Snapple 2010 Annual Report Download - page 28

Agreement with Coca-Cola
On October 4, 2010, we received the cash payment of $715 million, completed the licensing of certain brands to Coca-Cola
following Coca-Cola’s acquisition of CCE’s North American Bottling Business and executed separate agreements pursuant to
which Coca-Cola will offer Dr Pepper and Diet Dr Pepper in local fountain accounts and the Freestyle fountain program.
Under the new licensing agreements, Coca-Cola distributes Dr Pepper in the U.S. and Canada Dry in the Northeast territories
where these brands were formerly distributed by CCE. The same will apply to Canada Dry and C Plus in Canada. As part of the
U.S. licensing agreement, Coca-Cola has agreed to offer Dr Pepper and Diet Dr Pepper in its local fountain accounts. The new
agreements have an initial period of 20 years with automatic 20-year renewal periods, and will require Coca-Cola to meet certain
performance conditions.
Under a separate agreement, Coca-Cola has agreed to include Dr Pepper and Diet Dr Pepper brands in its Freestyle fountain
program. The Freestyle fountain program agreement has a period of 20 years. Additionally, in certain U.S. territories where it has
a distribution footprint, we will begin selling in early 2011 certain owned and licensed brands, including Canada Dry, Schweppes,
Squirt and Cactus Cooler, that were previously distributed by CCE.
Under these arrangements, we received a one-time nonrefundable cash payment of $715 million, which was recorded net, as
no competent or verifiable evidence of fair value could be determined for the significant elements in this arrangement. The total
cash consideration was recorded as deferred revenue and will be recognized as net sales ratably over the estimated 25-year life of
the customer relationship.
Customers
We primarily serve two groups of customers: 1) bottlers and distributors and 2) retailers.
Bottlers buy beverage concentrates from us and, in turn, they manufacture, bottle, sell and distribute finished beverages.
Bottlers also manufacture and distribute syrup for the fountain foodservice channel. In addition, bottlers and distributors purchase
finished beverages from us and sell them to retail and other customers. We have strong relationships with bottlers affiliated with
Coca-Cola and PepsiCo primarily because of the strength and market position of our key Dr Pepper brand.
Retailers also buy finished beverages directly from us. Our portfolio of strong brands, operational scale and experience in the
beverage industry has enabled us to maintain strong relationships with major retailers in the U.S., Canada and Mexico. In 2010,
our largest retailer was Wal-Mart Stores, Inc., representing approximately 14% of our net sales.
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.
Competition
The LRB industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition
is generally based upon brand recognition, taste, quality, price, availability, selection and convenience. We compete with
multinational corporations with significant financial resources. Our two largest competitors in the LRB market are Coca-Cola and
PepsiCo, which collectively represent approximately 63% of the U.S. LRB market by volume, according to Beverage Digest. We
also compete against other large companies, including Nestlé, S.A. (“Nestle”) and Kraft Foods Inc. (“Kraft”). These competitors
can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing
new products, reducing prices or increasing promotional activities. As a bottler and manufacturer, we also compete with a number
of smaller bottlers and distributors and a variety of smaller, regional and private label manufacturers, such as The Cott Corporation
(“Cott”). Smaller companies may be more innovative, better able to bring new products to market and better able to quickly exploit
and serve niche markets. We have lower exposure to some of the faster growing non-carbonated and the bottled water segments
in the overall LRB market. After several years of increased market share in the overall U.S. CSD market combined with share
loss in the overall U.S. LRB market, we have shown increases in market share in both the overall U.S. CSD market and the overall
U.S. LRB market according to Beverage Digest. In Canada, Mexico and the Caribbean, we compete with many of these same
international companies as well as a number of regional competitors.
Although these bottlers and distributors are our competitors, many of these companies are also our customers as they purchase
beverage concentrates from us.
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