Snapple 2011 Annual Report Download - page 67

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47
Effect of Recent Accounting Pronouncements
Refer to Note 2 of the Notes to our Audited Consolidated Financial Statements in Item 8, "Financial Statements and
Supplementary Data" of this Annual Report on Form 10-K for a discussion of recent accounting standards and pronouncements.
Acquisitions
We may make future acquisitions. For example, we may make acquisitions of regional bottling companies, distributors, and
distribution rights to further extend our geographic coverage. Any acquisitions may require future capital expenditures and
restructuring expenses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency
exchange rates, interest rates, and commodity prices. We do not enter into derivatives or other financial instruments for trading
purposes.
Foreign Exchange Risk
The majority of our net sales, expenses, and capital purchases are transacted in U.S. dollars. However, we have some exposure
with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and
Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as
transaction gains or losses in our income statement as incurred. As of December 31, 2011, the impact to net income of a 10%
change (up or down) in exchange rates is estimated to be an increase or decrease of approximately $19 million on an annual basis.
We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes
in foreign exchange rates. For the period ending December 31, 2011, we had contracts outstanding with a notional value of $135
million maturing at various dates through December 15, 2014.
Interest Rate Risk
We centrally manage our debt portfolio and monitor our mix of fixed-rate and variable rate debt. At December 31, 2011, the
carrying value of our debt, excluding capital leases, was $2,701 million, of which $350 million of the 2019, 2021 and 2038 Notes
are designated as fair value hedges and are exposed to variability in interest rates.
The following table is an estimate of the impact to the fair value hedges on the 2019, 2021 and 2038 Notes that could result
from hypothetical interest rate changes during the twelve months ending December 31, 2012, based on debt levels as of
December 31, 2011:
Sensitivity Analysis
Hypothetical
Change in Interest
Rates
1-percent decrease(1)
1-percent increase
Annual Impact to
Interest Expense
$1 million decrease
$6 million increase
Change in Fair Value
Other Current and
Non-current Assets
$67 million increase
$7 million increase
Other Non-current
Liabilities
—
$21 million increase
Total Debt
$67 million increase
$14 million decrease
____________________________
(1) We pay an average floating rate, which fluctuates periodically, based on LIBOR and a credit spread, as a result of designated
fair value hedges on certain debt instruments. See Note 9 for further information. Our weighted average LIBOR rate as of
December 31, 2011 was 0.74%. As LIBOR has not historically fallen below 0.25%, our estimate of the annual impact to
interest expense reflects this assumption if our hypothetical change in the interest rate fell below the historical threshold.