The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided as a supplement to - and should be read in conjunction with - our financial statements and the accompanying notes ("Notes") included in Part II, Item 8 of this Form 10-K. This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements.

This overview provides our perspective on the individual sections of MD&A. MD&A includes the following sections:

† Our Business - a general description of our business; the value drivers of our business; and opportunities and risks facing our Company;

† Results of Operations - an analysis of our consolidated results of operations for the three years presented in our financial statements;

† Liquidity and Capital Resources - an analysis of our cash flows, sources and uses of cash and contractual obligations;

† Accounting Policies and Pronouncements - a discussion of accounting policies that require critical judgments and estimates including newly issued accounting pronouncements;

† Sales - details of our sales measured on a quarterly basis in both dollars and cases;

† Inflation - information about the impact that inflation may or may not have on our results;

† Forward Looking Statements - cautionary information about forward looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from the company's historical results or our current expectations or projections; and

† Market Risks - Information about market risks and risk management. (See "Forward Looking Statements" and "Part II, Item 7A - Qualitative and Quantitative Disclosures About Market Risks").

Our Business

Overview

We develop, market, sell and distribute "alternative" beverage category natural sodas, fruit juices and juice drinks, energy drinks and energy sports drinks, fruit juice smoothies and "functional" drinks, non-carbonated ready-to-drink iced teas, children's multi-vitamin juice drinks, Junior Juice® juices, Junior Juice Water and flavored sparkling beverages under the Hansen's® brand name. We also develop, market, sell and distribute energy drinks under the following brand names: Monster Energy®; Monster Hitman Energy Shooter™; Lost® Energy™ and Joker Mad Energy™ brand names as well as Rumba®, Samba and Tango brand energy juices. We also market, sell and distribute the Java Monster™ line of non-carbonated dairy based coffee drinks. Additionally, we market, sell and distribute natural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters, sports drinks and energy drinks under the Blue Sky® brand name. In July 2008, we began to market, sell and distribute enhanced water beverages under the Vidration™ brand name.

We have two reportable segments, namely DSD, whose principal products comprise energy drinks, and 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 direct to retailers.

Our Monster Energy® brand energy drinks include Monster Energy® drinks (introduced in April 2002), lo-carb Monster Energy® drinks (introduced in August 2003), Monster Energy® Assault® energy drinks (introduced in September 2004), Monster Energy® KhaosTM energy drinks (introduced in August 2005), Monster Energy® M-80TM energy drinks (introduced in March 2007, named "RIPPER" in certain countries), Monster Energy® Heavy Metal™ energy drinks (introduced in November 2007) and Monster Energy® MIXXD™ energy drinks (introduced in December 2007).

A substantial portion of our gross sales are derived from our Monster Energy® brand energy drinks. Any decrease in sales of our Monster Energy® brand energy drinks could significantly adversely affect our future revenues and net income. Our DSD segment represented 90.7%, 89.5% and 84.9% of our net sales for the years ended December 31, 2008, 2007 and 2006, respectively. Competitive pressure in the "energy drink" category could adversely affect our operating results. (See "Part I, Item 1A - Risk Factors").

