Snapple 2008 Annual Report Download - page 48

•Growing demographic segments in the United States. We believe marketing and product innovations that
target fast growing population segments, such as the Hispanic community in the United States, will drive
further market growth.
•Product and packaging innovation. We believe brand owners and bottling companies will continue to
create new products and packages such as beverages with new ingredients and new premium flavors, as well
as innovative convenient packaging that address changes in consumer tastes and preferences.
•Changing retailer landscape. As retailers continue to consolidate, we believe retailers will support
consumer product companies that can provide an attractive portfolio of products, a strong value proposition
and efficient delivery.
•Recent volatility in raw material costs. The costs of a substantial proportion of the raw materials used in
the beverage industry are dependent on commodity prices for aluminum, natural gas, resins, corn, pulp and
other commodities. Commodity prices volatility has exerted pressure on industry margins.
Seasonality
The beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the
warmer months and also can be influenced by the timing of holidays as well as weather fluctuations.
Segments
We report our business in four segments: Beverage Concentrates, Finished Goods, Bottling Group and Mexico
and the Caribbean.
• Our Beverage Concentrates segment is principally a brand ownership business that reflects sales from the
manufacture of concentrates and syrups in the United States and Canada. Most of the brands in this segment
are CSD brands.
• Our Finished Goods segment is principally a brand ownership and a bottling business and, to a lesser extent,
a distribution business that reflects sales from the manufacture and distribution of finished beverages and
other products in the United States and Canada. Most of the brands in this segment are NCB brands.
• Our Bottling Group segment is principally a bottling and distribution business that reflects sales from the
manufacture, bottling and/or distribution of finished beverages, including sales of our own brands and third
party owned brands.
• Our Mexico and the Caribbean segment is a brand ownership and a bottling and distribution business that
reflects sales from the manufacture, bottling and/or distribution of both concentrates and finished beverages
in those geographies.
Due to our integrated business model, we manage our business to maximize profitability for our company as a
whole. As a result, profitability trends in individual segments may not be consistent with the profitability of our
company or comparable to our competitors. For example, following the bottling acquisitions in 2006 as described
below, we changed certain funding and manufacturing arrangements between our Beverage Concentrates and
Finished Goods segments and our newly acquired bottling companies, which reduced the profitability of our
Bottling Group segment while benefiting our other segments.
We have significant intersegment transactions. For example, our Bottling Group purchases concentrates at an
arm’s length price from our Beverage Concentrates segment. We expect these purchases to account for approx-
imately one-third of our Beverage Concentrates segment annual net sales and therefore drive a similar proportion of
our Beverage Concentrates segment profitability. In addition, our Bottling Group segment purchases finished
beverages from our Finished Goods segment. All intersegment transactions are eliminated in preparing our
consolidated results of operations.
We incur selling, general and administrative expenses in each of our segments. In our segment reporting, the
selling, general and administrative expenses of our Bottling Group and Mexico and the Caribbean segments relate
primarily to those segments. However, as a result of our historical segment reporting policies, certain combined
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