Pizza Hut 2006 Annual Report Download - page 38

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and dividends. We are targeting a 3% to 4% reduction of our
diluted share count in 2007.
BORROWING CAPACITY Our primary bank credit agreement
comprises a $1.0 billion senior unsecured Revolving Credit
Facility (the “Credit Facility”) which matures in Septem-
ber 2009. The Credit Facility is unconditionally guaranteed
by our principal domestic subsidiaries and contains finan-
cial covenants relating to maintenance of leverage and fixed
charge coverage ratios. The Credit Facility also contains affir-
mative and negative covenants including, among other things,
limitations 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 30, 2006.
Under the terms of the Credit Facility, we may borrow
up to the maximum borrowing limit, less outstanding letters
of credit. At December 30, 2006, our unused Credit Facility
totaled $778 million, net of outstanding letters of credit of
$222 million. There were no borrowings outstanding under
the Credit Facility at December 30, 2006. 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.
In November 2005, we executed a five-year revolving
credit facility totaling $350 million (the “International Credit
Facility” or “ICF”) on behalf of three of our wholly owned inter-
national 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 compliance with all debt covenants
at the end of 2006.
There were borrowings of $174 million and available
credit of $176 million outstanding under the ICF at the end
of 2006. 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 borrow-
ings under the ICF is payable at least quarterly.
In 2006, we executed two short-term borrowing arrange-
ments (the “Term Loans”) on behalf of the International
Division. There were borrowings of $183 million outstanding
at the end of 2006 under the Term Loans, both of which
expired and were repaid in the first quarter of 2007.
The majority of our remaining long-term debt primarily
comprises Senior Unsecured Notes with varying maturity
dates from 2008 through 2016 and interest rates ranging
from 6.25% to 8.88%. The Senior Unsecured Notes repre-
sent senior, unsecured obligations and rank equally in right
of payment with all of our existing and future unsecured
unsubordinated indebtedness. Amounts outstanding under
Senior Unsecured Notes were $1.6 billion at December 30,
2006. This amount includes $300 million aggregate principal
amount of 6.25% Senior Unsecured Notes that were issued
in April 2006 due April 15, 2016. We used $200 million of
these proceeds to repay our 8.5% Senior Unsecured Notes
that matured in April 2006 and the remainder for general
corporate purposes.
CONTRACTUAL OBLIGATIONS In addition to any discretionary
spending we may choose to make, our significant contrac-
tual obligations and payments as of December 30, 2006
included:
Less More
than 1 – 3 3 – 5 than
Total 1 Year Years Years 5 Years
Long-term debt
obligations(a) $ 2,744 $ 360 $ 506 $ 1,021 $ 857
Capital leases(b) 303 20 40 38 205
Operating leases(b) 3,606 438 757 618 1,793
Purchase obligations(c) 265 198 47 6 14
Other long-term
liabilities reflected
on our Consolidated
Balance Sheet
under GAAP 13 — 5 3 5
Total contractual
obligations $ 6,931 $ 1,016 $ 1,355 $ 1,686 $ 2,874
(a) Debt amounts include principal maturities and expected interest payments. Rates
utilized to determine interest payments for variable rate debt are based on an
estimate of future interest rates. Excludes a fair value adjustment of $13 million
deducted from debt related to interest rate swaps that hedge the fair value of a
portion of our debt. See Note 12.
(b) These obligations, which are shown on a nominal basis, relate to approximately
5,800 restaurants. See Note 13.
(c) Purchase obligations include agreements to purchase goods or services that are
enforceable and legally binding on us and that specify all significant terms, includ-
ing: fixed or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. We have excluded agree-
ments that are cancelable without penalty. Purchase obligations relate primarily to
information technology, marketing, commodity agreements, purchases of property,
plant and equipment as well as consulting, maintenance and other agreements.
We have not included obligations under our pension and post-
retirement medical benefit plans in the contractual obligations
table. Our most significant plan, the Yum Retirement Plan
(the “U.S. Plan”), is a noncontributory defined benefit pen-
sion plan covering certain full-time U.S. salaried employees.
Our funding policy with respect to the U.S. Plan is to contrib-
ute 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 U.S. Plan’s
funded status. The U.S. Plan’s funded status is affected by
many factors including discount rates and the performance
of U.S. Plan assets. Based on current funding rules, we are
not required to make minimum pension funding payments in
2007, but we may make discretionary contributions during
the year based on our estimate of the U.S. Plan’s expected
September 30, 2007 funded status. During 2006, we made
a $23 million discretionary contribution to the U.S. Plan, none
of which represented minimum funding requirements. At our
September 30, 2006 measurement date, our pension plans in
the U.S., which include the U.S. Plan and an unfunded supple-
mental executive plan, had a projected benefit obligation of
$864 million and plan assets of $673 million.