Snapple 2008 Annual Report Download - page 37

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response, our sales could suffer. Developing and launching new products can be risky and expensive. We may not be
successful in responding to changing markets and consumer preferences, and some of our competitors may be better
able to respond to these changes, either of which could negatively affect our business and financial performance.
We depend on a small number of large retailers for a significant portion of our sales.
Food and beverage retailers in the United States have been consolidating, resulting in large, sophisticated
retailers with increased buying power. They are in a better position to resist our price increases and demand lower
prices. They also have leverage to require us to provide larger, more tailored promotional and product delivery
programs. If we and our bottlers and distributors do not successfully provide appropriate marketing, product,
packaging, pricing and service to these retailers, our product availability, sales and margins could suffer. Certain
retailers make up a significant percentage of our products’ retail volume, including volume sold by our bottlers and
distributors. For example, Wal-Mart Stores, Inc., the largest retailer of our products, represented approximately
11% of our net sales in 2008. Some retailers also offer their own private label products that compete with some of
our brands. The loss of sales of any of our products in a major retailer could have a material adverse effect on our
business and financial performance.
We depend on third party bottling and distribution companies for a substantial portion of our business.
We generate a substantial portion of our net sales from sales of beverage concentrates to third party bottling
companies. During 2008, approximately two-thirds of our beverage concentrates volume was sold to bottlers that
we do not own. Some of these bottlers are partly owned by our competitors, and much of their business comes from
selling our competitors’ products. In addition, some of the products we manufacture are distributed by third parties.
As independent companies, these bottlers and distributors make their own business decisions. They may have the
right to determine whether, and to what extent, they produce and distribute our products, our competitors’ products
and their own products. They may devote more resources to other products or take other actions detrimental to our
brands. In most cases, they are able to terminate their bottling and distribution arrangements with us without cause.
We may need to increase support for our brands in their territories and may not be able to pass on price increases to
them. Their financial condition could also be adversely affected by conditions beyond our control and our business
could suffer. Deteriorating economic conditions could negatively impact the financial viability of third party
bottlers. Any of these factors could negatively affect our business and financial performance.
Determinations in the future that a significant impairment of the value of our goodwill and other
indefinite lived intangible assets has occurred could have a material adverse effect on our financial
performance.
As of December 31, 2008, we had $8.6 billion of total assets, of which approximately $5.7 billion were
intangible assets. Intangible assets include goodwill, and other intangible assets in connection with brands, bottler
agreements, distribution rights and customer relationships. We conduct impairment tests on goodwill and all
indefinite lived intangible assets annually, as of December 31, or more frequently if circumstances indicate that the
carrying amount of an asset may not be recoverable. If the carrying amount of an intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to that excess. Our annual impairment analysis,
performed as of December 31, 2008, resulted in pre-tax non-cash impairment charges of $1,039 million. For
additional information about these intangible assets, see “Critical Accounting Estimates — Goodwill and Other
Indefinite Lived Intangible Assets” in Item 7 and our audited consolidated financial statements included in Item 8 in
this Annual Report on Form 10-K.
The impairment tests require us to make an estimate of the fair value of intangible assets. Since a number of
factors may influence determinations of fair value of intangible assets, we are unable to predict whether
impairments of goodwill or other indefinite lived intangibles will occur in the future. Any such impairment
would result in us recognizing a charge to our operating results, which may adversely affect our financial
performance.
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