Pizza Hut 2008 Annual Report Download - page 204

82
Fair Value
At December 27, 2008 and December 29, 2007, the fair values of cash and cash equivalents, accounts receivable and
accounts payable approximated their carrying values because of the short-term nature of these instruments. The fair value
of notes receivable approximates the carrying value after consideration of recorded allowances. Accounts receivable
consists primarily of amounts due from franchisees and licensees for initial and continuing fees. In addition, we have
notes and lease receivables from certain of our franchisees. The financial condition of these franchisees and licensees is
largely dependent upon the underlying business trends of our Concepts. This concentration of credit risk is mitigated, in
part, by the large number of franchisees and licensees of each Concept and the short-term nature of the franchise and
license fee receivables.
On December 30, 2007, the Company adopted the provisions of SFAS 157 related to its financial assets and
liabilities. The carrying amounts and fair values of our other financial instruments not measured on a recurring basis
subject to fair value disclosures are as follows:
2008 2007
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Debt
Short-term borrowings and long-term debt,
excluding capital leases and the derivative
instrument adjustments $ 3,296 $ 3,185 $ 2,913 $ 3,081
Lease guarantees 26 26 22 26
Guarantees supporting financial arrangements of
certain franchisees and other third parties 8 8 8 8
Letters of credit
—
1
—
1
We estimated the fair value of debt, guarantees and letters of credit using market quotes and calculations based on market
rates.
The following table presents the fair values for those financial assets and liabilities measured on a recurring basis as of
December 27, 2008:
Fair Value Measurements
Description Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Foreign Currency Forwards, net $ 12 $
—
$ 12 $
—
Interest Rate Swaps, net 62
—
62
—
Other Investments 10 10
—
—
Total $ 84 $ 10 $ 74 $
—
The fair value of the Company’s foreign currency forwards and interest rate swaps were determined based on the present
value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount
rates appropriate for the duration. The other investments include investments in mutual funds, which are used to offset
fluctuations in deferred compensation liabilities that employees have chosen to invest in phantom shares of a Stock Index
Fund or Bond Index Fund. The other investments are classified as trading securities and their fair value is determined
based on the closing market prices of the respective mutual funds as of December 27, 2008.
Form 10-K