Pizza Hut 2005 Annual Report Download - page 40

LIQUIDITY฀AND฀CAPITAL฀RESOURCES
Operating฀in฀the฀QSR฀industry฀allows฀us฀to฀generate฀substan-
tial฀cash฀flows฀from฀the฀operations฀of฀our฀company฀stores฀
and฀from฀our฀franchise฀operations,฀which฀require฀a฀limited฀
YUM฀investment.฀In฀each฀of฀the฀last฀four฀fiscal฀years,฀net฀
cash฀provided฀by฀operating฀activities฀has฀exceeded฀$1฀billion.฀
These฀cash฀flows฀have฀allowed฀us฀to฀fund฀our฀discretionary฀
spending,฀ while฀ at฀ the฀ same฀ time฀reducing฀ our฀long-term฀
debt฀balances.฀We฀expect฀these฀levels฀of฀net฀cash฀provided฀
by฀operating฀activities฀to฀continue฀in฀the฀foreseeable฀future.฀
Our฀discretionary฀spending฀includes฀capital฀spending฀for฀new฀
restaurants,฀acquisitions฀of฀restaurants฀from฀franchisees,฀
repurchases฀of฀shares฀of฀our฀common฀stock฀and฀dividends฀
paid฀to฀our฀shareholders.฀Though฀a฀decline฀in฀revenues฀could฀
adversely฀impact฀our฀cash฀flows฀from฀operations,฀we฀believe฀
our฀operating฀cash฀flows,฀our฀ability฀to฀reduce฀discretionary฀
spending,฀and฀our฀borrowing฀capacity฀will฀allow฀us฀to฀meet฀
our฀cash฀requirements฀in฀2006฀and฀beyond.
During฀the฀year฀ended฀December฀31,฀2005,฀we฀paid฀cash฀
dividends฀ of฀ $123฀million.฀ Additionally,฀ on฀ November฀18,฀
2005,฀our฀Board฀of฀Directors฀approved฀a฀cash฀dividend฀of฀
$0.115฀ per฀ share฀ of฀ common฀ stock฀ to฀be฀ distributed฀ on฀
February฀3,฀2006฀ to฀ shareholders฀ of฀ record฀at฀ the฀ close฀
of฀business฀on฀January฀13,฀2006.฀On฀an฀annual฀basis,฀the฀
Company฀is฀targeting฀an฀annual฀payout฀ratio฀of฀15%฀to฀20%฀
of฀net฀income.
Our฀ primary฀ bank฀ credit฀ agreement฀ comprises฀ a฀
$1.0฀billion฀senior฀unsecured฀Revolving฀Credit฀Facility฀(the฀
“Credit฀Facility”)฀which฀ matures฀in฀September฀2009.฀The฀
Credit฀Facility฀is฀unconditionally฀guaranteed฀by฀our฀principal฀
domestic฀ subsidiaries฀ and฀ 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,฀limi-
tations฀on฀certain฀additional฀indebtedness,฀guarantees฀of฀
indebtedness,฀level฀of฀cash฀dividends,฀aggregate฀non-U.S.฀
investment฀and฀certain฀other฀transactions฀specified฀in฀the฀
agreement.฀We฀were฀in฀compliance฀with฀all฀debt฀covenants฀
at฀December฀31,฀2005.
Under฀the฀terms฀of฀the฀Credit฀Facility,฀we฀may฀borrow฀
up฀to฀the฀maximum฀borrowing฀limit,฀less฀outstanding฀letters฀
of฀credit.฀At฀December฀31,฀2005,฀our฀unused฀Credit฀Facility฀
totaled฀$809฀million,฀net฀of฀outstanding฀letters฀of฀credit฀of฀
$191฀million.฀There฀were฀no฀borrowings฀outstanding฀under฀
the฀Credit฀Facility฀at฀December฀31,฀2005.฀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,฀depends฀on฀our฀performance฀under฀
specified฀financial฀criteria.฀Interest฀on฀any฀outstanding฀borrow-
ings฀under฀the฀Credit฀Facility฀is฀payable฀at฀least฀quarterly.
