Pizza Hut 2009 Annual Report Download - page 180
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89
We had a net deferred loss of $12 million, net of tax, as of December 26, 2009 within Accumulated OCI due to treasury
locks and forward starting interest rate swaps that have been cash settled, as well as outstanding foreign currency forward
contracts. The majority of this loss arose from the settlement of forward starting interest rate swaps entered into prior to
the issuance of our Senior Unsecured Notes due in 2037, and is being reclassed into earnings through 2037 to interest
expense. In 2009, 2008 and 2007 an insignificant amount was reclassified from Accumulated OCI to Interest expense, net
as a result of these previously settled cash flow hedges.
As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet
their contractual obligations. To mitigate the counterparty credit risk, we only enter into contracts with carefully selected
major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of
counterparties. At December 26, 2009, all of the counterparties to our interest rate swaps and foreign currency forwards
had investment grade ratings. To date, all counterparties have performed in accordance with their contractual obligations.
Note 14 – Fair Value Disclosures
The following table presents the fair values for those assets and liabilities measured on a recurring basis.
Fair Value
Description Level 2009 2008
Foreign Currency Forwards, net 2 $ 3 $ 12
Interest Rate Swaps, net 2 44 62
Other Investments 1 13 10
Total $ 60 $ 84
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 based upon observable inputs. 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 26, 2009
and December 27, 2008.
Form 10-K