Snapple 2011 Annual Report Download - page 33

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We depend on third party bottling and distribution companies for a portion of our business.
Net sales from our Beverage Concentrates segment represent sales of beverage concentrates to third party bottling companies
that we do not own. The Beverage Concentrates segment's net sales generate a portion of our overall net sales. Some of these
bottlers, PepsiCo and Coca-Cola, are our competitors. The majority of these bottlers’ business comes from selling either their own
products or our competitors’ products. In addition, some of the products we manufacture are distributed by third parties. As
independent companies, these bottlers and distributors make their own business decisions. They may have the right to determine
whether, and to what extent, they produce and distribute our products, our competitors’ products and their own products. They
may devote more resources to other products or take other actions detrimental to our brands. In most cases, they are able to
terminate their bottling and distribution arrangements with us without cause. We may need to increase support for our brands in
their territories and may not be able to pass on price increases to them. Their financial condition could also be adversely affected
by conditions beyond our control and our business could suffer. Deteriorating economic conditions could negatively impact the
financial viability of third party bottlers. Any of these factors could negatively affect our business and financial performance.
Our financial results may be negatively impacted by recession, financial and credit market disruptions and other economic
conditions.
Customer and consumer demand for our products may be impacted by recession or other economic downturn in the U.S.,
Canada, Mexico or the Caribbean, which could result in a reduction in our sales volume and/or switching to lower price offerings.
Similarly, disruptions in financial and credit markets may impact our ability to manage normal commercial relationships with our
customers, suppliers and creditors. These disruptions could have a negative impact on the ability of our customers to timely pay
their obligations to us, thus reducing our cash flow, or our vendors to timely supply materials.
We could also face increased counterparty risk for our cash investments and our hedge arrangements. Declines in the securities
and credit markets could also affect our pension fund, which in turn could increase funding requirements.
Costs for commodities may increase substantially.
The principal raw materials we use in our business are aluminum cans and ends, glass bottles, PET bottles and caps, paperboard
packaging, sweeteners, juice, fruit, water and other ingredients. Additionally, conversion of raw materials into our products for
sale also uses electricity and natural gas. The cost of the raw materials can fluctuate substantially. We are significantly impacted
by increases in fuel costs due to the large truck fleet we operate in our distribution businesses and our use of third party carriers.
Under many of our supply arrangements, the price we pay for raw materials 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. Continued price increases could exert
pressure on our costs and we may not be able to pass along any such increases to our customers or consumers, which could
negatively affect our business and financial performance.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
We are party to various litigation claims and legal proceedings which include employment, tort, real estate, commercial and
other litigation. From time to time we are a defendant in class action litigation, including litigation regarding employment practices,
product labeling, and wage and hour laws. Plaintiffs in class action litigation may seek to recover amounts which are large and
may be indeterminable for some period of time. We evaluate litigation claims and legal proceedings to assess the likelihood of
unfavorable outcomes and estimate, if possible, the amount of potential losses. We may establish a reserve as appropriate based
upon assessments and estimates in accordance with our accounting policies. We base our assessments, estimates and disclosures
on the information available to us at the time and rely on legal and management judgment. Actual outcomes or losses may differ
materially from assessments and estimates. Costs to defend litigation claims and legal proceedings and the cost of actual settlements,
judgments or resolutions of these claims and legal proceedings may negatively affect our business and financial performance. Any
adverse publicity resulting from allegations made in litigation claims or legal proceedings may also adversely affect our reputation,
which in turn could adversely affect our results.
Increases in our cost of benefits and multi-employer plan withdrawal liabilities in the future could reduce our profitability.
Our profitability is substantially affected by the costs of pension, postretirement, employee medical costs and other benefits.
In recent years, these costs have increased significantly due to factors such as increases in health care costs, declines in investment
returns on pension assets and changes in discount rates used to calculate pension and related liabilities. These factors plus the
enactment of the Patient Protection and Affordable Care Act in March 2010 will continue to put pressure on our business and
financial performance. Although we actively seek to control increases in costs, there can be no assurance that we will succeed in
limiting future cost increases, and continued upward pressure in costs, could have a material adverse affect on our business and
financial performance.