Pizza Hut 2004 Annual Report Download - page 43

an฀annual฀basis,฀the฀Company฀is฀targeting฀a฀payout฀ratio฀of฀
15%฀to฀20%฀of฀net฀income.
On฀ September฀ 7,฀ 2004,฀ the฀ Company฀ executed฀ an฀
amended฀and฀restated฀five-year฀senior฀unsecured฀Revolving฀
Credit฀Facility฀(the฀“Credit฀Facility”)฀totaling฀$1.0฀billion฀which฀
replaced฀ a฀$1.0฀billion฀senior฀unsecured฀ Revolving฀ Credit฀
Facility฀(the฀“Old฀Facility”)฀with฀a฀maturity฀date฀of฀June฀25,฀
2005.฀Under฀the฀terms฀of฀the฀Credit฀Facility,฀the฀Company฀may฀
borrow฀up฀to฀the฀maximum฀borrowing฀limit฀less฀outstanding฀
letters฀of฀credit.฀At฀December฀25,฀2004,฀our฀unused฀Credit฀
Facility฀ totaled฀ $776฀million,฀net฀ of฀ outstanding฀ letters฀of฀
credit฀of฀$205฀million.฀There฀were฀borrowings฀of฀$19฀million฀
outstanding฀under฀the฀Credit฀Facility฀at฀December฀25,฀2004.฀
The฀interest฀rate฀for฀borrowings฀under฀the฀Credit฀Facility฀ranges฀
from฀0.35%฀to฀1.625%฀over฀the฀London฀Interbank฀Offered฀Rate฀
(“LIBOR”)฀or฀0.00%฀to฀0.20%฀over฀an฀Alternate฀Base฀Rate,฀
which฀is฀the฀greater฀of฀the฀Prime฀Rate฀or฀the฀Federal฀Funds฀
Effective฀Rate฀plus฀0.50%.฀The฀exact฀spread฀over฀LIBOR฀or฀
the฀Alternate฀Base฀Rate,฀as฀applicable,฀will฀depend฀upon฀our฀
performance฀under฀specified฀financial฀criteria.฀Interest฀on฀any฀
outstanding฀borrowings฀under฀the฀Credit฀Facility฀is฀payable฀at฀
least฀quarterly.
The฀Credit฀Facility฀is฀unconditionally฀guaranteed฀by฀our฀
principal฀domestic฀subsidiaries฀and฀contains฀financial฀cove-
nants฀relating฀to฀maintenance฀of฀leverage฀and฀fixed฀charge฀
coverage฀ratios.฀The฀Credit฀Facility฀also฀contains฀affirmative฀
and฀negative฀covenants฀including,฀among฀other฀things,฀limi-
tations฀ on฀certain฀ additional฀indebtedness,฀guarantees฀of฀
indebtedness,฀level฀of฀cash฀dividends,฀aggregate฀ non-U.S.฀
investment฀and฀certain฀other฀transactions฀as฀defined฀in฀the฀
agreement.฀ These฀ covenants฀ are฀ substantially฀ similar฀ to฀
those฀contained฀in฀the฀Old฀Facility.฀We฀were฀in฀compliance฀
with฀all฀covenants฀at฀December฀25,฀2004,฀and฀do฀not฀antici-
pate฀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฀$1.5฀billion฀at฀December฀25,฀2004.฀
On฀ November฀ 15,฀ 2004,฀ we฀ voluntarily฀ redeemed฀ all฀ of฀
our฀7.45%฀Senior฀Unsecured฀Notes฀due฀in฀May฀2005฀(the฀
“2005฀Notes”)฀in฀accordance฀with฀their฀original฀terms.฀The฀
2005฀Notes,฀which฀had฀a฀face฀value฀of฀$350฀million,฀were฀
redeemed฀for฀an฀amount฀of฀approximately฀$358฀million฀using฀
primarily฀cash฀on฀hand฀as฀ well฀ as฀some฀borrowings฀under฀
our฀Credit฀Facility.฀The฀redemption฀amount฀approximated฀the฀
carrying฀value฀of฀the฀2005฀Notes฀resulting฀in฀no฀significant฀
impact฀on฀net฀income.
