Pizza Hut 2002 Annual Report Download - page 62

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LEASES
We have non-cancelable commitments under both capital and
long-term operating leases, primarily for our restaurants. Capital
and operating lease commitments expire at various dates through
2087 and, in many cases, provide for rent escalations and renewal
options. 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
2003 $ 14 $ 276 $ 2 $ 1 1
2004 14 243 3 10
2005 13 213 3 9
2006 12 179 2 8
2007 11 158 2 7
Thereafter 117 905 19 45
$ 181 $1,974 $ 31 $ 90
At year-end 2002, the present value of minimum payments under
capital leases was $99 million.
The details of rental expense and income are set forth below:
2002 2001 2000
Rental expense
Minimum $ 318 $ 283 $ 253
Contingent 25 10 28
$ 343 $ 293 $ 281
Minimum rental income $11 $14 $18
Contingent rentals are generally based on sales levels in excess
of stipulated amounts contained in the lease agreements.
NOTE
15
60.
FINANCIAL INSTRUMENTS
Derivative Instruments
Interest Rates
We enter into interest rate swaps and forward rate agreements
with the objective of reducing our exposure to interest rate risk and
lowering interest expense for a portion of our debt. Under the con-
tracts, 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 both
December 28, 2002 and December 29, 2001, we had outstand-
ing pay-variable interest rate swaps with notional amounts of
$350 million. These swaps have reset dates and floating rate
indices which match those of our underlying fixed-rate debt and
have been designated as fair value hedges of a portion of that
debt. As the swaps qualify for the short-cut method under SFAS
133 no ineffectiveness has been recorded. The fair value of these
swaps as of December 28, 2002 and December 29, 2001 was
approximately $48 million and $36 million, respectively, and has
been included in other assets. The portion of this fair value which
has not yet been recognized as a reduction to interest expense
(approximately $44 million and $34 million at December 28, 2002
and December 29, 2001, respectively) has been included in long-
term debt.
During the second quarter of 2002, we entered into treasury
locks with notional amounts totaling $250 million. These treasury
locks were entered into to hedge the risk of changes in future inter-
est payments attributable to changes in the benchmark interest
rate prior to issuance of additional fixed-rate debt. These locks
were designated and effective in offsetting the variability in cash
flows associated with the future interest payments on a portion of
the 2012 Notes. Thus, the insignificant loss at which these treasury
locks were settled will be recognized as an increase to interest on
the debt through 2012.
NOTE
16