Pizza Hut 2006 Annual Report Download - page 63

68 YUM! BRANDS, INC.
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 uncon-
ditionally guaranteed by our principal domestic subsidiaries and
contains financial covenants relating to maintenance of leverage
and fixed charge coverage ratios. The Credit Facility also con-
tains affirmative and negative covenants including, among other
things, limitations on certain additional indebtedness, guaran-
tees of indebtedness, level of cash dividends, aggregate non-U.S.
investment and certain other transactions as 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 mil-
lion, net of outstanding letters of credit of $222 million. There
were no borrowings 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 bor-
rowings under the Credit Facility is payable at least quarterly. In
2006, 2005 and 2004, we expensed facility fees of approximately
$3 million, $2 million and $4 million, respectively.
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 international
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 reference 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. Inter-
est on any outstanding borrowings 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 com-
prises Senior Unsecured Notes. Amounts outstanding under
Senior Unsecured Notes were $1.6 billion at December 30,
2006. The Senior Unsecured Notes represent senior, unsecured
obligations and rank equally in right of payment with all of our
existing and future unsecured unsubordinated indebtedness.
These amounts include $300 million aggregate principal amount
of 6.25% Senior Unsecured Notes that were issued in April 2006
and are due on April 15, 2016 (the “2006 Notes”). We used
$200 million of the proceeds from the 2006 Notes to repay our
8.5% Senior Unsecured Notes that matured in April 2006 and the
remainder for general corporate purposes.
In anticipation of issuing the 2006 Notes, we entered into
treasury locks during the quarter ended March 25, 2006 with
aggregate notional amounts of $250 million to hedge the risk
of changes in future interest payments attributable to changes
in United States Treasury rates prior to issuance of the 2006
Notes. As these treasury locks were designated and effective in
offsetting this variability in cash flows associated with the future
interest payments, the resulting gain from settlement of these
treasury locks of approximately $8 million is being amortized
over the ten year life of the 2006 Notes as a reduction in interest
expense. See Note 14 for further discussion.
The following table summarizes all Senior Unsecured Notes
issued that remain outstanding at December 30, 2006:
Principal
Amount Interest Rate
Issuance Date(a) Maturity Date (in millions) Stated Effective(b)
May 1998 May 2008 250 7.65% 7.81%
April 2001 April 2011 650 8.88% 9.20%
June 2002 July 2012 400 7.70% 8.04%
April 2006 April 2016 300 6.25% 6.41%
(a) Interest payments commenced six months after issuance date and are payable
semi-annually thereafter.
(b) Includes the effects of the amortization of any (1) premium or discount; (2) debt
issuance costs; and (3) gain or loss upon settlement of related treasury locks.
Excludes the effect of any interest rate swaps as described in Note 14.
The annual maturities of short-term borrowings and long-term
debt as of December 30, 2006, excluding capital lease obliga-
tions of $228 million and derivative instrument adjustments of
$13 million, are as follows:
Year ended:
2007 $ 213
2008 252
2009 3
2010 178
2011 654
Thereafter 761
Total $ 2,061
Interest expense on short-term borrowings and long-term debt
was $172 million, $147 million and $145 million in 2006, 2005
and 2004, respectively.
13.
Leases
At December 30, 2006 we operated more than 7,700 restau-
rants, leasing the underlying land and/or building in more than
5,800 of those restaurants with our commitments expiring at
various dates through 2087. We also lease office space for
headquarters and support functions, as well as certain office
and restaurant equipment. We do not consider any of these
individual leases material to our operations. Most leases require
us to pay related executory costs, which include property taxes,
maintenance and insurance.