We฀estimate฀that฀in฀2005฀ capital฀spending,฀including฀
acquisitions฀ of฀ our฀ restaurants฀ from฀ franchisees,฀ will฀ be฀
approximately฀$780฀million.฀We฀also฀estimate฀that฀in฀2005฀
refranchising฀proceeds,฀prior฀to฀taxes,฀will฀be฀approximately฀
$100฀million,฀employee฀stock฀options฀proceeds,฀prior฀to฀taxes,฀
will฀be฀approximately฀$150฀million฀and฀sales฀of฀property,฀plant฀
and฀ equipment฀will฀be฀approximately฀ $80฀million.฀A฀ share฀
repurchase฀program฀authorized฀by฀our฀Board฀of฀Directors฀in฀
May฀2004฀is฀expected฀to฀be฀completed฀during฀the฀first฀half฀
of฀2005.฀At฀December฀25,฀2004,฀we฀had฀remaining฀capacity฀
to฀repurchase,฀through฀November฀2005,฀up฀to฀approximately฀
$25฀million฀of฀our฀outstanding฀Common฀Stock฀(excluding฀appli-
cable฀transaction฀fees)฀under฀this฀program.฀In฀January฀2005,฀
the฀Board฀of฀Directors฀authorized฀a฀new฀share฀repurchase฀
program฀for฀up฀to฀$500฀million฀of฀the฀Company’s฀outstanding฀
common฀stock฀to฀be฀purchased฀through฀January฀2006.
In฀addition฀to฀any฀discretionary฀spending฀we฀may฀choose฀
to฀make,฀significant฀contractual฀obligations฀and฀payments฀as฀
of฀December฀25,฀2004฀included:
฀ ฀ Less฀฀ ฀ ฀ More฀
฀ ฀ than฀ 1–3฀ 3–5฀ than฀
฀ Total฀ 1฀Year฀ Years฀ Years฀ 5฀Years
Long-term฀debt(a)฀ $฀1,598฀ $฀ 1฀ $฀204฀ $฀275฀ $฀1,118
Capital฀leases(b)฀ ฀ 184฀ ฀ 18฀ ฀ 32฀ ฀ 28฀ ฀ 106
Operating฀leases(b)฀ ฀2,511฀ ฀342฀ ฀564฀ ฀442฀ ฀1,163
Purchase฀obligations(c)฀ ฀ 233฀ ฀138฀ ฀ 39฀ ฀ 30฀ ฀ 26
Other฀long-term฀฀
฀ liabilities฀reflected฀
฀ on฀our฀Consolidated฀฀
฀ Balance฀Sheet฀฀
฀ under฀GAAP฀ ฀ 30฀ ฀ —฀ ฀ 18฀ ฀ 4฀ ฀ 8
Total฀contractual฀฀
฀ obligations฀ $฀4,556฀ $฀499฀ $฀857฀ $฀779฀ $฀2,421
(a)฀Excludes฀a฀fair฀value฀adjustment฀of฀$21฀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฀
5,500฀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฀information฀technology฀ and฀ commodity฀ agreements,฀purchases฀ of฀
property,฀plant฀and฀equipment฀as฀well฀as฀marketing,฀maintenance,฀consulting฀and฀
other฀agreements.
We฀have฀not฀included฀obligations฀under฀ our฀ pension฀and฀
postretirement฀medical฀benefit฀plans฀in฀the฀contractual฀obli-
gations฀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฀2005,฀but฀
we฀ may฀ make฀ discretionary฀ contributions฀ during฀ the฀ year฀
based฀on฀our฀estimate฀of฀the฀plan’s฀expected฀September฀30,฀
2005฀funded฀status.฀During฀2004,฀we฀made฀a฀$50฀million฀
discretionary฀contribution฀to฀our฀funded฀plan,฀none฀of฀which฀
represented฀minimum฀funding฀requirements.฀Our฀postretire-
ment฀plan฀is฀not฀required฀to฀be฀funded฀in฀advance,฀but฀is฀
pay฀as฀you฀go.฀We฀made฀postretirement฀benefit฀payments฀of฀
$4฀million฀in฀2004.
Also฀excluded฀from฀the฀contractual฀obligations฀table฀are฀
payments฀we฀may฀make฀for฀workers’฀compensation,฀employ-
ment฀practices฀liability,฀general฀liability,฀automobile฀liability฀
and฀ property฀ losses฀ (collectively฀ “property฀ and฀ casualty฀
losses”)฀as฀well฀as฀employee฀healthcare฀claims฀for฀which฀we฀
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Yum!฀Brands,฀Inc.