Snapple 2009 Annual Report Download - page 31

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 futures contracts and supplier pricing agreements. The intent of the contracts
and agreements is to provide predictability in our operating margins and our overall cost structure.
Research and Development
Our research and development team is composed of scientists and engineers in the United States 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 and $17 million for 2009 and 2008, respectively. Research and development costs totaled
$14 million for 2007, net of allocations to Cadbury. Additionally, we incurred packaging engineering costs of
$7 million, $4 million, and $5 million for 2009, 2008 and 2007, respectively. These expenses are recorded in selling,
general and administrative expenses in our Consolidated Statements of Operations.
Information Technology and Transaction Processing Services
We use a variety of IT systems and networks configured to meet our business needs. Prior to our separation
from Cadbury, IT support was provided as a corporate service by Cadbury’s IT team and external suppliers. Post
separation, we have formed our own standalone, dedicated IT function to support our business and have separated
our systems, services and contracts from those of Cadbury. 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, 2009, we employed approximately 19,000 employees, including seasonal and part-time
workers.
In the United States, we have approximately 16,000 full-time employees. We have many union collective
bargaining agreements covering approximately 4,000 full-time employees. Several agreements cover multiple
locations. These agreements often address working conditions as well as wage rates and benefits. In Mexico and the
Caribbean, we employ approximately 3,000 full-time employees and are also 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.
Regulatory Matters
We are subject to a variety of federal, state and local laws and regulations in the countries in which we do
business. Regulations apply to many aspects of our business including our products and their ingredients,
manufacturing, safety, labeling, transportation, recycling, advertising and sale. For example, our products, and
their manufacturing, labeling, marketing and sale in the United States are subject to various aspects of the Federal
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