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2009 Form 10-K 33
FOREIGN CURRENCY AND FOREIGN CURRENCY
FORWARD CONTRACTS
We conduct operations around the world in a number
of different currencies. The majority of our significant foreign
subsidiaries have designated the local currency as their func-
tional currency. As such, future earnings are subject to change
due to fluctuations in foreign currency exchange rates when
transactions are denominated in currencies other than our
functional currencies. To minimize the need for foreign cur-
rency forward contracts to hedge this exposure, our objective
is to manage foreign currency exposure by maintaining a mini-
mal consolidated net asset or net liability position in a currency
other than the functional currency.
In January 2010, Venezuela’s currency was devalued and
a new currency exchange rate system was announced. The
new rate will be 4.3 Venezuelan Bolivars Fuertes per U.S. Dollar
to apply to our local currency denominated balances and trans-
actions. Although our functional currency is the U.S. Dollar in
Venezuela, certain balances and transactions are denominated
in local currency. We estimate the impact of this devaluation
to be a loss of between $8 million to $10 million, which
will be recorded in the first quarter of 2010. Going forward,
although this devaluation will result in a reduction in the
U.S. Dollar reported amount of local currency denominated
revenues and expenses, we do not believe the impact will
be material to our consolidated financial statements.
Foreign Currency Forward Contracts
At December 31, 2009, we had outstanding foreign cur-
rency forward contracts with notional amounts aggregating
$153 million to hedge exposure to currency fluctuations in vari-
ous foreign currencies. These contracts are designated and qual-
ify as fair value hedging instruments. Based on quoted market
prices as of December 31, 2009 for contracts with similar terms
and maturity dates, we recorded a loss of $1 million to adjust
these foreign currency forward contracts to their fair market
value. This loss offsets designated foreign currency exchange
gains resulting from the underlying exposures and is included
in MG&A expenses in the consolidated statement of operations.
At December 31, 2008, we had outstanding foreign cur-
rency forward contracts with notional amounts aggregating
$125 million to hedge exposure to currency fluctuations in var-
ious foreign currencies. These contracts are designated and
qualify as fair value hedging instruments. Based on quoted
market prices as of December 31, 2008 for contracts with simi-
lar terms and maturity dates, we recorded a loss of $1 million to
adjust these foreign currency forward contracts to their fair mar-
ket value. This loss offsets designated foreign currency exchange
gains resulting from the underlying exposures and is included
in MG&A expenses in the consolidated statement of operations.
Indebtedness
We had fixed rate debt aggregating to $1,800 million at December 31, 2009 and $2,325 million at December 31, 2008. The
following table sets forth the required cash payments for our indebtedness, which bear a fixed rate of interest and are denominated
in U.S. Dollars, and the related weighted average effective interest rates by expected maturity dates as of December 31, 2009 and
2008 (dollar amounts in millions).
2008 2009 2010 2011 2012 2013 Thereafter Total
As of December 31, 2009
Long-term debt(1) (2) $ – $ – $ – $ – $ – $ 500 $ 1,300 $ 1,800
Weighted average effective interest rates 6.73% 7.61% 7.37%
As of December 31, 2008
Long-term debt(1) (2) $ – $ 525 $ – $ – $ – $ 500 $ 1,300 $ 2,325
Weighted average effective interest rates 5.90%(3) 6.73% 7.07% 7.03%(3)
(1) Amounts do not include any unamortized discounts, deferred issuance costs or net deferred gains on terminated interest rate swap agreements.
(2) Fair market value of fixed rate long-term debt was $2,111 million at December 31, 2009 and $2,455 million at December 31, 2008.
(3) Includes the effect of the amortization of net deferred gains on terminated interest rate swap agreements.