Pizza Hut 2000 Annual Report Download - page 56

54 TRICON GLOBAL RESTAURANTS, INC. AND SUBSIDIARIES
If interest rates remain within the collared cap and floor, no
payments are made. If rates rise above the cap level, we receive
a payment. If rates fall below the floor level, we make a pay-
ment. At December 30, 2000 and December 25, 1999, we
did not have any outstanding interest rate collars.
We enter into foreign currency exchange contracts with the
objective of reducing our exposure to earnings and cash flow
volatility associated with foreign currency fluctuations. In
2000 and 1999, we entered into forward contracts to hedge
our exposure related to certain foreign currency receivables
and payables. The notional amount and maturity dates of
these contracts match those of the underlying receivables or
payables. Accordingly, any change in market value associated
with the forward contracts is offset by the opposite market
impact on the related receivables or payables. At December 30,
2000 and December 25, 1999, we had outstanding forward
contracts related to certain foreign currency receivables and
payables with notional amounts of $13 million and $9 million,
respectively. Our net receivable under the related forward
agreements, all of which terminate in 2001, was insignificant
at December 30, 2000 and December 25, 1999.
In 2000, we entered into forward contracts to reduce our
exposure to cash flow volatility associated with certain fore-
casted foreign currency denominated royalties. These forward
contracts are short-term in nature, with termination dates
matching royalty payments forecasted to be received within the
next twelve months. At December 30, 2000, we had outstand-
ing forward contracts associated with forecasted royalty cash
flows with notional amounts of $3 million. Our net receivable
for these contracts as of December 30, 2000 was insignificant.
Our credit risk from the interest rate swap, collar and
forward rate agreements and foreign exchange contracts is
dependent both on the movement in interest and currency
rates and possibility of non-payment by counterparties. We
mitigate credit risk by entering into these agreements with
high-quality counterparties, netting swap and forward rate
payments within contracts and limiting payments associated
with the collars to differences outside the collared range.
Open commodity future and option contracts and
deferred gains and losses at year-end 2000 and 1999, as well
as gains and losses recognized as part of cost of sales in 2000,
1999 and 1998, were not significant.
Concentrations of Credit Risk
Accounts receivable consists primarily of amounts due from
franchisees and licensees. Concentrations of credit risk with
respect to accounts receivable generally are limited due to a
large number of franchisees and licensees. At December 30,
2000, accounts receivable included amounts due from fran-
chisees related to the temporary direct purchase program,
which is more fully described in Note 21.
Fair Value
Excluding the financial instruments included in the table below,
the carrying amounts of our other financial instruments
approximate fair value.
The carrying amounts and fair values of TRICON’s finan-
cial instruments are as follows:
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
Debt
Short-term borrowings
and long-term debt,
excluding capital leases $2,413 $2,393 $2,411 $2,377
Debt-related derivative
instruments
Open contracts in an
asset position – (24) –(3)
Debt, excluding
capital leases $2,413 $2,369 $2,411 $2,374
Guarantees and letters
of credit $÷÷÷«– $÷÷«51 $÷÷÷«– $÷÷«27
We estimated the fair value of debt, debt-related derivative
instruments, guarantees and letters of credit using market
quotes and calculations based on market rates. See Note 2
for recently issued accounting pronouncements relating to
derivative financial instruments.
Note 14 Pension Plans and Postretirement Medical Benefits
Pension Benefits
We sponsor noncontributory defined benefit pension plans
covering substantially all full-time U.S. salaried employees,
certain hourly employees and certain international employ-
ees. Benefits are based on years of service and earnings or
stated amounts for each year of service.
Postretirement Medical Benefits
Our postretirement plans provide health care benefits,
principally to U.S. retirees and
their dependents. These plans
include retiree cost sharing provi-
sions. Employees are eligible for
benefits if they meet age and
service requirements and qualify
for retirement benefits.