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STOCK-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2013
STOCK-BASED COMPENSATION |
STOCK-BASED COMPENSATION | 12. STOCK-BASED COMPENSATION The Company has two stock-based compensation plans under which shares were available for grant at December 31, 2013: the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”) and the 2009 Monster Beverage Corporation Stock Incentive Plan for Non-Employee Directors (the “2009 Directors Plan”). The 2011 Omnibus Incentive Plan permits the granting of options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards up to an aggregate of 14,500,000 shares of the common stock of the Company to employees or consultants of the Company and its subsidiaries. Shares authorized under the 2011 Omnibus Incentive Plan are reduced by 2.16 shares for each share granted or issued with respect to a Full Value Award. A Full Value Award is an award other than an incentive stock option, a non-qualified stock option, or a stock appreciation right, which is settled by the issuance of shares. Options granted under the 2011 Omnibus Incentive Plan may be incentive stock options under Section 422 of the Internal Revenue Code, as amended, or non-qualified stock options. The Compensation Committee of the Board of Directors (the “Compensation Committee”) has sole and exclusive authority to grant stock awards to all employees who are not new hires and to all new hires who are subject to Section 16 of the Exchange Act. The Compensation Committee and the Executive Committee of the Board of Directors (the “Executive Committee”) each independently has the authority to grant stock awards to new hires who are not Section 16 employees. Awards granted by the Executive Committee are not subject to approval or ratification by the Board or the Compensation Committee. Options granted under the 2011 Omnibus Incentive Plan generally vest over a five-year period from the grant date and are generally exercisable up to 10 years after the grant date. As of December 31, 2013, 2,745,630 shares of the Company’s common stock have been granted, net of cancellations, and 10,727,561 shares of the Company’s common stock remain available for grant under the 2011 Omnibus Incentive Plan. The 2009 Directors Plan permits the granting of options, stock appreciation rights (each, an “SAR”), and other stock-based awards to purchase up to an aggregate of 1,600,000 shares of common stock of the Company to non-employee directors of the Company. The 2009 Directors Plan is administered by the Board of Directors. Each award granted under the 2009 Directors Plan will be evidenced by a written agreement and will contain the terms and conditions that the Board of Directors deems appropriate. The Board of Directors may grant such awards on the last business day prior to the date of the annual meeting of stockholders. Any award granted under the 2009 Directors Plan will vest, with respect to 100% of such award, on the last business day prior to the date of the annual meeting, in the calendar year following the calendar year in which such award is granted. The Board of Directors may determine the exercise price per share of the Company’s common stock under each option, but such price may not be less than 100% of the closing price of the Company’s common stock on the date an option is granted. Option grants may be made under the 2009 Directors Plan for 10 years from June 4, 2009. The Board of Directors may also grant SARs, independently, or in connection with an option grant. The Board of Directors may determine the exercise price per share of the Company’s common stock under each SAR, but such price may not be less than the greater of (i) the fair market value of a share on the date the SAR is granted and (ii) the price of the related option, if the SAR is granted in connection with an option grant. Additionally, the Board of Directors may grant other stock-based awards, which include awards of shares of the Company’s common stock, restricted shares of the Company’s common stock, and awards that are valued based on the