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STOCK-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2018
STOCK-BASED COMPENSATION |
STOCK-BASED COMPENSATION | 14. STOCK-BASED COMPENSATION The Company has two stock-based compensation plans under which shares were available for grant at December 31, 2018: the Monster Beverage Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”), including the Monster Beverage Deferred Compensation Plan (the “Deferred Compensation Plan”) as a sub plan thereunder, and the Monster Beverage Corporation 2017 Compensation Plan for Non-Employee Directors (the “2017 Directors Plan”), including the Monster Beverage Deferred Compensation Plan for Non-Employee Directors as a sub plan thereunder. 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 43,500,000 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 of Directors 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, 2018, 22,740,597 shares of the Company’s common stock have been granted, net of cancellations, and 16,611,623 shares (as adjusted for Full Value Awards) of the Company’s common stock remain available for grant under the 2011 Omnibus Incentive Plan. In 2016, the Company adopted the Deferred Compensation Plan (as a sub plan to the 2011 Omnibus Incentive Plan), pursuant to which eligible employees may elect to defer cash and/or equity based compensation and to receive the deferred amounts, together with an investment return (positive or negative), either at a pre-determined time in the future or upon termination of their employment with the Company or its subsidiaries or affiliates that are participating employers under the Deferred Compensation Plan, as provided under the Deferred Compensation Plan and in relevant deferral elections. Deferrals under the Deferred Compensation Plan are unfunded and unsecured. As of December 31, 2018, deferrals under the Deferred Compensation Plan are solely comprised of cash compensation and equity compensation . Future amounts due are not material in the aggregate. In 2017, the Company adopted the 2017 Directors Plan, a successor plan to the 2009 Monster Beverage Corporation Stock Incentive Plan for Non-Employee Directors. The 2017 Directors Plan permits the granting of stock options, stock appreciation rights, restricted shares or restricted stock units, deferred awards, dividend equivalents, and other share based-awards up to an aggregate of 1,250,000 shares of common stock of the Company to non-employee directors of the Company. Each calendar year, a non-employee director will receive an annual retainer and annual equity award, as provided for in the 2017 Directors Plan, which may be modified from time to time. Currently, with respect to equity awards, each non-employee director receives an award of restricted stock units at each annual meeting of the Company’s stockholders or promptly thereafter. A non-employee director’s annual award of restricted stock units will generally vest on the earliest to occur of: (a) the last business day immediately preceding the annual meeting of the Company’s stockholders in the calendar year following the calendar year in which the grant date occurs, (b) a Change of Control (as defined in the 2017 Directors Plan), (c) the non-employee director’s death, or (d) the date of the non-employee director’s separation from service due to disability, so long as the non-employee director remains a non-employee director through such date. The Board of Directors may in its discretion award non-employee directors stock options, stock appreciation rights, restricted stock, and other share-based awards in lieu of or in addition to restricted stock units. The Board of Directors may amend or terminate the 2017 Directors Plan at any time, subject to certain limitations set forth in the 2017 Directors Plan. As of December 31, 2018, 47,880 shares of the Company’s common stock had been granted under the 2017 Directors Plan, and 1,202,120 shares of the Company’s common stock remain available for grant. In 2017, the Company adopted the Deferred Compensation Plan for Non-Employee Directors (as a sub plan to the 2017 Directors Plan), pursuant to which the Board of Directors may permit non-employee directors to elect, at such times and in accordance with rules and procedures (or sub-plan) adopted by the Board of Directors (which are intended to comply with Code Section 409A, as applicable), to receive all or any portion of such non-employee director’s compensation, whether payable in cash or in equity, on a deferred basis. Deferrals under the Deferred Compensation Plan for Non-Employee Directors are unfunded and unsecured. As of December 31, 2018, deferrals under the Deferred Compensation Plan for Non-Employee Directors are solely comprised of cash compensation and equity compensation . Future amounts due are not material in the aggregate. The 2017 Directors Plan was adopted to effectuate any such deferrals. The 2017 Directors Plan is administered by the Board of Directors. Each award granted under the 2017 Directors Plan will be evidenced by a written agreement and will contain the terms and conditions that the Board of Directors deems appropriate. Under the 2017 Directors Plan, the Board of Directors requires each non-employee director to satisfy the share ownership guidelines set forth below, as may be amended by the Board of Directors from time to time. The current share ownership guidelines provide that non-employee directors of the Company must:
| · |  | Hold at least 9,000 shares of Company common stock. For this purpose, deferred shares or deferred restricted stock units will be deemed held, to the extent vested.
