Pizza Hut 2003 Annual Report Download - page 44

42.
under the Credit Facility from $1.2 billion to $1.0 billion.
At December 27, 2003, our unused Credit Facility totaled
$737 million, net of outstanding letters of credit of
$263 million. There were no borrowings outstanding under
the Credit Facility at December 27, 2003. Our Credit Facility
contains financial covenants relating to maintenance of
leverage and fixed charge coverage ratios. The Credit
Facility also contains affirmative and negative covenants
including, among other things, limitations on certain addi-
tional indebtedness, guarantees of indebtedness, level of
cash dividends, aggregate non-U.S. investment and certain
other transactions as defined in the agreement. We were in
compliance with all covenants at December 27, 2003, and
do not anticipate that the covenants will impact our ability
to borrow under our Credit Facility for its remaining term.
The remainder of our long-term debt primarily comprises
senior unsecured notes. Amounts outstanding under senior
unsecured notes were $1.85 billion at December 27, 2003.
The first of these notes, in the amount of $350 million,
matures in 2005. We currently anticipate that our net cash
provided by operating activities will permit us to make a
significant portion of this $350 million payment without
borrowing additional amounts.
We estimate that capital spending will be approximately
$770 million and refranchising proceeds will be approxi-
mately $100 million in 2004. In November 2003, our Board
of Directors authorized a new $300 million share repur-
chase program. At December 27, 2003, we had remaining
capacity to repurchase, through May 21, 2005, up to
$294 million of our outstanding Common Stock (excluding
applicable transaction fees) under this program.
In addition to any discretionary spending we may
choose to make, significant contractual obligations and
payments as of December 27, 2003 included:
Less than More than
Total 1 Year 1–3 Years 3–5 Years 5 Years
Long-term debt(a) $ 1,930 $ 1 $ 553 $ 254 $ 1,122
Capital leases(b) 192 15 29 26 122
Operating leases(b) 2,484 320 540 431 1,193
Purchase obligations(c) 162 124 26 7 5
Other long-term liabilities reflected on our
Consolidated Balance Sheet under GAAP 31 — 17 5 9
Total contractual obligations $ 4,799 $ 460 $ 1,165 $ 723 $ 2,451
(a) Excludes a fair value adjustment of $29 million included in debt related to interest rate swaps that hedge the fair value of a portion of our debt. See Note 14.
(b) These obligations, which are shown on a nominal basis, relate to approximately 5,900 restaurants. See Note 15.
(c) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We have excluded agreements that are
cancelable without penalty. Purchase obligations relate primarily to purchases of property, plant and equipment as well as marketing, information technology, maintenance,
consulting and other agreements.
We have not included obligations under our pension and
postretirement benefit plans in the contractual obligations
table. Our funding policy regarding our funded pension plan
is to contribute amounts necessary to satisfy minimum
pension funding requirements plus such additional amounts
from time to time as are determined to be appropriate to
improve the plan’s funded status. The pension plan’s funded
status is affected by many factors including discount rates
and the performance of plan assets. We are not required to
make minimum pension funding payments in 2004, but we
may make discretionary contributions during the year based
on our estimate of the plan’s expected September 30, 2004
funded status. During 2003, we made voluntary pension
contributions of $130 million to our funded plan, none
of which represented minimum funding requirements.
Our postretirement plan is not required to be funded in
advance, but is pay as you go. We made postretirement
benefit payments of $4 million in 2003.
Also excluded from the contractual obligations table
are payments we may make for employee health and prop-
erty and casualty losses for which we are self-insured. The
majority of our recorded liability for self-insured employee
health and property and casualty losses represents
estimated reserves for incurred claims that have yet to be
filed or settled.
OFF-BALANCE SHEET ARRANGEMENTS
At December 27, 2003, we had provided approximately
$32 million of partial guarantees of two franchisee loan
pools, both of which were implemented prior to spin-off,
related primarily to the Company’s historical refranchising
programs and, to a lesser extent, franchisee development
of new restaurants. The total loans outstanding under
these loan pools were approximately $123 million at
December 27, 2003. In support of these guarantees, we
have posted $32 million of letters of credit. We also provide
a standby letter of credit of $23 million under which we
could potentially be required to fund a portion of one of the
franchisee loan pools. Any funding under the guarantees or
letters of credit would be secured by the franchisee loans
and any related collateral. We believe that we have appropri-
ately provided for our estimated probable exposures under
these contingent liabilities. These provisions were primarily
charged to facility actions. New loans are not currently being
added to either loan pool.