Pizza Hut 2014 Annual Report Download - page 150

13MAR201517272138
PART II
ITEM 8 Financial Statements and Supplementary Data
$3.2 billion. We estimated the fair value of debt using market quotes cash flow volatility arising from foreign currency fluctuations
and calculations based on market rates. associated with certain foreign currency denominated intercompany
short-term receivables and payables. The notional amount, maturity
date and currency of these forwards match those of the underlying
Recurring Fair Value Measurements receivables or payables and we measure ineffectiveness by
The Company has interest rate swaps accounted for as fair value comparing the cumulative change in the fair value of the forward
hedges, foreign currency forwards accounted for as cash flow hedges contract with the cumulative change in the fair value of the hedged
and other investments, all of which are required to be measured at fair item. The following table presents fair values for those assets and
value on a recurring basis. Interest rate swaps are used to reduce our liabilities measured at fair value on a recurring basis and the level
exposure to interest rate risk and lower interest expense for a portion within the fair value hierarchy in which the measurements fall. No
of our fixed-rate debt and our interest rate swaps meet the shortcut transfers among the levels within the fair value hierarchy occurred
method requirements and thus no ineffectiveness has been recorded. during the years ended December 27, 2014 or December 28, 2013.
Our foreign currency forwards are used to reduce our exposure to
Fair Value
Level 2014 2013
Foreign Currency Forwards, net 2$ 24$ 1
Interest Rate Swaps, net 21017
Other Investments 12118
Total $55$36
The fair value of the Company’s foreign currency forwards and fluctuations in deferred compensation liabilities that employees have
interest rate swaps were determined based on the present value of chosen to invest in phantom shares of a Stock Index Fund or Bond
expected future cash flows considering the risks involved, including Index Fund. The other investments are classified as trading securities
nonperformance risk, and using discount rates appropriate for the in Other assets in our Consolidated Balance Sheet and their fair value
duration based upon observable inputs. The other investments is determined based on the closing market prices of the respective
include investments in mutual funds, which are used to offset mutual funds as of December 27, 2014 and December 28, 2013.
Non-Recurring Fair Value Measurements
The following table presents expense recognized from all non-recurring fair value measurements during the years ended December 27, 2014 and
December 28, 2013. These amounts relate to restaurants or groups of restaurants that were impaired either as a result of our semi-annual
impairment review or when it was more likely than not a restaurant or restaurant group would be refranchised and exclude fair value
measurements made for restaurants that were subsequently closed or refranchised prior to those respective year-end dates.
2014 2013
Little Sheep impairment (Level 3)(a) $ 463 $ 295
Refranchising related impairment – other (Level 2)(b) 9—
Restaurant-level impairment (Level 3)(c) 46 19
Total $ 518 $ 314
(a) See the Little Sheep Acquisition and Subsequent Impairment section of Note 4 for further discussion.
(b) Refranchising related impairment results from writing down the assets of restaurants or restaurant groups offered for refranchising, including certain instances
where a decision has been made to refranchise restaurants that are deemed to be impaired. The fair value measurements used in our impairment evaluation are
based on either actual bids received from potential buyers (Level 2), or on estimates of the sales prices we anticipated receiving from a buyer for the restaurant or
restaurant groups (Level 3). The remaining net book value of these restaurants at December 27, 2014 is insignificant.
(c) Restaurant-level impairment charges are recorded in Closures and impairment (income) expenses and resulted primarily from our semi-annual impairment
evaluation of long-lived assets of individual restaurants that were being operated at the time of impairment and had not been offered for refranchising. The fair
value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3). The remaining
net book value of assets measured at fair value during the years ended December 27, 2014 and December 28, 2013 is insignificant.
Pension, Retiree Medical and Retiree Savings Plans
U.S. Pension Plans
We sponsor qualified and supplemental (non-qualified) to coverage, benefits and contributions. The supplemental plans
noncontributory defined benefit plans covering certain full-time provide additional benefits to certain employees. We fund our
salaried and hourly U.S. employees. The qualified plan meets the supplemental plans as benefits are paid.
requirements of certain sections of the Internal Revenue Code and The most significant of our U.S. plans is the YUM Retirement Plan (the
provides benefits to a broad group of employees with restrictions on ‘‘Plan’’), which is a qualified plan. Our funding policy with respect to
discriminating in favor of highly compensated employees with regard
56 YUM! BRANDS, INC. - 2014 Form 10-K
NOTE 13
Form 10-K