Snapple 2011 Annual Report Download - page 93

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
73
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, 2011 and 2010, 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 and 36 months as of December 31, 2011. The
Company had outstanding foreign exchange forward contracts with notional amounts of $135 million as of December 31, 2011
and 2010.
Economic Hedges
During the second quarter of 2010, the Company entered into foreign exchange forward contracts not designated as cash flow
hedges to manage foreign currency exposure and economically hedge the exposure from movements in exchange rates. DPS did
not have any of these contracts as of December 31, 2011. The Company had outstanding foreign exchange forward contracts with
a notional amount of $12 million as of December 31, 2010.
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, 2011 and 2010, 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. 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").