Our sales and marketing strategy for all our beverages is to focus our efforts on developing brand awareness and trial through sampling both in stores and at events. We use our branded vehicles and other promotional vehicles at events where we sample our products to consumers. We utilize "push-pull" methods to achieve maximum shelf and display space exposure in sales outlets and maximum demand from consumers for our products, including advertising, in-store promotions and in-store placement of point-of-sale materials and racks, prize promotions, price promotions, competitions, endorsements from selected public and extreme sports figures, coupons, sampling and sponsorship of selected causes such as cancer research. Our extreme sports team endorsements include teams such as the Pro Circuit - Kawasaki Motocross and Supercross teams, Kawasaki Factory Motocross and Supercross teams, Robby Gordon Racing Team, Ken Block Rally Racing Team and the Tech 3 Moto GP Team (new for 2009). Our individual athlete and/or personality endorsements include extreme sports figures and athletes such as NASCAR Camping World Truck Series racer Ricky Carmichael, Moto GP motorcycle racer Valentino Rossi (new for 2009), television personalities such as Rob Dyrdek as well as many athletes that compete in other sports related activities, particularly, the Winter and Summer X-Games, supercross, motocross, freestyle motocross, surfing, skateboarding, wakeboarding, skiing, snowboarding, BMX, mountain biking, snowmobile freestyle, snowmobile racing, etc. Our event endorsements include a wide range of events such as the Monster Energy® Supercross Series, the AMA Pro Motocross Championship Series and the Vans Warped Tour. In-store posters, outdoor posters, print, radio and television advertising, together with price promotions 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, such as making Hansen's® 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, and we will continue to reevaluate the same from time to time.

During 2008, we continued to expand our existing product lines and further develop our markets. In particular, we continued to focus on developing and marketing beverages that fall within the category generally described as the "alternative" beverage category, with particular emphasis on energy type drinks.

During the second quarter of 2006, we entered into the Off-Premise Agreements with AB. Under the Off-Premise Agreements, select AB Distributors distribute and sell, in markets designated by HBC, HBC's Monster Energy® and Lost® EnergyTM brands non-alcoholic energy drinks and Rumba®, Samba and Tango brand energy juice, as well as additional products that may be agreed between the parties.

During the fourth quarter of 2008, we entered into the Monster Energy Distribution Coordination Agreement (the "TCCC North American Coordination Agreement") with The Coca-Cola Company ("TCCC"). Pursuant to the TCCC North American Coordination Agreement, we have designated, and in

the future may designate, territories in which bottlers from TCCC's network of partially owned and independent bottlers, including 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® beverages (the "Products") in the United States and Canada.

During the fourth quarter of 2008, we entered into the Monster Energy Distribution Agreement with CCE pursuant to which CCE was appointed to distribute, directly and through certain sub-distributors, the Products in portions of twenty-four U.S. states (the "U.S. Territories"). We may designate additional territories within reasonable proximity to the U.S. Territories and CCE will use reasonable good faith efforts to add the additional territories. During the fourth quarter of 2008, we entered into the Monster Energy Canadian Distribution Agreement with CCBC, pursuant to which CCBC has been appointed to distribute, directly and through certain sub-distributors, the Products in Canada, with performance commencing on January 1, 2009. In addition, during the fourth quarter of 2008, we entered into distribution agreements with Consolidated, United and other TCCC North American Bottlers for the distribution of Products in various territories within the United States.

During the fourth quarter of 2008, we entered into the Monster Energy International Coordination Agreement (the "TCCC International Coordination Agreement") with TCCC. Pursuant to the TCCC International Coordination Agreement, we have designated, and in the future may designate, countries in which we wish to appoint TCCC distributors to distribute and sell the Products.

During the fourth quarter of 2008, we entered into the Monster Energy International Distribution Agreement and the Monster Energy Belgium Distribution Agreement with CCE pursuant to which CCE has been appointed to distribute directly and through certain sub-distributors the Products in Great Britain, France, Belgium, the Netherlands, Luxembourg and Monaco.

Pursuant to the new and/or amended distribution agreements entered into with certain distributors as discussed above, net amounts of $113.0 million and $21.0 million from such distributors, relating to the cost of terminating certain of our prior distributors, were recorded for the years ended December 31, 2008 and 2007, respectively. Such amounts have been accounted for as deferred revenue and will be recognized as revenue ratably over the anticipated life of the respective distribution agreements, generally 20 years. Distributor receivables related to these new and/or amended distribution agreements totaled $90.7 million and $5.4 million as of December 31, 2008 and 2007, respectively. Revenue recognized was $14.3 million, $1.9 million and $0.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. Included in the $14.3 million of revenue recognized for the year ended December 31, 2008, is $11.6 million related to the acceleration of deferred revenue balances associated with certain of our prior distributors who were terminated in the fourth quarter of 2008.