| · |  | The minimum stock ownership level must be achieved by each non-employee director by the third (3rd) anniversary of such non-employee director’s initial appointment to the Board of Directors.
| · |  | Once achieved, ownership of the guideline amount should be maintained for so long as the non-employee director retains his or her seat on the Board of Directors.
| · |  | There may be rare instances where these guidelines would place a hardship on a non-employee director. In these cases or in similar circumstances, the Board of Directors will make the final decision as to developing an alternative stock ownership guideline for a non-employee director that reflects the intention of these guidelines and his or her personal circumstances.
The Company recorded $57.1 million, $52.3 million and $45.8 million of compensation expense relating to stock options, restricted stock awards and restricted stock units during the years ended December 31, 2018, 2017 and 2016, respectively. The excess tax benefit realized for tax deductions from non-qualified stock option exercises, disqualifying dispositions of incentive stock options and vesting of restricted stock units for the years ended December 31, 2018, 2017 and 2016 was $8.5 million, $96.7 million and $20.8 million, respectively. Stock Options Under the Company’s stock-based compensation plans, all stock options granted through December 31, 2018 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:
|  | 2018 |  | 2017 |  | 2016 |
Dividend yield |  | 0.0 | % | 0.0 | % | 0.0 | %
Expected volatility |  | 34.7 | % | 36.5 | % | 36.2 | %
Risk-free interest rate |  | 2.81 | % | 2.11 | % | 1.57 | %
Expected term |  | 6.0 Years |  | 6.1 Years |  | 6.3 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 |  | Aggregate
|  | Shares (In |  | Price Per |  | Term (In |  | Intrinsic
Options |  | thousands) |  | Share |  | years) |  | Value
Outstanding at January 1, 2018 |  | 17,819 |  | $ | 29.62 |  | 6.1 |  | $ | 600,032
Granted 01/01/18 - 03/31/18 |  | 2,615 |  | $ | 58.76 |  |  |  |  |
Granted 04/01/18 - 06/30/18 |  | 360 |  | $ | 51.72 |  |  |  |  |
Granted 07/01/18 - 09/30/18 |  | 11 |  | $ | 58.77 |  |  |  |  |
Granted 10/01/18 - 12/31/18 |  | 194 |  | $ | 55.91 |  |  |  |  |
Exercised |  | (1,450) |  | $ | 19.20 |  |  |  |  |
Cancelled or forfeited |  | (659) |  | $ | 45.22 |  |  |  |  |
Outstanding at December 31, 2018 |  | 18,890 |  | $ | 34.61 |  | 5.8 |  | $ | 303,627
Vested and expected to vest in the future at December 31, 2018 |  | 18,052 |  | $ | 33.83 |  | 5.7 |  | $ | 301,723
Exercisable at December 31, 2018 |  | 10,432 |  | $ | 23.10 |  | 4.1 |  | $ | 272,636
The following table summarizes information about stock options outstanding and exercisable at December 31, 2018:
|  |  |  |  |  | Options Outstanding |  | Options Exercisable
|  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Average |  | Weighted |  | Number |  | Weighted
|  |  |  |  |  | Number |  | Remaining |  | Average |  | Exercisable |  | Average
Range of Exercise |  | Outstanding |  | Contractual |  | Exercise |  | (In |  | Exercise
Prices ($) |  | (In Thousands) |  | Term (Years) |  | Price ($) |  | Thousands) |  | Price ($)
$ | 5.94 | - | $ | 5.94 |  | 3,086 |  | 0.9 |  | $ | 5.94 |  | 3,086 |  | $ | 5.94
$ | 6.02 | - | $ | 17.99 |  | 2,109 |  | 4.0 |  | $ | 16.13 |  | 2,109 |  | $ | 16.13
$ | 18.64 | - | $ | 23.68 |  | 2,227 |  | 5.0 |  | $ | 22.77 |  | 1,970 |  | $ | 22.71
$ | 36.05 | - | $ | 43.64 |  | 1,932 |  | 7.2 |  | $ | 41.59 |  | 683 |  | $ | 40.41
$ | 43.99 | - | $ | 43.99 |  | 2,325 |  | 7.2 |  | $ | 43.99 |  | 856 |  | $ | 43.99
$ | 44.73 | - | $ | 45.01 |  | 623 |  | 7.1 |  | $ | 44.94 |  | 225 |  | $ | 44.94