fair market value of shares of the Company’s common stock. SARs and other stock-based awards are subject to the general provisions of the 2009 Directors Plan. The Board of Directors may amend or terminate the 2009 Directors Plan at any time. As of December 31, 2013, options to purchase 70,655 shares of the Company’s common stock had been granted under the 2009 Directors Plan, and options to purchase 1,529,345 shares of the Company’s common stock remained available for grant. The Company recorded $28.8 million, $28.4 million and $19.4 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units during the years ended December 31, 2013, 2012 and 2011, respectively. The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options, vesting of restricted stock units and restricted stock awards for the years ended December 31, 2013, 2012 and 2011 was $30.3 million, $19.7 million and $3.8 million, respectively. Stock Options Under the Company’s stock-based compensation plans, all stock options granted as of December 31, 2013 were granted at prices based on the fair value of the Company’s common stock on the date of grant. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options. The following weighted-average assumptions were used to estimate the fair value of options granted during:
|  | 2013 |  | 2012 |  | 2011
Dividend yield |  | 0.0 % |  | 0.0 % |  | 0.0 %
Expected volatility |  | 47.5 % |  | 48.1 % |  | 53.6 %
Risk free interest rate |  | 0.98 % |  | 0.74 % |  | 1.5 %
Expected term |  | 5.7 Years |  | 5.4 Years |  | 5.8 Years
Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option. Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury zero coupon yield curve in effect at the time of grant for the expected term of the option. Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns. The following table summarizes the Company’s activities with respect to its stock option plans as follows:
|  |  |  |  |  | Weighted- |  |  |
|  |  |  | Weighted- |  | Average |  |  |
|  |  |  | Average |  | Remaining |  |  |
|  | Number of |  | Exercise |  | Contractual |  |  |
|  | Shares (In |  | Price Per |  | Term (In |  | Aggregate |
Options |  | Thousands) |  | Share |  | Years) |  | Intrinsic Value |
Outstanding at January 1, 2013 |  | 14,000 |  | $ | 12.12 |  | 4.1 |  | $ | 572,530 |
Granted 01/01/13 - 03/31/13 |  | 636 |  | $ | 47.36 |  |  |  |  |
Granted 04/01/13 - 06/30/13 |  | 450 |  | $ | 54.00 |  |  |  |  |
Granted 07/01/13 - 09/30/13 |  | - |  | $ | - |  |  |  |  |
Granted 10/01/13 - 12/31/13 |  | 106 |  | $ | 57.76 |  |  |  |  |
Exercised |  | (2,022 | ) | $ | 10.51 |  |  |  |  |
Cancelled or forfeited |  | (197 | ) |  | $ | 27.28 |  |  |  |  |
Outstanding at December 31, 2013 |  | 12,973 |  | $ | 15.70 |  | 3.7 |  | $ | 675,595 |
Vested and expected to vest in the future at December 31, 2013 |  | 12,639 |  | $ | 14.89 |  | 3.6 |  | $ | 668,379 |
Exercisable at December 31, 2013 |  | 10,401 |  | $ | 9.38 |  | 2.7 |  | $ | 607,302 |
The following table summarizes information about stock options outstanding and exercisable at December 31, 2013:
|  | Options Outstanding |  | Options Exercisable |
Range of Exercise Prices ($) |  | Number Outstanding (In Thousands) |  | Weighted Average Remaining Contractual Term (Years) |  | Weighted Average Exercise Price ($) |  | Number Exercisable (In Thousands) |  | Weighted Average Exercise Price ($) |
$2.09 - $2.09 |  | 43 |  | 1.0 |  | $2.09 |  | 43 |  | $2.09 |
$3.29 - $3.29 |  | 4,400 |  | 1.2 |  | $3.29 |  | 4,400 |  | $3.29 |
$5.72 - $6.21 |  | 23 |  | 1.8 |  | $6.11 |  | 23 |  | $6.11 |
$8.44 - $8.44 |  | 2,445 |  | 1.9 |  | $8.44 |  | 2,445 |  | $8.44 |
$11.36 - $15.60 |  | 145 |  | 4.8 |  | $13.43 |  | 143 |  | $13.39 |
$15.86 - $15.86 |  | 1,777 |  | 4.4 |  | $15.86 |  | 1,777 |  | $15.86 |
$15.94 - $17.82 |  | 1,381 |  | 5.9 |  | $17.75 |  | 1,000 |  | $17.77 |
$18.07 - $47.13 |  | 1,796 |  | 7.3 |  | $33.11 |  | 553 |  | $24.05 |
$47.65 - $70.54 |  | 956 |  | 9.1 |  | $56.25 |  | 16 |  | $62.65 |
$74.78 - $74.78 |  | 7 |  | 8.5 |  | $74.78 |  | 1 |  | $74.78 |
|  | 12,973 |  | 3.7 |  | $15.70 |  | 10,401 |  | $9.38 |
