Pizza Hut 2005 Annual Report Download - page 64

The฀annual฀maturities฀of฀long-term฀debt฀as฀of฀December฀31,฀
2005,฀excluding฀capital฀lease฀obligations฀of฀$114฀million฀and฀
derivative฀instrument฀adjustments฀of฀$6฀million,฀are฀as฀follows:
Year฀ended:
2006฀ ฀ ฀ ฀ ฀ $฀ 202
2007฀ ฀ ฀ ฀ ฀ ฀ 2
2008฀ ฀ ฀ ฀ ฀ ฀ 252
2009฀ ฀ ฀ ฀ ฀ ฀ 3
2010฀ ฀ ฀ ฀ ฀ ฀ 183
Thereafter฀ ฀ ฀ ฀ ฀ ฀1,115
Total฀฀ ฀ ฀ ฀ ฀ $฀1,757
Interest฀expense฀on฀short-term฀borrowings฀ and฀ long-term฀
debt฀ was฀ $147฀million,฀ $145฀million฀ and฀ $185฀million฀ in฀
2005,฀2004฀and฀2003,฀respectively.
12.฀LEASES
At฀December฀31,฀2005฀we฀operated฀over฀7,500฀restaurants,฀
leasing฀the฀underlying฀land฀and/or฀building฀in฀over฀5,500฀of฀
those฀restaurants฀with฀our฀commitments฀expiring฀at฀various฀
dates฀through฀2087.฀We฀also฀lease฀office฀space฀for฀head-
quarters฀and฀support฀functions,฀as฀well฀as฀certain฀office฀and฀
restaurant฀equipment.฀We฀do฀not฀consider฀any฀of฀these฀indi-
vidual฀leases฀material฀to฀our฀operations.฀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
2006฀ $฀ 16฀ $฀ 362฀ $฀ 4฀ $฀ 21
2007฀ ฀ 15฀ ฀ 326฀ ฀ 4฀ ฀ 18
2008฀ ฀ 14฀ ฀ 286฀ ฀ 4฀ ฀ 14
2009฀ ฀ 14฀ ฀ 258฀ ฀ 5฀ ฀ 13
2010฀ ฀ 13฀ ฀ 230฀ ฀ 5฀ ฀ 12
Thereafter฀ ฀ 91฀ ฀1,218฀ ฀45฀ ฀ 49
฀ ฀ ฀ ฀ $฀163฀ $฀2,680฀ $฀67฀ $฀127
At฀December฀31,฀2005฀and฀December฀25,฀2004,฀the฀present฀
value฀ of฀ minimum฀ payments฀ under฀ capital฀ leases฀ was฀
$114฀million฀and฀$128฀million,฀respectively.฀At฀December฀31,฀
2005฀and฀December฀25,฀2004,฀unearned฀income฀associ-
ated฀with฀direct฀financing฀lease฀receivables฀was฀$38฀million฀
and฀$48฀million,฀respectively.