Additionally,฀on฀November฀8,฀2005,฀we฀executed฀a฀five-
year฀revolving฀credit฀facility฀(the฀“International฀Credit฀Facility”฀
or฀“ICF”)฀on฀behalf฀of฀three฀of฀our฀wholly฀owned฀international฀
subsidiaries.฀The฀total฀facility฀amount฀is฀$350฀million,฀with฀
separate฀sublimits฀for฀each฀of฀the฀three฀subsidiaries.฀The฀ICF฀
is฀unconditionally฀guaranteed฀by฀YUM฀and฀by฀YUM’s฀principal฀
domestic฀subsidiaries฀and฀contains฀covenants฀substantially฀
identical฀to฀those฀of฀the฀Credit฀Facility.฀We฀were฀in฀compli-
ance฀with฀all฀debt฀covenants฀at฀December฀31,฀2005.
There฀ were฀ borrowings฀of฀ $180฀million฀ and฀ available฀
credit฀of฀$170฀million฀outstanding฀under฀the฀ICF฀at฀the฀end฀of฀
2005.฀The฀interest฀rate฀for฀borrowings฀under฀the฀ICF฀ranges฀
from฀0.20%฀to฀1.20%฀over฀LIBOR฀or฀0.00%฀to฀0.20%฀over฀a฀
Canadian฀Alternate฀Base฀Rate,฀which฀is฀the฀greater฀of฀the฀
Citibank,฀N.A.,฀Canadian฀Branch’s฀publicly฀announced฀refer-
ence฀rate฀or฀the฀“Canadian฀Dollar฀Offered฀Rate”฀plus฀0.50%.฀
The฀exact฀spread฀over฀LIBOR฀or฀the฀Canadian฀Alternate฀Base฀
Rate,฀ as฀ applicable,฀ depends฀ upon฀ YUM’s฀ performance฀
under฀specified฀financial฀criteria.฀Interest฀on฀any฀outstanding฀
borrowings฀under฀the฀ICF฀is฀payable฀at฀least฀quarterly.
The฀remainder฀of฀our฀long-term฀debt฀primarily฀comprises฀
Senior฀Unsecured฀Notes.฀Amounts฀outstanding฀under฀Senior฀
Unsecured฀Notes฀were฀$1.5฀billion฀at฀December฀31,฀2005.฀
Included฀in฀short-term฀borrowings฀at฀December฀31,฀2005฀are฀
$200฀million฀in฀Senior฀Unsecured฀Notes฀with฀an฀April฀2006฀
maturity฀date.฀The฀remaining฀$1.3฀billion฀in฀Senior฀Unsecured฀
Notes฀comprise฀the฀majority฀of฀our฀long-term฀debt.
We฀estimate฀that฀in฀2006฀capital฀spending,฀including฀
acquisitions฀ of฀ our฀ restaurants฀ from฀ franchisees,฀ will฀ be฀
approximately฀$675฀million.฀We฀also฀estimate฀that฀in฀2006฀
refranchising฀ proceeds,฀ prior฀ to฀ taxes,฀ will฀ be฀ approxi-
mately฀ $150฀million,฀ employee฀ stock฀ options฀ proceeds,฀
prior฀to฀taxes,฀will฀be฀approximately฀$150฀million฀and฀sales฀
of฀ property,฀ plant฀ and฀ equipment฀ will฀ be฀ approximately฀
$50฀million.
In฀November฀2005,฀the฀Board฀of฀Directors฀authorized฀฀
a฀new฀share฀repurchase฀program฀for฀up฀to฀$500฀million฀of฀
the฀Company’s฀outstanding฀common฀stock฀(excluding฀appli-
cable฀transaction฀fees)฀to฀be฀purchased฀through฀November฀
2006.฀At฀December฀31,฀2005,฀we฀had฀remaining฀capacity฀to฀
repurchase฀up฀to฀$469฀million฀of฀our฀outstanding฀common฀
stock฀ (excluding฀ applicable฀ transaction฀ fees)฀ under฀ the฀
November฀program.
In฀addition฀to฀any฀discretionary฀spending฀we฀may฀choose฀
to฀make,฀significant฀contractual฀obligations฀and฀payments฀as฀
of฀December฀31,฀2005฀included:
44.฀ ฀ ฀ |฀ ฀ ฀ Yum!฀Brands,฀Inc.