Snapple 2009 Annual Report Download - page 56

Net Sales
Net sales increased $15 million for 2008 compared with 2007, primarily due to price increases and an increase
in concentrate sales as bottlers purchased more concentrate in advance of planned concentrate price increases.
Concentrate price increases were effective in January 2009 compared with concentrate price increases which were
made in February 2008. These increases were partially offset by a decline in sales volumes and an increase in
discounts paid to customers. The termination of the glaceau distribution agreement on November 2, 2007, and the
Hansen distribution agreement in the United States on November 10, 2008, reduced 2008 net sales by $227 million
and $23 million, respectively. Net sales resulting from the acquisition of SeaBev in July 2007 added an incremental
$61 million to 2008 consolidated net sales.
Gross Profit
Gross profit remained flat for 2008 compared with the prior year. Increased pricing largely offset the decrease
in sales volumes, increased customer discounts and increased commodity costs across our segments. Gross profit
for the year ended December 31, 2008, includes LIFO expense of $20 million, compared to $6 million in 2007.
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
55% for the years ended December 31, 2008 and 2007.
(Loss) Income from Operations
The $1,172 million decrease in income from operations for 2008 compared with 2007 was primarily driven by
impairment charges of $1,039 million in 2008, a one time gain we recognized in 2007 of $71 million in connection
with the termination of the glaceau distribution agreement and higher SG&A expenses in 2008, partially offset by
lower restructuring costs.
Our annual impairment analysis, performed as of December 31, 2008, resulted in non-cash impairment charges
of $1,039 million for 2008. The pre-tax charges 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 and
market conditions in the fourth quarter 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 of 2008 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.
SG&A expenses increased for 2008 primarily due to separation related costs, higher transportation costs and
increased payroll and payroll related costs. In connection with our separation from Cadbury, we incurred transaction
costs and other one time costs of $33 million for 2008. We incurred higher transportation costs principally due to an
increase of $22 million related to higher fuel prices. These increases were partially offset by benefits from
restructuring initiatives announced in 2007, lower marketing costs and $12 million in lower stock-based com-
pensation expense.
Restructuring costs of $57 million and $76 million for 2008 and 2007, respectively, 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
other operations of the Company. Restructuring costs for 2007 were higher due to higher costs associated with the
organizational restructuring as well as additional costs recognized for the integration of technology facilities and the
closure of a facility.
The loss of the glaceau distribution agreement reduced 2008 income from operations by $40 million,
excluding the one time gain from the payment we received on termination.
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