Snyders-lance's Customers Performance

In order to maintain and expand our DSD network, we routinely participate in certain ongoing route business purchase and sales activities. These activities include the following:

Acquisition of regional distributor businesses - As we expand our DSD network, we continue to look for potential regional distributor business acquisition targets in areas where we do not currently have our own DSD network. Upon acquisition, the acquired routes may be reengineered to include our products and retail locations and are then sold to a new or current IBO, as described below.

Reengineering of zones - Periodically, we undertake a route reengineering project for a particular geography or zone. The reasons for route reengineering projects vary, but are typically due to increased sales volume associated with new retail locations and/or the addition of new Branded or Partner brand products to the routes in that zone. In these cases, we repurchase all of the IBO route businesses in that zone. The repurchased route businesses are then reengineered, which normally results in the addition of new IBO route territories because of the additional volume. Route businesses are then resold, usually to the original IBO, however, the original IBO has no obligation to repurchase. Upon completion, these route reengineering projects usually result in modest net gains on the sale of route businesses due to the value added during the reengineering through additional volume and/or retail locations.

Sale of Company-owned routes - Some routes remain company-owned primarily because they need additional sales volume in order to become sustainable route businesses for IBOs. As we build up the volume on these routes through increased distribution of our Branded and Partner brand products, we may sell these route businesses to IBOs which could result in gains.

IBO defaults - There are times when IBO route businesses are not successful and the IBO's distributor agreement with us is terminated due to a breach of the distributor agreement or default under the loan agreement. In these instances, if the existing IBO is unable to sell the route business to another third party, we may repurchase the route business at a price defined in the distributor agreement. We generally put the repurchased route business up for sale to another third-party IBO immediately. The subsequent sales transaction generally results in a nominal gain or loss as the value of the route purchased typically approximates the route sale value given the short time duration between the initial purchase and sale.

Through our DSD network, we sell our Branded and Partner brand products to IBOs that, in turn, sell to grocery/mass merchandisers, club stores, discount stores, convenience stores, food service establishments and various other retail customers including drug stores, schools, military and government facilities and “up and down the street” outlets such as recreational facilities, offices and other independent retailers. In addition, we sell our Branded products directly to retail customers and third-party distributors. We also contract with other branded food manufacturers to produce their products or provide semi-finished goods.

Substantially all of our revenue is from sales to customers in the United States. Sales to our largest retail customer, Wal-Mart Stores, Inc. ("Wal-Mart"), either through IBOs or our direct distribution network, were approximately 13% of net revenue. Our sales to Wal-Mart do not include sales of our products that may be made to Wal-Mart by third-party distributors outside our DSD network. Sales to these third-party distributors represent approximately 6% of our net revenue and may increase sales of our products to Wal-Mart by an amount we are unable to estimate.