Kentucky Fried Chicken 2004 Annual Report Download - page 63

In฀ 1997,฀ we฀ filed฀ a฀ shelf฀ registration฀ statement฀ with฀
the฀Securities฀and฀Exchange฀Commission฀for฀offerings฀of฀up฀
to฀ $2฀billion฀ of฀ senior฀unsecured฀ debt.฀ The฀ following฀ table฀
summarizes฀all฀Senior฀Unsecured฀Notes฀issued฀under฀this฀shelf฀
registration฀that฀remain฀outstanding฀at฀December฀25,฀2004:
฀ ฀ Principal฀ Interest฀Rate
Issuance฀Date฀ Maturity฀Date฀ Amount฀ Stated฀ Effective)(d)
May฀1998฀ May฀2008)(a)฀ 250฀ 7.65%฀ 7.81%
April฀2001฀ April฀2006)(b)฀ 200฀ 8.50%฀ 9.04%
April฀2001฀ April฀2011)(b)฀ 650฀ 8.88%฀ 9.20%
June฀2002฀ July฀2012)(c)฀ 400฀ 7.70%฀ 8.04%
(a)฀Interest฀payments฀commenced฀on฀November฀15,฀1998฀and฀are฀payable฀semi-
annually฀thereafter.
(b)฀Interest฀ payments฀ commenced฀ on฀ October฀ 15,฀ 2001฀ and฀ are฀ payable฀ semi-
annually฀thereafter.
(c)฀Interest฀payments฀commenced฀on฀January฀1,฀2003฀and฀are฀payable฀semi-annually฀
thereafter.
(d)฀Includes฀the฀effects฀of฀the฀amortization฀of฀any฀(1)฀premium฀or฀discount;฀(2)฀debt฀
issuance฀costs;฀and฀(3)฀gain฀or฀loss฀upon฀settlement฀of฀related฀treasury฀locks.฀
Excludes฀the฀effect฀of฀any฀interest฀rate฀swaps฀as฀described฀in฀Note฀16.
We฀ have฀ $150฀million฀ remaining฀ for฀ issuance฀ under฀ the฀
$2฀billion฀shelf฀registration.
In฀connection฀with฀our฀acquisition฀of฀YGR฀in฀2002,฀we฀
assumed฀approximately฀$168฀million฀in฀present฀value฀of฀future฀
rent฀obligations฀related฀to฀three฀existing฀sale-leaseback฀agree-
ments฀entered฀into฀by฀YGR฀involving฀approximately฀350฀LJS฀
units.฀As฀a฀result฀of฀liens฀held฀by฀the฀buyer/lessor฀on฀certain฀
personal฀property฀within฀the฀units,฀the฀sale-leaseback฀agree-
ments฀were฀accounted฀for฀as฀financings฀upon฀acquisition.฀On฀
August฀15,฀2003,฀we฀amended฀two฀of฀these฀sale-leaseback฀
agreements฀ to฀ remove฀ the฀liens฀on฀the฀ personal฀ property฀
within฀ the฀ units.฀ As฀ the฀ two฀ amended฀ agreements฀ qualify฀
for฀ sale-leaseback฀ accounting,฀ they฀ are฀ accounted฀ for฀ as฀
operating฀leases.฀Accordingly,฀the฀future฀rent฀obligations฀asso-
ciated฀with฀the฀two฀amended฀agreements,฀previously฀recorded฀
as฀long-term฀debt฀of฀$88฀million,฀were฀no฀longer฀reflected฀on฀
our฀Consolidated฀Balance฀Sheets฀at฀December฀25,฀2004฀or฀
December฀27,฀2003.฀There฀was฀no฀gain฀or฀loss฀recorded฀as฀a฀
result฀of฀this฀transaction.
