Snapple 2010 Annual Report Download - page 34

We may not comply with applicable government laws and regulations and they could change.
We are subject to a variety of federal, state and local laws and regulations in the U.S., Canada, Mexico and other countries
in which we do business. These laws and regulations apply to many aspects of our business including the manufacture, safety,
labeling, transportation, advertising and sale of our products. See “Regulatory Matters” in Item 1, “Business,” of this Annual
Report on Form 10-K for more information regarding many of these laws and regulations. Violations of these laws or regulations
could damage our reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in
such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations could
result in increased compliance costs or capital expenditures. For example, changes in recycling and bottle deposit laws or special
taxes on soft drinks or ingredients could increase our costs. Regulatory focus on the health, safety and marketing of food products
is increasing. Certain state warning and labeling laws, such as California's “Prop 65,” which requires warnings on any product
with substances that the state lists as potentially causing cancer or birth defects, could become applicable to our products.
Some local and regional governments and school boards have enacted, or have proposed to enact, regulations restricting the
sale of certain types of soft drinks in schools. Any violations or changes of regulations could have a material adverse effect on our
profitability, or disrupt the production or distribution of our products, and negatively affect our business and financial performance.
In addition, taxes imposed on the sale of certain of our products by federal, state, local and foreign governments could cause
consumers to shift away from purchasing our products. For example, some members of the U.S. federal government have raised
the possibility of a federal tax on the sale of certain “sugared” beverages, including non-diet soft drinks, fruit drinks, teas, and
flavored waters, to help pay for the cost of healthcare reform. Some U.S. state governments are also considering similar taxes. If
enacted, such taxes could materially affect our business and financial results.
Our distribution agreements with our allied brands could be terminated.
Hansen Natural Corporation and glacéau terminated their distribution agreements with us in 2008 and 2007, respectively. We
are subject to a risk of other allied brands, such as FIJI and AriZona, terminating their distribution agreements with us, which
could negatively affect our business and financial performance.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
We are party to various litigation claims and legal proceedings. We evaluate these claims and proceedings to assess the
likelihood of unfavorable outcomes and estimate, if possible, the amount of potential losses. We may establish a reserve as
appropriate based upon assessments and estimates in accordance with our accounting policies. We base our assessments, estimates
and disclosures on the information available to us at the time and rely on legal and management judgment. Actual outcomes or
losses may differ materially from assessments and estimates. Actual settlements, judgments or resolutions of these claims or
proceedings may negatively affect our business and financial performance. For more information, see Note 20 of the Notes to our
Audited Consolidated Financial Statements.
Benefits cost increases could reduce our profitability.
Our profitability is substantially affected by the costs of pension, postretirement, employee medical costs and other benefits.
In recent years, these costs have increased significantly due to factors such as increases in health care costs, declines in investment
returns on pension assets and changes in discount rates used to calculate pension and related liabilities. These factors plus the
enactment of the Patient Protection and Affordable Care Act in March 2010 will continue to put pressure on our business and
financial performance. Although we actively seek to control increases in costs, there can be no assurance that we will succeed in
limiting future cost increases, and continued upward pressure in costs, could have a material adverse affect on our business and
financial performance.
Costs for our raw materials may increase substantially.
The principal raw materials we use in our business are aluminum cans and ends, glass bottles, PET bottles and caps, paperboard
packaging, sweeteners, juice, fruit, water and other ingredients. Additionally, conversion of raw materials into our products for
sale also uses electricity and natural gas. The cost of the raw materials can fluctuate substantially. We are significantly impacted
by increases in fuel costs due to the large truck fleet we operate in our distribution businesses and our use of third party carriers.
Under many of our supply arrangements, the price we pay for raw materials 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. Continued price increases could exert
pressure on our costs and we may not be able to pass along any such increases to our customers or consumers, which could
negatively affect our business and financial performance.
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