Pizza Hut 1999 Annual Report Download - page 54

52
Our primary bank credit agreement, as amended in March
1999 and February 2000, is currently comprised of a senior,
unsecured Term Loan Facility and a $3 billion senior unse-
cured Revolving Credit Facility (collectively referred to as the
“Credit Facilities”) which mature on October 2, 2002. Our U.S.
Core Businesses have guaranteed the Credit Facilities.
Amounts borrowed under the Term Loan Facility that we repay
may not be reborrowed.
The Credit Facilities are subject to various covenants includ-
ing financial covenants relating to maintenance of specific
leverage and fixed charge coverage ratios. In addition, the
Credit Facilities contain affirmative and negative covenants
including, among other things, limitations on certain additional
indebtedness including guarantees of indebtedness, cash
dividends, aggregate non-U.S. investment and certain other
transactions, as defined in the agreement. Since October 6,
1997, we have complied with all covenants governing the
Credit Facilities. The Credit Facilities contain mandatory pre-
payment terms for certain capital market transactions and
refranchising of restaurants as defined in the agreement.
The amended Credit Facilities, under which at amendment we
voluntarily reduced our maximum borrowing under the
Revolving Credit Facility by $250 million, gives us additional flex-
ibility with respect to acquisitions and other permitted
investments and the repurchase of Common Stock or payment
of dividends. We deferred the Credit Facilities amendment costs
of approximately $2.6 million. These costs are being amortized
to interest expense over the remaining life of the Credit Facilities.
Additionally, an insignificant amount of our previously deferred
original Credit Facilities costs was written off in the second quar-
ter of 1999 as a result of this amendment.
In addition, on February 25, 2000, we entered into an agree-
ment to amend certain terms of our Credit Facilities. This
amendment will give us additional flexibility with respect to per-
mitted liens, restricted payments, other permitted investments
and transferring assets to foreign subsidiaries. We deferred the
Credit Facilities amendment costs of approximately $2 million.
These costs will be amortized into interest expense over the
remaining life of the Credit Facilities.
Interest on amounts borrowed is payable at least quarterly at
rates which are variable, based principally on the London
Interbank Offered Rate (“LIBOR”) plus a variable margin fac-
tor as defined in the credit agreement. At December 25, 1999
and December 26, 1998, the weighted average interest rate on
our variable rate debt was 6.6% and 6.2%, respectively, which
includes the effects of associated interest rate swaps and
collars. See Note 13 for a discussion of our use of derivative
instruments, our management of inherent credit risk and fair
value information related to debt and interest rate swaps.
At December 25, 1999, we had unused borrowings available
under the Revolving Credit Facility of $1.9 billion, net of out-
standing letters of credit of $152 million. Under the terms of
the Revolving Credit Facility, we may borrow up to $3.0 billion
until maturity less outstanding letters of credit. We pay a facil-
ity fee on the Revolving Credit Facility. The variable margin
factor and facility fee rate is determined based on the more
favorable of our leverage ratio or third-party senior debt ratings
as defined in the agreement. Facility fees accrued at
December 25, 1999 and December 26, 1998 were $1.1 mil-
lion and $1.7 million, respectively.
The initial borrowings of $4.55 billion under the Credit Facilities
at inception in October 1997 were primarily used to fund a
$4.5 billion Spin-off related payment to PepsiCo. We used the
remaining $50 million of the proceeds to provide cash collateral
securing certain obligations previously secured by PepsiCo, to
pay fees and expenses related to the Spin-off and the establish-
ment of the Credit Facilities and for general corporate purposes.
In 1997, we filed with the Securities and Exchange Commission
a shelf registration statement with respect to offerings of up to
$2 billion of senior unsecured debt. In May 1998, we issued
$350 million 7.45% Unsecured Notes due May 15, 2005 and
$250 million 7.65% Unsecured Notes due May 15, 2008
(collectively referred to as the “Notes”). We used the proceeds,
net of issuance costs, to reduce existing borrowings under the
Credit Facilities. We carry the Notes net of related discounts,
which are being amortized over the life of the Notes. The
unamortized discount for both issues was approximately
$1.0 million at December 25, 1999 and $1.1 million at
December 26, 1998. The amortization during 1999 and
1998 was not significant. Interest is payable May 15 and
November 15 and commenced on November 15, 1998. In
anticipation of the issuance of the Notes, we entered into
$600 million in treasury locks (the “Locks”) to reduce interest
rate sensitivity in pricing of the Notes. Concurrent with the
issuance of the Notes, the Locks were settled at a gain, which
is being amortized to interest expense over the life of the Notes.
The effective interest rate on the 2005 Notes and the 2008
Notes is 7.6% and 7.8%, respectively.
Interest expense on the short-term borrowings and long-term
debt was $218 million, $291 million and $290 million in 1999,
1998 and 1997, respectively. Interest expense in 1997
included the PepsiCo interest allocation of $188 million.