The฀ annual฀ maturities฀ of฀ long-term฀ debt฀ as฀ of฀
December฀25,฀ 2004,฀ excluding฀ capital฀ lease฀ obligations฀
of฀ $128฀million฀ and฀ derivative฀ instrument฀ adjustments฀ of฀
$21฀million,฀are฀as฀follows:
Year฀ended:
2005฀ $฀ 1
2006฀ ฀ 202
2007฀ ฀ 2
2008฀ ฀ 253
2009฀ ฀ 22
Thereafter฀ ฀1,118
Total฀฀ $฀1,598
Interest฀expense฀on฀short-term฀borrowings฀and฀long-term฀debt฀
was฀$145฀million,฀$185฀million฀and฀$180฀million฀in฀2004,฀
2003฀and฀2002,฀respectively.
LEASES฀
NOTE฀15
At฀December฀25,฀2004฀we฀operated฀over฀7,700฀restaurants,฀
leasing฀the฀underlying฀land฀and/or฀building฀in฀over฀5,500฀of฀
those฀restaurants฀with฀our฀commitments฀expiring฀at฀various฀
dates฀through฀2087.฀We฀also฀lease฀office฀space฀for฀head-
quarters฀and฀support฀functions,฀as฀well฀as฀certain฀office฀and฀
restaurant฀equipment.฀We฀do฀not฀consider฀any฀of฀these฀indi-
vidual฀leases฀material฀to฀our฀operations.฀Most฀leases฀require฀
us฀ to฀ pay฀related฀ executory฀ costs,฀which฀ include฀property฀
taxes,฀maintenance฀and฀insurance.
Future฀ minimum฀ commitments฀ and฀ amounts฀ to฀ be฀
received฀as฀lessor฀or฀sublessor฀under฀non-cancelable฀leases฀
are฀set฀forth฀below:
฀ Commitments฀ Lease฀Receivables
฀ ฀ ฀ Direct฀฀
฀ Capital฀ Operating฀ Financing฀ Operating
2005฀ $฀ 18฀ $฀ 342฀ $฀ 7฀ $฀ 21
2006฀ ฀ 17฀ ฀ 298฀ ฀ 7฀ ฀ 18
2007฀ ฀ 15฀ ฀ 266฀ ฀ 6฀ ฀ 15
2008฀ ฀ 14฀ ฀ 234฀ ฀ 7฀ ฀ 12
2009฀ ฀ 14฀ ฀ 208฀ ฀ 7฀ ฀ 11
Thereafter฀ ฀106฀ ฀1,163฀ ฀ 67฀ ฀ 80
฀ ฀ ฀ ฀ $฀184฀ $฀2,511฀ $฀101฀ $฀157
At฀December฀25,฀2004฀and฀December฀27,฀2003,฀the฀present฀
value฀ of฀ minimum฀ payments฀ under฀ capital฀ leases฀ was฀
$128฀million฀and฀$112฀million,฀respectively.฀At฀December฀25,฀
2004฀and฀December฀27,฀2003,฀unearned฀income฀associated฀
with฀direct฀financing฀lease฀receivables฀was฀$48฀million฀and฀
$41฀million,฀respectively.
The฀details฀of฀rental฀expense฀and฀income฀are฀set฀forth฀
below:
฀2004฀ 2003฀ 2002
Rental฀expense
฀Minimum฀ $฀376฀ $฀329฀ $฀303
฀Contingent฀ ฀ 49฀ ฀ 44฀ ฀ 40
฀฀฀฀ $฀425฀ $฀373฀ $฀343
Minimum฀rental฀income฀ $฀ 13฀ $฀ 14฀ $฀ 11
FINANCIAL฀INSTRUMENTS฀
NOTE฀16
Interest฀Rate฀Derivative฀Instruments฀ We฀enter฀into฀interest฀
rate฀swaps฀with฀ the฀objective฀of฀reducing฀our฀ exposure฀ to฀
interest฀rate฀risk฀and฀lowering฀interest฀expense฀for฀a฀portion฀
of฀our฀debt.฀Under฀the฀contracts,฀we฀agree฀with฀other฀parties฀
to฀exchange,฀at฀specified฀intervals,฀the฀difference฀between฀
variable฀rate฀and฀fixed฀rate฀amounts฀calculated฀on฀a฀notional฀
principal฀amount.฀At฀December฀25,฀2004,฀interest฀rate฀deriv-
ative฀instruments฀outstanding฀included฀pay-variable฀interest฀
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Yum!฀Brands,฀Inc.