We incurred termination costs to certain of our prior distributors amounting to $118.1 million, $15.3 million and $12.7 million in aggregate for the years ended December 31, 2008, 2007 and 2006, respectively. Such termination costs have been expensed in full and are included in operating expenses for the years ended December 31, 2008, 2007 and 2006. Accrued distributor terminations in the accompanying consolidated balance sheets as of December 31, 2008 and 2007 (representing termination costs not paid to our prior distributors prior to the end of the fiscal year) were $102.3 million and $4.3 million, respectively. In addition, inventory returned to us by certain of our prior terminated distributors resulted in a reduction of gross sales of approximately $9.7 million for the year ended December 31, 2008.

As discussed under Review of Historic Stock Option Granting Practices in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Form 10-K for the fiscal year ended December 31, 2006, and Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Form 10-Q for the quarter

ended March 31, 2007, a special committee of our Board of Directors concluded its review of our stock option grants and granting practices. In connection with this review, and with respect to related litigation and other related matters, we incurred professional service fees, net of insurance proceeds, of ($0.2) million, $9.8 million and $3.8 million for the years ended December 31, 2008, 2007 and 2006, respectively.

The following table summarizes the selected items discussed above for the years ended December 31, 2008, 2007 and 2006:

Balance Sheet Items (in thousands):            2008             2007             2006

Included in Deferred Revenue:
Contributions from, net of
reimbursements to certain distributors     $     112,963    $      21,029     $     20,851




Income Statement Items (in
thousands):                                 2008            2007            2006

Included in Net Sales:
Recognition of deferred revenue         $   14,331      $      1,916    $        411

Included in Operating Expenses:
Termination costs to prior
distributors1                           $  118,134      $     15,266    $     12,728

Professional service fees (net of
insurance proceeds) associated with
the review of stock option grants
and granting practices, related
litigation and other related matters    $     (202 )    $      9,760 2  $      3,753

1 includes terminations in Canada and Mexico 2 net of $2.5 million insurance reimbursements

We again achieved record gross sales of $1,182.9 million for the year ended December 31, 2008. The increase in gross sales in 2008 was primarily attributable to increased sales of certain of our existing products, particularly our Monster Energy® brand energy drinks and to increased sales by volume of our Java MonsterTM line of non-carbonated dairy based coffee drinks. Gross sales for the year ended December 31, 2008 were impacted by a price increase announced during the fourth quarter of 2007 for all of our Monster Energy® brand energy drinks in 16-ounce cans and our Java Monster™ line of non-carbonated dairy based coffee drinks, effective January 1, 2008. We estimate that gross sales for the year ended December 31, 2008 were reduced by approximately 2% as a result of purchases made by our customers in advance of such price increases. We did not limit the amount of purchases our customers could execute at our existing 2007 fourth quarter prices.

Our percentage increase in gross sales was 15.3%, 47.3% and 67.6% for the years ended December 31, 2008, 2007 and 2006, respectively. We believe our growth rate decline was attributable to the decline of the overall growth rates in the markets in which we operate, and more recently, to general economic conditions. Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing economic conditions, inflation, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy and gas costs, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers' disposable income, credit availability and debt levels. A continued or incremental slowdown in the U.S. economy, an uncertain economic

outlook or an expanded credit crisis could continue to adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. During 2008, there was significant deterioration in the global financial markets and economic environment, which we believe negatively impacted consumer spending at many retailers for our products. In response to this, we have taken steps to increase opportunities to profitably drive sales and to operate our business more efficiently. If these adverse economic trends worsen, or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods. For further discussion of the risks to us regarding general economic conditions (See "Part I, Item 1A - Risk Factors").