$ | 45.16 | - | $ | 45.16 |  | 1,998 |  | 6.1 |  | $ | 45.16 |  | 1,183 |  | $ | 45.16
$ | 45.55 | - | $ | 55.20 |  | 1,899 |  | 8.4 |  | $ | 48.24 |  | 313 |  | $ | 46.81
$ | 56.08 | - | $ | 57.36 |  | 81 |  | 9.6 |  | $ | 57.16 |  | 1 |  | $ | 56.08
$ | 58.73 | - | $ | 67.93 |  | 2,610 |  | 9.1 |  | $ | 58.89 |  | 6 |  | $ | 62.92
|  |  |  |  |  | 18,890 |  | 5.8 |  | $ | 34.61 |  | 10,432 |  | $ | 23.10
The weighted-average grant-date fair value of options granted during the years ended December 31, 2018, 2017 and 2016 was $22.37 per share, $18.29 per share and $16.90 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $56.8 million, $285.8 million and $70.6 million, respectively. Cash received from option exercises under all plans for the years ended December 31, 2018, 2017 and 2016 was $25.9 million, $52.6 million and $16.4 million, respectively. At December 31, 2018, there was $98.7 million of total unrecognized compensation expense related to non-vested 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 2.6 years. Restricted Stock Units Stock-based compensation cost for 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. The following table summarizes the Company’s activities with respect to non-vested restricted stock units as follows:
|  |  |  | Weighted
|  | Number of |  | Average
|  | Shares (in |  | Grant-Date
|  | thousands) |  | Fair Value
Non-vested at January 1, 2018 |  | 530 |  | $ | 45.09
Granted 01/01/18 - 03/31/18 |  | 221 |  | $ | 58.75
Granted 04/01/18 - 06/30/18 |  | 48 |  | $ | 52.31
Granted 07/01/18 - 09/30/18 |  | 1 |  | $ | 58.72
Granted 10/01/18 - 12/31/18 |  | 1 |  | $ | 56.19
Vested |  | (265) |  | $ | 45.26
Forfeited/cancelled |  | (7) |  | $ | 33.60
Non-vested at December 31, 2018 |  | 529 |  | $ | 51.55
The weighted-average grant-date fair value of restricted stock units granted during the years ended December 31, 2018, 2017 and 2016 was $57.59, $46.74 and $44.71 per share, respectively. As of December 31, 2018, 0.5 million of restricted stock units are expected to vest. At December 31, 2018, total unrecognized compensation expense relating to non-vested restricted stock units was $15.7 million, which is expected to be recognized over a weighted‑average period of 1.6 years. Employee and Non-Employee Share-Based Compensation Expense The table below shows the amounts recognized in the consolidated financial statements for the years ended December 31, 2018, 2017 and 2016 for share-based compensation related to employees and non-employees. Employee and non-employee share-based compensation expense of $57.1 million for the year ended December 31, 2018 is comprised of $10.0 million relating to incentive stock options and $47.1 million relating to non-qualified stock options and restricted units. Employee and non-employee share-based compensation expense of $52.3 million for the year ended December 31, 2017 is comprised of $8.7 million relating to incentive stock options and $43.6 million relating to non-qualified stock options and restricted units. Employee and non-employee share‑based compensation expense of $45.8 million for the year ended December 31, 2016 is comprised of $8.0 million relating to incentive stock options and $37.8 million relating to non-qualified stock options and restricted units.
|  | 2018 |  | 2017 |  | 2016
Operating expenses |  | $ | 57,111 |  | $ | 52,282 |  | $ | 45,848
Total employee and non-employee share-based compensation expense included in income, before income tax |  |  | 57,111 |  |  | 52,282 |  |  | 45,848
Less: Amount of income tax benefit recognized in earnings |  |  | (14,892) |  |  | (100,635) |  |  | (34,909)
Amount charged against net income |  | $ | 42,219 |  | $ | (48,353) |  | $ | 10,939

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