Pizza Hut 2004 Annual Report Download - page 64
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Please find page 64 of the 2004 Pizza Hut annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.rate swaps with notional amounts of$850million.These
swapshaveresetdatesandfloatingrateindiceswhichmatch
thoseofourunderlyingfixed-ratedebtandhavebeendesig-
natedasfairvaluehedgesofaportionofthatdebt.Asthe
swapsqualifyfortheshort-cutmethodunderSFAS133,no
ineffectiveness has been recorded. The net fair value of
theseswapsasofDecember25,2004wasapproximately
$29million,ofwhich$30millionand$1millionhavebeen
includedin otherassetsandotherliabilitiesand deferred
credits,respectively.Theportionofthisfairvaluewhichhas
notyetbeenrecognizedasareductiontointerestexpense
atDecember25,2004(approximately$21million)hasbeen
includedinlong-termdebt.
Duetoearlyredemptionoftheunderlying7.45%Senior
Unsecured Notes on November 15, 2004 (see Note 14),
pay-variable interest rate swaps with notional amounts
of $350million that qualified for hedge accounting at
December27,2003,nolongerqualifyforhedgeaccounting
atDecember25,2004.Asweelectedtoholdtheseswaps
untiltheirMay2005maturity,weenteredintonewpay-fixed
interest rate swaps with offsetting notional amounts and
terms.Gainsorlossesduetochangesinthefairvalueof
thepay-variableswapswillberecognizedintheresultsof
operationsthroughMay2005butthesegainsorlossesare
expectedtobealmostentirelyoffsetbychangesinfairvalue
ofthepay-fixedswaps.Thefairvalueofbothoftheseswaps
wereinanassetpositionasofDecember25,2004witha
fairvaluetotalingapproximately$9million.Thisfairvaluehas
beenincludedinprepaidexpensesandothercurrentassets.
Thefairvalueoftheswapsthatpreviouslyqualifiedforhedge
accounting was$31millionat December27,2003,which
wasincludedinotherassets.Theportionofthisfairvalue
which had notbeen recognizedasa reduction to interest
expenseatDecember27,2003(approximately$29million)
wasincludedinlong-termdebt.
ForeignExchange DerivativeInstruments We enter into
foreign currency forward contracts with the objective of
reducing our exposure to cash flow volatility arising from
foreigncurrencyfluctuationsassociatedwithcertainforeign
currency denominated financial instruments, the majority
of which are intercompany short-term receivables and
payables.Thenotionalamount,maturitydate,andcurrency
ofthesecontractsmatchthoseoftheunderlyingreceivables
or payables. For those foreign currency exchange forward
contractsthatwehavedesignatedascashflowhedges,we
measureineffectivenessbycomparingthecumulativechange
intheforward contract withthecumulative changein the
hedgeditem. No ineffectivenesswasrecognizedin2004,
2003or2002forthoseforeigncurrencyforwardcontracts
designatedascashflowhedges.
EquityDerivativeInstruments OnDecember3,2004,we
enteredintoanacceleratedsharerepurchaseprogram(the
“Program”).InconnectionwiththeProgram,athird-partyinvest-
mentbankborrowedapproximately5.4millionsharesofour
commonstockfromshareholders.Wethenrepurchasedthose
sharesattheirthenmarketvalue($46.58)fromtheinvest-
mentbankforapproximately$250million.Therepurchaseof
the5.4millionshareswasmadepursuanttoa$300million
sharerepurchaseprogramauthorizedbyourBoardofDirectors
inMay2004.
Simultaneously,weenteredintoaforwardcontractwith
the investment bank that was indexed to the number of
sharesrepurchased.Underthetermsoftheforwardcontract
wewillreceiveorberequiredtopayapriceadjustmentbased
onthedifferencebetweentheweightedaveragepriceofour
commonstockoverthedurationoftheProgramandtheinitial
purchasepriceof$46.58pershare.WeexpecttheProgram
tobecompletedbytheendofourfirstfiscalquarterin2005.
Atourelection,anypaymentsweareobligatedtomakewill
eitherbeincashorinsharesofourcommonstock(notto
exceed15millionsharesasspecifiedintheforwardcontract).
Therefore,inaccordance withEITF 00-19,“Accounting for
DerivativeFinancialInstrumentsIndexedto,andPotentially
SettledIn,aCompany’sOwnStock,”anychangesinthefair
valueoftheforwardcontractwillberecognizedasanadjust-
ment to Shareholders’ Equity at the end of the Program.
Through December25, 2004, the difference between the
weightedaveragepriceofourcommonstockandtheinitial
purchasepricewasinsignificant.
Commodity Derivative Instruments Wealsoutilize,on a
limitedbasis,commodity futures andoptionscontractsto
mitigateourexposuretocommoditypricefluctuationsover
thenexttwelvemonths.Thosecontractshavenotbeendesig-
nated as hedges under SFAS133. Commodity future and
optionscontractsdidnotsignificantlyimpacttheConsolidated
FinancialStatementsin2004,2003or2002.
DeferredAmountsinAccumulated OtherComprehensive
Income (Loss) As of December25,2004,we had a net
deferredlossassociatedwithcashflowhedgesofapproxi-
mately$2million,netoftax.Theloss,whichprimarilyarose
fromthesettlementoftreasurylocksenteredintopriorto
theissuanceofcertainamountsofourfixed-ratedebt,willbe
reclassifiedintoearningsfromJanuary1,2005through2012
asanincreasetointerestexpenseonthisdebt.
CreditRisks Creditriskfrominterestrateswapsandforeign
exchange contracts is dependent both on movement in
interestandcurrencyratesandthepossibilityofnon-payment
bycounterparties.Wemitigatecreditriskbyenteringinto
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