Snapple 2010 Annual Report Download - page 53

Volume
Volume(BCS) increased 3% for the year ended December 31, 2009, compared with the year ended December 31, 2008. CSDs
increased 4% and NCBs increased 2%. The absence of Hansen sales following the contract termination settlement in the United
States and Mexico negatively impacted both total volumes and CSD volumes by 1% for the year ended December 31, 2009.In
CSDs, Dr Pepper increased 2% led by the launch of the Cherry line extensions and strength in Diet Dr Pepper. Our Core 4 brands
remained flat while Squirt decreased 8%. Driven by expanded distribution, the Crush brand grew 198%, which added an additional
48 million cases in 2009 in Beverage Concentrates and Latin America Beverages. In NCBs, 14% growth in Hawaiian Punch and
8% growth in Mott’s were partially offset by declines of 11% in Snapple and 1% in both Aguafiel and Clamato. Aguafiel declined
1% reflecting price increases and a more competitive environment. Snapple volumes declined primarily due to higher net pricing
associated with the Snapple premium product restage and the impact of a continued slowdown in consumer spending on premium
beverage products. In 2009, we extended and repositioned our Snapple offerings to support the long term health of the brand.
In North America volume increased 3% and in Mexico and the Caribbean volume increased 2%.
Net Sales
Net sales decreased $179 million, or 3%, for the year ended December 31, 2009 compared with the year ended December 31,
2008. The impact of the contract termination settlement with Hansen reduced net sales for the year ended December 31, 2009 by
$218 million. Additionally, the impact of foreign currency reduced net sales by approximately $77 million. These decreases were
partially offset by price increases and an increase in volumes, primarily driven by the expanded distribution of Crush.
Gross Profit
Gross profit increased $177 million, or 6%, for the year ended December 31, 2009, compared with the year ended December 31,
2008. The increase is a result of several factors including a decrease in commodity costs, the impact of price increases and volume
increases and the positive impact of the LIFO adjustment, partially offset by the impact of the Hansen termination and foreign
currency. Gross profit for the year ended December 31, 2009, includes a LIFO benefit of $10 million, compared to a LIFO expense
of $20 million for the year ended December 31, 2008. LIFO is an inventory costing method that assumes the most recent goods
manufactured are sold first, which in periods of rising prices results in an expense that eliminates inflationary profits from net
income. Gross margin was 59% and 55% for the years ended December 31, 2009 and 2008, respectively.
Income (Loss) from Operations
The $1,253 million increase in income from operations for the year ended December 31, 2009, compared with the year ended
December 31, 2008 was primarily driven by the absence of impairment of goodwill and intangible assets in 2009, an increase in
gross profit, a reduction in restructuring costs and one-time gains of $62 million primarily related to the termination of distribution
agreements. In October 2008, Hansen notified us that it was terminating our agreements to distribute Monster Energy as well as
other Hansen’s branded beverages in the U.S. effective November 10, 2008. In December 2008, Hansen notified us that it was
terminating the agreement to distribute Monster Energy drinks in Mexico, effective January 26, 2009.
Our annual impairment analysis, performed as of December 31, 2009, resulted in no impairment charges for 2009, compared
to non-cash impairment charges of $1,039 million for 2008.
The pre-tax impairment charges in 2008 consisted of $278 million related to the Snapple brand, $581 million of distribution
rights and $180 million of goodwill related to the DSD reporting unit. Deteriorating economic market conditions in the fourth
quarter of 2008 triggered higher discount rates as well as lower volume and growth projections which drove these impairments.
Indicative of the economic and market conditions, our average stock price declined 19% in the fourth quarter as compared to the
average stock price from May 7, 2008, the date of our separation from Cadbury, through September 30, 2008. The impairment of
the distribution rights was attributed to insufficient net economic returns above working capital, fixed assets and assembled
workforce.
There were no restructuring costs for the year ended December 31, 2009. Restructuring costs of $57 million for the year ended
December 31, 2008 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 DSD into our Packaged Beverages segment.
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