Snapple 2009 Annual Report Download - page 75

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In December 2009, the Company entered into two 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. See Notes 9 and 10 of the
Notes to our Audited Consolidated Financial Statements for further information.
As a result of these interest rate swaps, the Company pays an average floating rate, which fluctuates semi-
annually, based on LIBOR. The average floating rate to be paid by the Company as of December 31, 2009 was less
than 1.0%. The average fixed rate to be received by the Company as of December 31, 2009 was 2.0%.
Interest Rate Economic Hedge
The Company had an interest rate swap originally designated as a cash flow hedge effective December 31,
2009, with a duration of 12 months and a $750 million notional amount that amortizes at the rate of $100 million
every quarter and converts variable interest rates to fixed rates of 3.73%. As of December 31, 2009, the cash flow
hedging was discontinued, but the interest rate swap had not been terminated. Borrowings under the Revolver have
similar terms to the term loan A. In this case, there exists a natural hedging relationship 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 as interest expense throughout the term of the derivative instrument
and are reported in the same line item as the hedged transaction.
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, 2009 was an asset of $10 million.
As of December 31, 2009, the impact to net income of a 10% change in market prices of these commodities is
estimated to be approximately $22 million.
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