The weighted-average grant-date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was $22.57 per share, $25.21 per share and $18.45 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $91.6 million, $248.8 million and $23.0 million, respectively. Cash received from option exercises under all plans for the years ended December 31, 2013, 2012 and 2011 was approximately $21.3 million, $10.3 million and $20.3 million, respectively. At December 31, 2013, there was $40.3 million of total unrecognized compensation expense related to nonvested options granted to employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 2.7 years. Restricted Stock Awards and Restricted Stock Units Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit in cash, the award is classified as a liability and revalued at each balance sheet date. Total cash paid to settle restricted stock unit liabilities and the increase in the liabilities for future cash settlements during the years ended December 31, 2013 and 2012 were not material. The following table summarizes the Company’s activities with respect to non-vested restricted stock awards and non-vested restricted stock units as follows:
|  |  |  |  | Weighted |
|  | Number of |  |  | Average |
|  | Shares (in |  |  | Grant-Date |
|  | thousands) |  |  | Fair Value |
Non-vested at January 1, 2013 |  | 637 |  |  | $ | 46.97 |
Granted 01/01/13 - 03/31/13 |  | 8 |  |  | $ | 50.89 |
Granted 04/01/13 - 06/30/13 |  | 15 |  |  | $ | 54.64 |
Granted 07/01/13 - 09/30/13 |  | - |  |  | $ | - |
Granted 10/01/13 - 12/31/13 |  | 5 |  |  | $ | 54.57 |
Vested |  | (262) |  |  | $ | 43.87 |
Forfeited/cancelled |  | (12) |  |  | $ | 54.67 |
Non-vested at December 31, 2013 |  | 391 |  |  | $ | 49.27 |
The weighted-average grant-date fair value of restricted stock units and restricted stock awards granted during the years ended December 31, 2013, 2012 and 2011 was $53.50, $61.73 and $41.65 per share, respectively. As of December 31, 2013, 0.4 million of restricted stock units and restricted stock awards are expected to vest. At December 31, 2013, total unrecognized compensation expense relating to non-vested restricted stock awards and non-vested restricted stock units was $13.8 million, which is expected to be recognized over a weighted-average period of 1.9 years. Employee and Non-Employee Share-Based Compensation Expense The table below shows the amounts recognized in the consolidated financial statements for the twelve-months ended December 31, 2013, 2012 and 2011 for share-based compensation related to employees and non-employees. Employee and non-employee share-based compensation expense of $28.8 million for the year ended December 31, 2013 is comprised of $5.2 million that relates to incentive stock options and $23.6 million that relates to non-qualified stock options and restricted units and awards. Employee and non-employee share-based compensation expense of $28.4 million for the year ended December 31, 2012 is comprised of $5.1 million that relates to incentive stock options and $23.3 million that relates to non-qualified stock options and restricted units and awards. Employee and non-employee share-based compensation expense of $19.4 million for the year ended December 31, 2011 is comprised of $4.9 million that relates to incentive stock options and $14.5 million that relates to non-qualified stock options and restricted units and awards. The portion of share-based compensation expense that relates to incentive stock options has not been considered in the tax benefit computation below.
|  | 2013 |  | 2012 |  | 2011 |
Operating expenses |  | $ | 28,764 |  | $ | 28,413 |  | $ | 19,424 |
Total employee and non-employee share-based compensation expense included in income, before income tax |  | 28,764 |  | 28,413 |  | 19,424 |
Less: Amount of income tax benefit recognized in earnings |  | (7,730) |  | (8,933) |  | (6,646) |
Amount charged against net income |  | $ | 21,034 |  | $ | 19,480 |  | $ | 12,778 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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