Snapple 2012 Annual Report Download - page 28

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10
WAREHOUSING AND DISTRIBUTION
As of December 31, 2012, our distribution network consisted of 115 principal distribution centers and warehouses in the U.S.
and seven principal distribution centers and warehouses in Mexico. Our warehouses are generally located at or near bottling plants
and are geographically dispersed to ensure product is available to meet consumer demand. We actively manage the sale,
merchandising and transportation of our products using a combination of our own fleet of approximately 6,000 delivery vehicles
and third party logistics providers.
RAW MATERIALS
The principal raw materials we use in our business are aluminum cans and ends, glass bottles, PET bottles and caps, paper
products, sweeteners, juice, fruit, water and other ingredients. The cost of such raw materials can fluctuate substantially. In addition,
we are significantly impacted by changes in fuel costs due to the large truck fleet we operate in our distribution businesses.
Under many of our supply arrangements for these raw materials, the price we pay 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. Manufacturing costs for our
Packaged Beverages segment, where we manufacture and bottle finished beverages, are higher as a percentage of our net sales
than our Beverage Concentrates segment as the Packaged Beverages segment requires the purchase of a much larger portion of
the packaging and ingredients. Although we have contracts with a relatively small number of suppliers, we have generally not
experienced any difficulties in obtaining the required amount of raw materials.
When appropriate, we mitigate the exposure to volatility in the prices of certain commodities used in our production process
through the use of forward contracts and supplier pricing agreements. The intent of the contracts and agreements is to provide a
certain level of short-term predictability in our operating margins and our overall cost structure, while remaining in what we believe
to be a competitive cost position.
RESEARCH AND DEVELOPMENT
Our research and development team is composed of scientists and engineers in the U.S. and Mexico who are focused on
developing high quality products which have broad consumer appeal, can be sold at competitive prices and can be safely and
consistently produced across a diverse manufacturing network. Our research and development team engages in activities relating
to product development, microbiology, analytical chemistry, process engineering, sensory science, nutrition, knowledge
management and regulatory compliance. We have particular expertise in flavors and sweeteners. Research and development costs
are expensed when incurred and amounted to $15 million, $15 million and $16 million for 2012, 2011 and 2010, respectively.
Additionally, we incurred packaging engineering costs of $6 million for each of 2012, 2011 and 2010. These expenses are recorded
in selling, general and administrative expenses in our Consolidated Statements of Income.
INFORMATION TECHNOLOGY AND TRANSACTION PROCESSING SERVICES
We use a variety of IT systems and networks configured to meet our business needs. Our primary IT data center is hosted in
Toronto, Canada by a third party provider. We also use a third party vendor for application support and maintenance, which is
based in India and provides resources offshore and onshore.
We use a business process outsourcing provider located in India to provide certain back office transactional processing services,
including accounting, order entry and other transactional services.
EMPLOYEES
At December 31, 2012, we employed approximately 19,000 employees.
In the U.S., we have approximately 16,000 full-time employees. We have union collective bargaining agreements covering
approximately 4,000 full-time employees. Several agreements cover multiple locations. These agreements address working
conditions as well as wage rates and benefits. In Mexico and the Caribbean, we employ approximately 3,000 full-time employees,
with approximately 1,000 employees party to collective bargaining agreements. We do not have a significant number of employees
in Canada.
We believe we have good relations with our employees.