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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
73
In December 2013, the Company entered into four interest rate swaps having an aggregate notional amount of $250 million
and maturing in November 2022 in order to effectively convert all of the 2022 Notes from fixed-rate debt to floating-rate debt and
designated it as a fair value hedge. The assessment of hedge effectiveness is made by comparing the cumulative change in the fair
value of the hedged item attributable to changes in the benchmark interest rate with the cumulative changes in the fair value of
the interest rate swap, with any ineffectiveness recorded in earnings as interest expense during the period incurred. As of
December 31, 2013, the impact of the fair value hedge on the 2022 Notes decreased the carrying value by $2 million.
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, 2013, 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 and 12 months as of December 31, 2013. The
Company had outstanding foreign exchange forward contracts with notional amounts of $45 million and $90 million as of December
31, 2013 and 2012, respectively.
COMMODITIES
Economic Hedges
DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process and
transportation through forward and future 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, 2013, 2012 and 2011, the Company held forward and
future 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"). The total notional values of derivatives related to economic hedges of this type were $179 million and $125 million as
of December 31, 2013 and 2012, respectively.