Gross sales shipped outside of California represented 77%, 73% and 69% of our gross sales, for the years ended December 31, 2008, 2007 and 2006, respectively. Gross sales to customers outside the United States amounted to $96.3 million, $55.7 million and $24.8 million for the years ended December 31, 2008, 2007 and 2006, respectively. Such sales were approximately 8.2%, 5.4% and 3.5% of gross sales for the years ended December 31, 2008, 2007 and 2006, respectively. The reclassification of certain military customers from gross sales to customers within the United States to gross sales to customers outside the United States, resulted in an increase in gross sales outside the United States of $14.8 million and $5.5 million for the years ended December 31, 2007 and 2006, respectively, over amounts previously reported.

Our customers are primarily retail grocery and specialty chains, wholesalers, club stores, drug chains, mass merchandisers, convenience chains, full service beverage distributors, health food distributors and food service customers. Gross sales to our various customer types for 2008, 2007 and 2006 are reflected below. The allocations below reflect changes made by the Company to the categories historically reported.

                                                   2008   2007   2006
Retail grocery, specialty chains and wholesalers    8%     8%    12%
Club stores, drug chains & mass merchandisers      14%    14%    14%
Full service distributors                          74%    73%    69%
Health food distributors                            1%     2%     2%
Other                                               3%     3%     3%

Our customers include CCE, CCBC, Consolidated, United and other TCCC North American Bottlers, Wal-Mart, Inc. (including Sam's Club), AB Distributors, Kalil Bottling Group, Trader Joe's, John Lenore & Company, Pepsi Canada (terminated by us effective December 31, 2008), Swire Coca-Cola, Costco, The Kroger Co., Safeway Inc. and Albertsons. A decision by any large customer to decrease amounts purchased from the Company or to cease carrying our products could have a material negative effect on our financial condition and consolidated results of operations. Dr. Pepper Snapple Group, Inc., a former customer of the DSD division, accounted for approximately 13%, 16% and 19% of our net sales for the years ended December 31, 2008, 2007 and 2006, respectively. Our distribution agreement with the Dr. Pepper Snapple Group, Inc. was terminated by us effective November 9, 2008. The related terminated distributor territories are now serviced by a combination of TCCC North American Bottlers and AB Distributors. Wal-Mart, Inc. (including Sam's Club), a customer of both the DSD and Warehouse divisions, accounted for approximately 11%, 12% and 12% of our net sales for the years ended December 31, 2008, 2007 and 2006, respectively.

We continue to incur expenditures in connection with the development and introduction of new products and flavors.

Value Drivers of our Business

We believe that the key value drivers of our business include the following:

† Profitable Growth - We believe "functional", "better for you" brands properly supported by marketing and innovation, targeted to a broad consumer base, drive profitable growth. We continue to broaden our family of brands. In particular, we are expanding our specialty beverages and energy drinks to provide more alternatives to consumers. We are focused on maintaining profit margins. We believe that tailored branding, packaging, pricing and channeling strategies help achieve profitable growth. We are implementing these strategies with a view to accelerating profitable growth.

† Cost Management - The principal focus of cost management will continue to be on supplies and cost reduction. One key area of focus is to decrease raw material costs, co-packing fees and general and administrative costs as a percentage of net operating revenues. Another key area of focus is the reduction of inventory days on hand.

† Efficient Capital Structure - Our capital structure is intended to optimize our cost of capital. We believe our strong capital position, our ability to raise funds if necessary at low effective cost and low overall costs of borrowing provide a competitive advantage.

We believe that, subject to increases in the costs of certain raw materials being contained, these value drivers, when properly implemented, will result in:
(1) maintaining our gross profit margin; (2) providing additional leverage over time through reduced expenses as a percentage of net operating revenues; and
(3) optimizing our cost of capital. The ultimate measure of success is and will be reflected in our current and future results of operations.