The฀details฀of฀rental฀expense฀and฀income฀are฀set฀forth฀
below:
฀2005฀ 2004฀ 2003
Rental฀expense
฀ Minimum฀ $฀380฀ $฀376฀ $฀329
฀ Contingent฀ ฀ 51฀ ฀ 49฀ ฀ 44
฀฀฀฀ $฀431฀ $฀425฀ $฀373
Minimum฀rental฀income฀ $฀ 11฀ $฀ 13฀ $฀ 14
13.฀FINANCIAL฀INSTRUMENTS
Interest฀Rate฀Derivative฀Instruments฀ We฀enter฀into฀interest฀
rate฀swaps฀with฀the฀objective฀of฀reducing฀our฀exposure฀to฀
interest฀rate฀risk฀and฀lowering฀interest฀expense฀for฀a฀portion฀
of฀our฀debt.฀Under฀the฀contracts,฀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฀31,฀2005฀and฀
December฀31,฀2004,฀interest฀rate฀derivative฀instruments฀
outstanding฀had฀notional฀amounts฀of฀$850฀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฀net฀fair฀value฀of฀
these฀swaps฀as฀of฀December฀31,฀2005฀was฀a฀net฀liability฀of฀
approximately฀$5฀million,฀of฀which฀$4฀million฀and฀$9฀million฀
have฀been฀included฀in฀other฀assets฀and฀other฀liabilities฀and฀
deferred฀credits,฀respectively.฀The฀net฀fair฀value฀of฀these฀
swaps฀as฀of฀December฀25,฀2004฀was฀a฀net฀asset฀of฀approx-
imately฀ $29฀million,฀ of฀ which฀ $30฀million฀ and฀ $1฀million฀
have฀ been฀ included฀ in฀ other฀ assets฀ and฀ other฀ liabilities฀
and฀deferred฀credits,฀respectively.฀The฀portion฀of฀this฀fair฀
value฀which฀has฀not฀yet฀been฀recognized฀as฀an฀addition/
reduction฀to฀interest฀expense฀at฀December฀31,฀2005฀and฀
December฀25,฀ 2004฀ has฀ been฀ included฀ as฀ a฀ reduction/
addition฀ to฀ long-term฀ debt฀ (a฀ $6฀million฀ reduction฀ and฀ a฀
$21฀million฀addition,฀respectively).
Additionally,฀due฀to฀early฀redemption฀of฀the฀underlying฀
7.45%฀Senior฀Unsecured฀Notes฀on฀November฀15,฀2004฀(see฀
Note฀ 11),฀ pay-variable฀ interest฀ rate฀ swaps฀ with฀ notional฀
amounts฀ of฀ $350฀million฀ no฀ longer฀ qualified฀ for฀ hedge฀
accounting฀at฀December฀25,฀2004.฀As฀we฀elected฀to฀hold฀
these฀swaps฀until฀their฀May฀2005฀maturity,฀we฀entered฀into฀
new฀pay-fixed฀interest฀rate฀swaps฀with฀offsetting฀notional฀
amounts฀and฀terms.฀Gains฀or฀losses฀due฀to฀changes฀in฀the฀
fair฀value฀of฀the฀pay-variable฀swaps฀were฀recognized฀in฀the฀
results฀of฀operations฀through฀May฀2005฀but฀these฀gains฀or฀
losses฀were฀almost฀entirely฀offset฀by฀changes฀in฀fair฀value฀
of฀the฀pay-fixed฀swaps.฀These฀swaps฀were฀settled฀upon฀their฀
maturities.฀The฀fair฀value฀of฀both฀of฀these฀swaps฀were฀in฀an฀
asset฀position฀as฀of฀December฀25,฀2004฀with฀a฀fair฀value฀
totaling฀approximately฀$9฀million.฀This฀fair฀value฀was฀included฀
in฀prepaid฀expenses฀and฀other฀current฀assets.
Foreign฀Exchange฀Derivative฀Instruments฀ We฀enter฀into฀
foreign฀ currency฀ forward฀ contracts฀ with฀ the฀ objective฀ of฀
reducing฀our฀exposure฀ to฀ cash฀ flow฀volatility฀ arising฀ from฀
foreign฀currency฀fluctuations฀associated฀with฀certain฀foreign฀
currency฀denominated฀financial฀instruments,฀the฀majority฀
of฀ which฀ are฀ intercompany฀ short-term฀ receivables฀ and฀
payables.฀The฀notional฀amount,฀maturity฀date,฀and฀currency฀
of฀these฀contracts฀match฀those฀of฀the฀underlying฀receivables฀
or฀payables.฀For฀those฀foreign฀currency฀exchange฀forward฀
contracts฀ that฀ we฀ have฀ designated฀as฀ cash฀ flow฀ hedges,฀
we฀measure฀ineffectiveness฀by฀comparing฀the฀cumulative฀
change฀in฀the฀forward฀contract฀with฀the฀cumulative฀change฀in฀
the฀hedged฀item.฀No฀ineffectiveness฀was฀recognized฀in฀2005,฀
68.฀ ฀ ฀ |฀ ฀ ฀ Yum!฀Brands,฀Inc.