Pizza Hut 2007 Annual Report Download - page 67

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under the Credit Facility at December 29, 2007. The interest
rate for borrowings under the Credit Facility ranges from 0.25%
to 1.25% over the London Interbank Offered Rate (“LIBOR”) or
is determined by an Alternate Base Rate, which is the greater of
the Prime Rate or the Federal Funds 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 borrowings under the Credit Facility
is payable at least quarterly.
On November 29, 2007, the Company executed an amended
and restated five-year revolving credit facility (the “International
Credit Facility” or “ICF”) totaling $350 million, which replaced
a five-year facility also in the amount of $350 million that was
set to expire on November 8, 2010. 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 2007.
There were borrowings of $28 million and available credit
of $322 million outstanding under the ICF at the end of 2007.
The interest rate for borrowings under the ICF ranges from 0.31%
to 1.50% over LIBOR or is determined by 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. The Senior Unsecured Notes
represent senior, unsecured obligations and rank equally in right
of payment with all of our existing and future unsecured unsub-
ordinated indebtedness. Amounts outstanding under Senior
Unsecured Notes were $2.8 billion at December 29, 2007.
This amount includes $600 million aggregate principal amount
of 6.25% Senior Unsecured Notes that were issued in October
2007 and are due on March 15, 2018 and $600 million aggre-
gate principal amount of 6.875% Senior Unsecured Notes that
were issued in October 2007 and are due November 15, 2037
(together the “2007 Notes”). We are using the proceeds from
the 2007 Notes to repay outstanding borrowings on our Credit
Facility, for additional share repurchases and for general corpo-
rate purposes.
In anticipation of issuing the 2007 Notes, we entered into
treasury locks and forward starting interest rate swaps with
aggregate notional amounts of $100 million and $400 million,
respectively, to hedge the interest rate risk attributable to changes
in the United States Treasury Rates and the LIBOR, respectively,
prior to issuance of the 2007 Notes. As these treasury locks and
forward starting interest rate swaps were designated and highly
effective in offsetting this variability in cash flows associated with
the future interest payments, a resulting $1 million treasury lock
gain and $22 million forward starting interest rate swap loss from
settlement of these instruments is being amortized over ten and
thirty years, respectively, as a decrease and increase in interest
expense, respectively.
The following table summarizes all Senior Unsecured Notes
issued that remain outstanding at December 29, 2007:
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% 6.03%
October 2007 March 2018 600 6.25% 6.38%
October 2007 November 2037 600 6.88% 7.29%
(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 and
forward starting interest rate swaps utilized to hedge the interest rate risk prior to
the debt issuance. Excludes the effect of any swaps that remain outstanding as
described in Note 15.
The annual maturities of short-term borrowings and long-term
debt as of December 29, 2007, excluding capital lease obliga-
tions of $282 million and derivative instrument adjustments of
$17 million, are as follows:
Year ended:
2008 $ 273
2009 3
2010 3
2011 654
2012 433
Thereafter 1,555
Total $ 2,921
Interest expense on short-term borrowings and long-term debt
was $199 million, $172 million and $147 million in 2007, 2006
and 2005, respectively.
14.
Leases
At December 29, 2007 we operated more than 7,600 restaurants,
leasing the underlying land and/or building in more than 6,000
of those restaurants with the vast majority of our commitments
expiring within 15 to 20 years from the inception of the lease.
Our longest lease expires in 2151. 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 indi-
vidual leases material to our operations. Most leases require
us to pay related executory costs, which include property taxes,
maintenance and insurance.
In 2007, we entered into an agreement to lease a corpo-
rate aircraft to enhance our international travel capabilities. This
lease provides for an upfront payment of $10 million and monthly
payments for three years. At the end of the three-year period
we have the option to purchase the aircraft. In accordance with
SFAS No. 13, this lease has been classified as capital and we
had a related capital lease obligation recorded of $41 million at
December 29, 2007. Our lease is with CVS Corporation (“CVS”).
One of the Company’s directors is the Chairman, Chief Executive
Officer and President of CVS. Multiple independent appraisals
were obtained during the negotiation process to insure that the
lease was reflective of an arms-length transaction.