from us to enable them to better understand a number of issues relating in part to an investigation they said has been launched by the U.S. Food and Drug Administration (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. We have provided a response to their letter.

Product Labeling and Advertising. We are 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 we were required to add warning labels to any of our products or place warnings in certain locations where our products are sold, it is difficult to predict whether, or to what extent, such a warning would have an impact on sales of our 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, we may incur significant costs to alter our 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 our products by consumers.

In October 2012, we received a letter from the city attorney of San Francisco, Dennis J. Herrera, requesting support for our promotional slogans and citing a California state law that makes it illegal to make false or misleading advertising claims that purport to be based on fact or clinical data. At the present time, no wrong-doing has been alleged and we believe that we are in compliance with applicable California law relating to product advertising. However, there can be no assurance that the city attorney of San Francisco, or any other party will not seek to take action against us alleging that any of our promotional slogans or other advertising claims were not in compliance with California law or any similar law relating to product advertising in another jurisdiction. We have provided a response to this letter.

In July 2012, we received a subpoena from a state attorney general in connection with an investigation relating to the advertising, marketing, promotion, ingredients, usage and sale of our Monster Energy® brand energy drinks. As the investigation is at an early stage, we cannot predict the outcome of this inquiry and what, if any, effect it may have on our business, financial condition or results of operations.

Regulations took effect in Canada on January 11, 2013 that inter alia 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.

In the United States, as permitted under the Federal Food, Drug, and Cosmetic Act and FDA regulations, we recently decided to transition the labeling and marketing of our products sold under the Monster Energy®, Hansen’s Energy® and Blue Energy® brands from dietary supplements to conventional foods. It is anticipated that new labels for such products as conventional foods will be introduced in 2013. Products marketed under the Worx Energy® brand, which are sold in 2-ounce bottles, will continue to be labeled as dietary supplements.

Age and Other Restrictions on Energy Drink Products. Proposals to limit or restrict the sale of energy drinks to minors and/or persons below a specified age and/or restrict the venues in which energy drinks can be sold and/or to restrict the use of the Supplemental Nutrition Assistance Program (“SNAP”) (formerly food stamps) to purchase energy drinks are currently pending in certain U.S. states, counties, municipalities and/or in certain foreign countries.

In addition, 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 “Chicago Proposal”). The Chicago Proposal defines “energy drink” to include “a canned or bottled beverage which has 180 milligrams or more of caffeine per single-serve container and contains Taurine or Guarana”.

In February 2013, Suffolk County, NY Legislator William Spencer proposed two local laws; one would ban the distribution of free samples of energy drinks (which the law would characterize as “stimulant drinks”) to individuals under the age of eighteen in that county, and the second would ban the sale or distribution of such drinks in Suffolk County parks.

Excise Taxes on Energy Drinks. Legislation that would impose an excise tax on sweetened beverages has been proposed in Congress and some state legislatures, including Connecticut, Hawaii, Massachusetts, Nebraska, Oregon, Rhode Island and Texas, with excise taxes generally ranging between $0.01 and $0.02 per ounce of sweetened beverage. The imposition of such taxes on our products would increase the cost of the products or, to the extent levied directly on consumers, make our products less affordable. Excise taxes on sweetened beverages already are in effect in certain foreign countries where we do business. On January 1, 2011, Mexico instituted a 25% excise tax on certain energy drinks, however, our products are currently not subject to such tax. 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, which our products are subject to.

Limits on Caffeine Content. Legislation has been proposed to limit the amount of caffeine that may be contained in beverages, including energy drinks. The Chicago Proposal effectively would limit beverages containing Taurine or Guarana to less than 180 milligrams of caffeine. Some jurisdictions where we do business 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. We adjusted the caffeine levels in certain of our Monster Energy® products that are sold in Canada to address these regulations, although the majority of our products were unaffected. However, there can be no assurance that we will be able to satisfactorily do so in other jurisdictions that adopt similar legislation.

Limitations on Container Size. In September 2012, the Board of Health of New York City approved regulations prohibiting the sale, in certain sales channels, mainly food service establishments, of certain sweetened drinks in containers larger than 16 fluid ounces. The regulations are expected to take effect in March 2013. The mayor of Cambridge, Massachusetts has proposed a similar initiative.

We currently package certain of our Monster Energy® drinks and our Peace Tea® iced teas in aluminum cans larger than 16 fluid ounces. Although the New York City regulations and other current proposals would not extend to beverages sold in our principal sales channels such as convenience stores, grocery stores, mass merchandisers, drug stores and club stores, we cannot predict whether any such sales channel might be added to the New York City regulations or covered by other similar regulatory initiatives.

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.

Compliance with Environmental Laws

Our facilities in the United States are subject to federal, state and local environmental laws and regulations. Our 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 we expect such compliance to have, any material adverse effect upon our capital expenditures, net income or competitive position.

In California, we are required to collect redemption values from our 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 our products are sold, we are also required to collect deposits from our 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.

Employees

As of December 31, 2012, we employed a total of 2,180 employees of which 1,214 were employed on a full-time basis. Of our 2,180 employees, we employed 394 in administrative and operational capacities and 1,786 persons in sales and marketing capacities.

Available Information

As a public company, we are required to file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and other information (including any amendments) with the Securities and Exchange Commission (the “SEC”). You may read and copy such material at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also find the Company’s SEC filings at the SEC’s website, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov.

Our Internet address is www.monsterbevcorp.com. Information contained on our website is not part of this annual report on Form 10-K. Our SEC filings (including any amendments) will be made available free of charge on www.monsterbevcorp.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing to, or telephoning us, at the following address or telephone number:

Monster Beverage Corporation

550 Monica Circle, Suite 201

Corona, CA 92880

(951) 739-6200

(800) 426-7367

MNST - Monster Beverage Corporation