Snapple 2008 Annual Report Download - page 74

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Interest Rate Risk
We centrally manage our debt portfolio and monitor our mix of fixed-rate and variable rate debt.
We are subject to floating interest rate risk with respect to our long-term debt under the credit facilities. The
principal interest rate exposure relates to amounts borrowed under our term loan A facility. We incurred $2.2 billion
of debt with floating interest rates under this facility. A change in the estimated interest rate on the outstanding
$1.8 billion of borrowings under the term loan A facility up or down by 1% will increase or decrease our earnings
before provision for income taxes by approximately $18 million, respectively, on an annual basis. We will also have
interest rate exposure for any amounts we may borrow in the future under the revolving credit facility.
We utilize interest rate swaps to convert variable interest rates to fixed rates in order to manage our exposure to
changes in interest rates. The swaps were effective as of September 30, 2008. The notional amount of the swaps is
$500 million and $1,200 million with a duration of six months and 15 months, respectively, and convert variable
interest rates to fixed rates of 4.8075% and 5.27125%, respectively. In February of 2009, we entered into an interest
rate swap, effective December 31, 2009, with a duration of 12 months. The notional amount of the swap amortizes
over the term of the swap from $750 million to $450 million and converts variable interest rates to fixed rates
of 3.73%.
Commodity Risks
We are subject to market risks with respect to commodities because our ability to recover increased costs
through higher pricing may be limited by the competitive environment in which we operate. Our principal
commodities risks relate to our purchases of aluminum, corn (for high fructose corn syrup), natural gas (for use in
processing and packaging), PET and fuel.
We utilize commodities forward contracts and supplier pricing agreements to hedge the risk of adverse
movements in commodity prices for limited time periods for certain commodities. The fair market value of these
contracts as of December 31, 2008, was a liability of $8 million.
As of December 31, 2008, the impact to net income of a 10% change in market prices of these commodities is
estimated to be approximately $28 million.
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