Snapple 2012 Annual Report Download - page 87

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
69
Economic Hedges
In addition to derivative instruments that qualify for and are designated as hedging instruments under U.S. GAAP, the Company
utilized various interest rate derivative contracts that were not designated as cash flow or fair value hedges to manage interest rate
risk. Gains or losses on these derivative instruments were recognized in earnings during the period the instruments were outstanding.
In December 2010, with the expected issuance of long-term fixed rate debt, 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. This treasury lock was cash settled for
approximately $1 million coincident with the issuance of the 2016 Notes in January 2011.
FOREIGN EXCHANGE
Cash Flow Hedges
The Company's Canadian business purchases its inventory through transactions denominated and settled in U.S. Dollars, a
currency different from the functional currency of the Canadian business. These inventory purchases are subject to exposure from
movements in exchange rates. During the years ended December 31, 2012 and 2011, the Company utilized foreign exchange
forward contracts designated as cash flow hedges to manage the exposures resulting from changes in these foreign currency
exchange rates. The intent of these foreign exchange contracts is to provide predictability in the Company's overall cost structure.
These foreign exchange contracts, carried at fair value, have maturities between one month and 24 months as of December 31,
2012. The Company had outstanding foreign exchange forward contracts with notional amounts of $90 million and $135 million
as of December 31, 2012 and 2011, respectively.
COMMODITIES
DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process through
forward contracts. The intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure.
During the years ended December 31, 2012 and 2011, the Company held forward contracts that economically hedged certain of
its risks. In these cases, a natural hedging relationship exists in which changes in the fair value of the instruments act as an economic
offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in net income
throughout the term of the derivative instrument and are reported in the same line item of the Consolidated Statements of Income
as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the
Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is
reflected as a component of the respective segment's operating profit ("SOP").