Snapple 2008 Annual Report Download - page 122

The following table presents the computation of diluted EPS (dollars in millions, except per share amounts):
2008 2007 2006
For the Year Ended
December 31,
Diluted EPS:
Net (loss) income ...................................... $ (312) $ 497 $ 510
Weighted average common shares outstanding(1) ............... 254.0 253.7 253.7
Effect of dilutive securities:
Stock options and restricted stock units(2) .................. — — —
Weighted average common shares outstanding and common stock
equivalents ......................................... 254.0 253.7 253.7
(Loss) earnings per common share — diluted .................. $(1.23) $ 1.96 $ 2.01
(1) For all periods prior to May 7, 2008, the date DPS distributed the common stock of DPS to Cadbury plc
shareholders, the same number of shares is being used for diluted EPS as for basic EPS as no common stock of
DPS was previously outstanding and no DPS equity awards were outstanding for the prior periods. Subsequent
to May 7, 2008, the number of basic shares includes approximately 500,000 shares related to former Cadbury
benefit plans converted to DPS shares on a daily volume weighted average. See Note 16 for information
regarding the Company’s stock-based compensation plans.
(2) Anti-dilutive weighted average options totaling 0.8 million shares were excluded from the diluted weighted
average shares outstanding for the year ended December 31, 2008. DPS had no anti-dilutive options for the
years ended December 31, 2007 and 2006.
18. Derivatives
DPS mitigates the exposure to volatility in the floating interest rate on borrowings under its senior unsecured
credit facility through the use of interest rate swaps that effectively convert variable interest rates to fixed rates. The
intent of entering into the interest rate swaps is to provide predictability in the Company’s overall cost structure.
During 2008, the Company entered into two interest rate swaps. The swaps were effective September 30, 2008. The
notional amounts of the swaps are $500 million and $1,200 million with durations of six months and 15 months,
respectively.
The Company accounts for qualifying interest rate swaps as cash flow hedges under SFAS 133. Interest rate
swaps entered into that meet established accounting criteria are formally designated as cash flow hedges. DPS
assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly throughout the designated
period. The effective portion of the gain or loss on the interest rate swaps is recorded, net of applicable taxes, in
AOCI, a component of Stockholders’ Equity in the Consolidated Balance Sheets. When net income is affected by
the variability of the underlying cash flow, the applicable offsetting amount of the gain or loss from the interest rate
swaps that is deferred in AOCI is released to net income and is reported as a component of interest expense in the
Consolidated Statements of Operations. As of December 31, 2008, $20 million was recorded in AOCI related to
interest rate swaps ($32 million net of a tax benefit of $12 million) all of which is expected to be reclassified into
earnings within the next 12 months. During the year ended December 31, 2008, $2 million was reclassified from
AOCI to net income. Changes in the fair value of the interest rate swaps that do not effectively offset changes in the
fair value of the underlying hedged item throughout the designated hedge period (“ineffectiveness”) are recorded in
net income for each period. For the year ended December 31, 2008, hedge ineffectiveness recognized in net income
was less than $1 million. At December 31, 2008, the fair value of DPS’ cash flow hedges related to interest rate
swaps was a liability of $32 million and was recorded in accounts payable and accrued expenses in the Consolidated
Balance Sheet.
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)