Snapple 2009 Annual Report Download - page 50

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 were 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.
Selling, general and administrative (“SG&A”) expenses increased for 2009 primarily due to an increase in
compensation-related costs and an increase in advertising and marketing of $53 million, partially offset by
decreased transportation and warehousing costs of $69 million driven by supply chain network optimization efforts
in addition to a decrease in fuel costs and carrier rates. In connection with our separation from Cadbury, we incurred
transaction costs and other one time costs of $33 million for the year ended December 31, 2008.
Interest Expense, Interest Income and Other Income
Interest expense decreased $14 million compared with the year ago period. Interest expense for the year ended
December 31, 2009, reflects our capital structure as a stand-alone company and principally relates to our Term Loan
A facility and senior unsecured notes. As the Term Loan A was fully repaid prior to its maturity in December 2009,
the Company recorded a $30 million expense from the write-off of deferred financing fees and $7 million expense
from the de-designation of a cash flow hedge associated with the Term Loan A in interest expense. During the year
ended December 31, 2008, we incurred $26 million related to our bridge loan facility, including $21 million of
financing fees expensed when the bridge loan facility was terminated on April 30, 2008, and additional interest
expense on debt balances with subsidiaries of Cadbury prior to our separation.
The $28 million decrease in interest income was primarily due to the loss of interest income earned on note
receivable balances with subsidiaries of Cadbury prior to our separation.
30