Gross and net sales, gross profits, operating income, and net income and net income per share represent key measurements of the above value drivers. These measurements will continue to be a key management focus in 2009 and beyond.
(See "Part II, Item 7 - Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007").

As of December 31, 2008, the Company had working capital of $374.0 million compared to $187.3 million as of December 31, 2007. The overall increase in working capital was primarily attributable to the transfer of our investments from long-term instruments to short-term instruments (See "Part II, Item 8, Note
3 - Investments" in our consolidated financial statements). For the year ended December 31, 2008, our net cash provided by operating activities was approximately $199.5 million as compared to $135.5 million for the year ended December 31, 2007. Principal uses of cash flows are repurchases of our common stock, purchases of inventory, increases in accounts receivable and other assets, acquisition of property and equipment and acquisition of trademarks. Payment of accrued distributor terminations, purchases of our common stock, accounts payable and income taxes payable are expected to be and remain our principal recurring use of cash and working capital funds. (See "Part II, Item 7
- Liquidity and Capital Resources").

Opportunities, Challenges and Risks

Looking forward, our management has identified certain challenges and risks that demand the attention of the beverage industry and our Company. Uncertainty and volatility in domestic and international economic markets could negatively affect both the stability of our industry and our Company. Decreased consumer discretionary spending represents a challenge to the successful marketing and purchase of our products. Increases in consumer and regulatory awareness of the health problems arising from obesity and inactive lifestyles continues to represent a challenge. We recognize

that obesity is a complex and serious public health problem. Our commitment to consumers begins with our broad product line and a wide selection of diet, light and lo-carb beverages, juices and juice drinks, sports drinks and waters and energy drinks. We continuously strive to meet changing consumer needs through beverage innovation, choice and variety.

Our historical success is attributable, in part, to our introduction of different and innovative beverages. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages, although there can be no assurance of our ability to do so. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of quality, health, method of distribution, brand image and intellectual property protection. The beverage industry is subject to changing consumer preferences and shifts in consumer preferences that may adversely affect us if we misjudge such preferences.

In addition, other key challenges and risks that could impact our Company's future financial results include, but are not limited to:

† the impact of the slowing economy in the United States and other countries in which we operate;

† maintenance of our brand image and product quality;

† profitable expansion and growth of our family of brands in the competitive market place (See "Part I, Item 1 - Business - Competition and Sales and Marketing");

† restrictions on imports and sources of supply; duties or tariffs; changes in government regulations;

† protection of our existing intellectual property portfolio of trademarks and the continuous pursuit to develop and protect new and innovative trademarks for our expanding product lines;

† limitations on available quantities of certain package containers such as the 24-ounce cap can, the 32-ounce can, and copacking availability;

† the imposition of additional restrictions.

(See "Part I, Item 1A - Risk Factors") for additional information about risks and uncertainties facing our Company.

We believe that the following opportunities exist for us:

† growth potential for the "alternative" beverage category including energy drinks, sparkling beverages, carbonated soft drinks and teas, juices and juice drinks and enhanced waters;

† new product introductions intended to contribute to higher profitability;

† premium packages intended to generate strong revenue growth;

† significant package, pricing and channel opportunities to maximize profitable growth;

† proper positioning to capture industry growth; and

† broadening distribution/expansion opportunities in both domestic and international markets.

Results of Operations

                                                                                 Percentage Change
                                     2008            2007           2006       08 vs. 07    07 vs. 06
Gross sales, net of
discounts & returns*             $ 1,182,876     $ 1,025,795     $ 696,322        15.3%        47.3%
Less: Promotional and other
allowances**                         149,096         121,330        90,548        22.9%        34.0%
Net sales¹                         1,033,780         904,465       605,774        14.3%        49.3%
Cost of sales                        494,986         436,452       289,180        13.4%        50.9%
Gross profit¹                        538,794         468,013       316,594        15.1%        47.8%
Gross profit margin as a
percentage of net sales                52.1%           51.7%         52.3%
. . .