Pizza Hut 1999 Annual Report Download - page 66

tle all joint interests in any common audit issue on a basis con-
sistent with prior practice, there can be no assurance that
determinations made by PepsiCo would be the same as we
would reach, acting on our own behalf. Through December 25,
1999, there have not been any determinations made by
PepsiCo where we would have reached a different
determination.
We have agreed to certain restrictions on future actions to help
ensure that the Spin-off maintains its tax-free status.
Restrictions include, among other things, limitations on our liq-
uidation, merger or consolidation with another company,
certain issuances and redemptions of our Common Stock, our
granting of stock options and our sale, refranchising, distribu-
tion or other disposition of assets. If we fail to abide by these
restrictions or to obtain waivers from PepsiCo and, as a result,
the Spin-off fails to qualify as a tax-free reorganization, we will
be obligated to indemnify PepsiCo for any resulting tax liability
which could be substantial. No payments under these indem-
nities have been required. Additionally, under the terms of the
tax separation agreement, PepsiCo is entitled to the federal
income tax benefits related to the exercise after the Spin-off of
vested PepsiCo options held by our employees. We
incur the payroll taxes related to the exercise of
these options.
Subsequent Event
We and our franchisees and licensees are depend-
ent on frequent replenishment of the food ingredients
and paper supplies required by our restaurants. We and a
large number of our franchisees and licensees are under multi-
year contracts to use AmeriServe to purchase and make
deliveries of most of these supplies.
On January 31, 2000, AmeriServe filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. We had approxi-
mately $43 million of receivables from AmeriServe at
December 25, 1999. While it is possible that we may recover
a portion of these receivables, the amount of the recovery is
not currently estimable. We have written off our January 31,
2000 receivable balance of approximately $41 million, which
represents the year-end balance less settlements in the
ordinary course of business between December 26, 1999 and
the date of bankruptcy.
On February 2, 2000, we and another major AmeriServe
customer agreed to provide a $150 million interim revolving
credit facility (the “Facility”) to AmeriServe. We initially com-
mitted to provide up to $100 million under this Facility.
However, we have reached an agreement in principle to assign
$30 million of our commitment to a third party, reducing our
total commitment under the Facility to $70 million. The Facility
represents post-bankruptcy “debtor-in-possession” financing
which enjoys preference over pre-bankruptcy unsecured cred-
itors. The interest rate is prime plus 4%.
To help ensure that our supply chain continues to remain open,
we have begun to purchase (and take title to) supplies directly
from suppliers (the “temporary direct purchase program”) for
use in our restaurants as well as for resale to our franchisees
and licensees who previously purchased supplies from
AmeriServe. AmeriServe has agreed, for the same fee in effect
prior to the bankruptcy filings, to continue to be responsible for
distributing the supplies to us and our participating franchisee
and licensee restaurants as well as providing ordering, inven-
tory, billing and collection services for us.
64
note 22