Snapple 2010 Annual Report Download - page 71

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 any borrowings, including those we may borrow in the future,
under the senior unsecured credit facility. As of December 31, 2010, there were no borrowings outstanding under the senior
unsecured credit facility.
Interest Rate Fair Value Hedge
We enter into interest rate swaps to convert fixed-rate, long-term debt to floating-rate debt. These swaps are accounted for as
either a fair value hedge or an economic hedge under U.S. GAAP. The fair value hedges qualify for the short-cut method of
recognition; therefore, no portion of these swaps is treated as ineffective.
In December 2009, we entered into interest rate swaps having an aggregate notional amount of $850 million and durations
ranging from two to three years in order to convert fixed-rate, long-term debt to floating rate debt. These swaps were entered into
at the inception of the 2011 and 2012 Notes and were originally accounted for as fair value hedges under U.S. GAAP.
Effective March 10, 2010, $225 million notional of the interest rate swap linked to the 2012 Notes was restructured to reflect
a change in the variable interest rate to be paid by us. This change triggered the de-designation of the $225 million notional fair
value hedge and the corresponding fair value hedging relationship was discontinued. The $225 million notional restructured interest
rate swap was subsequently accounted for as an economic hedge and the gain or loss on the instrument is recognized in earnings.
Effective September 21, 2010, this financial instrument was terminated.
As a result of this remaining interest rate swap, we pay an average floating rate, which fluctuates semi-annually, based on
LIBOR. The average floating rate to be paid by us as of December 31, 2010 was less than 1%. The average fixed rate to be received
by us as of December 31, 2010 was 1.70%
In December 2010, the Company entered into an interest rate swap having a notional amount of $100 million and maturing
in May 2038 in order to effectively convert a portion of the 2038 Notes from fixed-rate debt to floating-rate debt and designated
it as a fair value hedge.
As a result of this interest rate swap, we pay an average floating rate, which fluctuates quarterly based on LIBOR. The average
floating rate to be paid by us as of December 31, 2010 was 3.73%. The average fixed rate to be received by us as of December 31,
2010 was 7.45%
Interest Rate Economic Hedge
In December 2010, with the pending issuance of the 2016 Notes, the Company entered into a treasury lock agreement with
a notional value of $200 million and a maturity date of January 2011 to economically hedge the exposure to the possible rise in
the benchmark interest rate prior to a future issuance of senior unsecured notes.
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,
2010 was a net asset of $10 million.
As of December 31, 2010, the impact to net income of a 10% change in market prices of these commodities is estimated to
be approximately $34 million.
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