CORONA, Calif. -- Hansen Natural Corp. has completed agreements with The Coca-Cola Co. and Coca-Cola Enterprises Inc. for distribution of its Monster Energy drinks line in six Western European countries, Canada and selected territories in the United States. Dr Pepper Snapple Group said it expected to receive formal notification from Hansen terminating its agreements to distribute Monster Energy as well as its other beverage brands in certain U.S. markets.
Rodney Sacks, chairman and CEO of Hansen, said, "We believe the relationship with The Coca-Cola Co. and Coca-Cola Enterprises will enable [image-nocss] us to build on the success of our Monster Energy brand in North America and expand into fertile new international markets. In the United States, the relationship will complement our existing long-term arrangements with Anheuser-Busch distributors, which have been and we expect will continue to be very important to Hansen. We believe that the combination of these two leading distribution systems will provide us with an unrivaled distribution network in North America."
Under the agreements, a significant portion of Monster Energy's current North American Direct Store Delivery (DSD) volume will be serviced by Coca-Cola bottlers, primarily CCE.
The agreements in North America include all Monster Energy trademark beverages including Monster Energy and Java Monster as well as the Lost Energy brand.
Hansen will transition certain of its existing distribution arrangements to newly appointed distributors, including Coca-Cola bottlers and A-B distributors. In connection with the transition, Hansen will make termination payments to those of its existing distributors who will be terminated. Nonrefundable contributions were previously received by Hansen from certain of its existing distributors, who will be terminated. Such contributions were previously treated as deferred revenue and upon termination, the associated balance in deferred revenue will be realized in full. The pre-tax expense impact of the amounts is currently estimated to be in the range of $110 to $130 million in the aggregate, but could be higher or lower.
The actual termination payments could differ significantly from current estimates because the estimates are based largely on Hansen's estimate of each affected distributor's contractual termination rights. This estimate includes estimates of each distributor's own sales and gross profit levels, net of certain allowances. The actual termination costs will be expensed in full in the period in which the terminations become effective, which will primarily be in fourth-quarter 2008.
Hansen will receive from newly appointed distributors nonrefundable contributions covering a significant portion of the costs of terminating the affected distributors. These contributions will be accounted for as deferred revenue, which will be recognized as revenue ratably over the anticipated 20-year life of the distribution agreements.
"Monster energy drinks are in less than one-third of our company-owned footprint," said Larry Young, president and CEO of Dr Pepper Snapple. "The successful launch of Venom, Dr Pepper Snapple's own energy drink brand, which was recently endorsed by Cowboys football star Terrell Owens, as well as expanded distribution of HYDRIVE, an enhanced energy drink in which DPS has an equity stake, together with our integrated business model give us confidence that we will be able to build a broader and even stronger energy portfolio and continue to participate in the long-term growth of this category."
Year-to-date through September 2008, Dr Pepper Snapple said it generated approximately $170 million and $30 million in revenue and operating profits, respectively, distributing Hansen U.S. brands. The company will record a one-time gain related to the contract termination when terms are finalized.
Based in Corona, Calif., Hansen markets and distributes Hansen's natural sodas, sparkling beverages, apple juice and juice blends, fruit juice smoothies, multi-vitamin juice drinks in aseptic packaging, iced teas, energy drinks, Junior Juice juices and water beverages Energade energy sports drinks, Blue Sky brand beverages, Monster Energy brand energy drinks, Monster Hitman energy shooters, Java Monster brand non-carbonated dairy based coffee drinks, Lost Energy brand energy drinks, Joker Mad Energy, Unbound Energy and Ace Energy brand energy drinks and Rumba, Samba and Tango brand energy juices.
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