Snapple 2008 Annual Report Download - page 59

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The disposal of the Grandma’s Molasses brand in January 2006 and the Slush Puppie business in May 2006 reduced
net sales by less than 1%.
Gross Profit
The $390 million increase in gross profit was primarily due to increases in our Bottling Group segment, which
contributed an additional $359 million mainly due to the inclusion of our bottling acquisitions. The remaining
increase was primarily due to net sales growth across our remaining segments partially offset by increases in
commodity costs, including sweeteners and apple juice concentrate, as well as inventory write-offs related to
Accelerade.
The decrease in gross margin from 58% in 2006 to 55% in 2007 was due primarily to the inclusion of our
bottling acquisitions for the full year 2007 as compared to partial periods in 2006 as bottling operations generally
have lower margins than our other businesses.
Income from Operations
Income from operations decreased $14 million for 2007 as compared to 2006 primarily driven by an increase in
SG&A expenses, higher restructuring charges, an increase in depreciation and amortization and a $6 million
impairment charge partially offset by the increase in gross profit and gains recorded as the result of the termination
of the glaceau distribution agreement.
SG&A expense increased primarily due to the inclusion of our bottling acquisitions, wage and benefit
inflation, higher transportation costs as well as higher operating expense allocations from Cadbury, partially offset
by a reduction in annual management incentive plan accruals. Marketing expenses was up slightly in 2007 to
support new product launches, including Accelerade, Mott’s line extensions, and Peñafiel in the United States.
Higher depreciation on property, plant and equipment and an increase in amortization of definite-lived intangibles
was also related to our bottling acquisitions. In 2007, we recorded impairment charges of $6 million, of which
$4 million was related to the Accelerade brand.
Restructuring costs for 2007 were primarily due to a plan announced in October 2007 intended to create a more
efficient organization that resulted in the reduction of employees in the Company’s corporate, sales and supply
chain functions and the continued integration of our Bottling Group into existing businesses. The restructuring costs
in 2006 were primarily related to the integration of our Bottling Group into existing businesses as well as various
other cost reduction and efficiency initiatives to align management information systems, consolidate back office
operations from acquired businesses, eliminate duplicate functions and relocate employees.
Income from operations in 2007 included an incremental $39 million of one-time gains as we recognized a
$71 million gain upon the termination of the glaceau distribution agreement in 2007 as compared to a $32 million
gain on disposals of the Grandma’s Molasses brand and the Slush Puppie business in 2006.
Interest Expense and Interest Income
Interest expense decreased $4 million in 2007 primarily due to a reduction in interest paid on a lawsuit settled
in June 2007 and the settlement of third party debt, partially offset by an increase in interest paid to Cadbury.
The $18 million increase in interest income was primarily due to higher note receivable balances with
subsidiaries of Cadbury.
Provision for Income Taxes
The effective tax rates for 2007 and 2006 were 39.4% and 37.0%, respectively. The increase in the effective
rate for 2007 was primarily due to a lower benefit from foreign operations.
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