Snapple 2008 Annual Report Download - page 34

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We owned property, plant and equipment, net of accumulated depreciation, totaling $935 million and
$796 million in the United States and $55 million and $72 million in international locations as of December 31,
2008 and 2007, respectively.
Warehousing and Distribution
As of December 31, 2008, our distribution network consisted of approximately 200 distribution centers in the
United States and approximately 25 distribution centers in Mexico. Our warehouses are generally located at or near
bottling plants and are geographically dispersed to ensure product is available to meet consumer demand. We
actively manage transportation of our products using combination of our own fleet of more than 5,000 delivery
trucks, as well as third party logistics providers.
Raw Materials
The principal raw materials we use in our business are aluminum cans and ends, glass bottles, PET bottles and
caps, paper products, sweeteners, juice, fruit, water and other ingredients. The cost of the raw materials can
fluctuate substantially. In addition, we are significantly impacted by changes in fuel costs due to the large truck fleet
we operate in our distribution businesses.
Under many of our supply arrangements for these raw materials, the price we pay fluctuates along with certain
changes in underlying commodities costs, such as aluminum in the case of cans, natural gas in the case of glass
bottles, resin in the case of PET bottles and caps, corn in the case of sweeteners and pulp in the case of paperboard
packaging. Manufacturing costs for our Finished Goods segment, where we manufacture and bottle finished
beverages, are higher as a percentage of our net sales than our Beverage Concentrates segment as the Finished
Goods segment requires the purchase of a much larger portion of the packaging and ingredients. Although we have
contracts with a relatively small number of suppliers, we have generally not experienced any difficulties in
obtaining the required amount of raw materials.
When appropriate, we mitigate the exposure to volatility in the prices of certain commodities used in our
production process through the use of futures contracts and supplier pricing agreements. The intent of the contracts
and agreements is to provide predictability in our operating margins and our overall cost structure.
Research and Development
Our research and development team is composed of scientists and engineers in the United States and Mexico
who are focused on developing high quality products which have broad consumer appeal, can be sold at competitive
prices and can be safely and consistently produced across a diverse manufacturing network. Our research and
development team engages in activities relating to product development, microbiology, analytical chemistry,
process engineering, sensory science, nutrition, knowledge management and regulatory compliance. We have
particular expertise in flavors and sweeteners. Research and development costs amounted to $17 million in 2008
and totaled $14 million for each of 2007 and 2006, net of allocations to Cadbury. Additionally, we incurred
packaging engineering costs of $4 million, $5 million, and $3 million for 2008, 2007 and 2006, respectively. These
expenses are recorded in selling, general and administrative expenses in our Consolidated Statements of Operations.
Information Technology and Transaction Processing Services
We use a variety of information technology (“IT”) systems and networks configured to meet our business
needs. Prior to our separation from Cadbury, IT support was provided as a corporate service by Cadbury’s IT team
and external suppliers. Post separation, we have formed our own standalone, dedicated IT function to support our
business and have separated our systems, services and contracts from those of Cadbury. Our primary IT data center
is hosted in Toronto, Canada by a third party provider. We also use two primary vendors for application support and
maintenance, both of which are based in India and provide resources offshore and onshore.
We use a business process outsourcing provider located in India to provide certain back office transactional
processing services, including accounting, order entry and other transactional services.
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