Pizza Hut 2013 Annual Report Download - page 127

YUM! BRANDS, INC.-2013 Form10-K 31
Form 10-K
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
The majority of our remaining long-term debt primarily comprises Senior
Unsecured Notes with varying maturity dates from 2014 through 2043
and interest rates ranging from 2.38% to 6.88%. 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. Amounts outstanding under Senior Unsecured Notes
were $2.8 billion at December 28, 2013. Our Senior Unsecured Notes
provide that the acceleration of the maturity of any of our indebtedness in
a principal amount in excess of $50 million will constitute a default under
the Senior Unsecured Notes if such acceleration is not annulled, or such
indebtedness is not discharged, within 30 days after notice.
During the fourth quarter of 2013, we issued $325 million aggregate principal
amount of 3.88% 10 year Senior Unsecured Notes and $275million
aggregate principal amount of 5.35% 30 year Senior Unsecured Notes.
We used the proceeds from our issuances of these Senior Unsecured
Notes in part to repurchase certain of our Senior Unsecured Notes due
March 2018 and November 2037 with principal amounts of $275 million
each totaling $550 million. See Significant Known Events, Trends or
Uncertainties Impacting or Expected to Impact Comparisons of Reported
or Future Results and Note 10 for information on the Repurchase of those
Senior Unsecured Notes.
Contractual Obligations
In addition to any discretionary spending we may choose to make, our significant contractual obligations and payments as of December 28, 2013 included:
Total
Less than
1 Year 1-3 Years 3-5 Years
More than
5 Years
Long-term debt obligations(a) $ 4,300 $ 186 $ 791 $ 529 $ 2,794
Capital leases(b) 276 18 38 34 186
Operating leases(b) 5,697 721 1,299 1,084 2,593
Purchase obligations(c) 784 604 87 55 38
Deferred compensation and unfunded
benefit plans(d) 160 21 33 29 77
TOTAL CONTRACTUAL OBLIGATIONS $ 11,217 $ 1,550 $ 2,248 $ 1,731 $ 5,688
(a) Debt amounts include principal maturities and expected interest payments on a nominal basis. Debt amounts exclude a fair value adjustment of $14 million related to interest rate swaps
that hedge the fair value of a portion of our debt. See Note 10.
(b) These obligations, which are shown on a nominal basis, relate to nearly 7,300 restaurants. See Note 11.
(c) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We have excluded agreements that are cancelable without penalty.
Purchase obligations relate primarily to information technology, marketing, supply agreements, purchases of property, plant and equipment (“PP&E”) as well as consulting, maintenance and
other agreements.
(d) Includes actuarially determined timing of payments from our most significant unfunded pension plan as well as scheduled payments from our deferred compensation plan. This table
excludes $113 million of future benefit payments for deferred compensation and other unfunded benefit plans to be paid upon separation of employee’s service or retirement from the
company, as we cannot reasonably estimate the dates of these future cash payments.
We have not included in the contractual obligations table approximately
$224 million of long-term liabilities for unrecognized tax benefits relating
to various tax positions we have taken. These liabilities may increase or
decrease over time as a result of tax examinations, and given the status
of the examinations, we cannot reliably estimate the period of any cash
settlement with the respective taxing authorities. These liabilities exclude
amounts that are temporary in nature and for which we anticipate that
over time there will be no net cash outflow.
We sponsor noncontributory defined benefit pension plans covering certain
salaried and hourly employees, the most significant of which are in the
U.S. and UK. The most significant of the U.S. plans, the YUM Retirement
Plan (the “Plan”), is funded while benefits from our other significant U.S.
plan are paid by the Company as incurred. Our funding policy for the Plan
is to contribute annually amounts that will at least equal the minimum
amounts required to comply with the Pension Protection Act of 2006.
However, additional voluntary contributions are made from time to time
to improve the Plan’s funded status. At December 28, 2013 the Plan was
in a net overfunded position of $10 million. The UK pension plans are in
a net overfunded position of $33 million at our 2013 measurement date.
Based on the current funding status of the Plan and our UK pension
plans, we currently estimate that we will not be required to make any
contributions in 2014. Investment performance and corporate bond rates
have a significant effect on our net funding position as they drive our asset
balances and discount rate assumption. Future changes in investment
performance and corporate bond rates could impact our funded status
and the timing and amounts of required contributions in 2014 and beyond.
Our post-retirement plan in the U.S. is not required to be funded in
advance, but is pay as you go. We made post-retirement benefit payments
of $7 million in 2013 and no future funding amounts are included in the
contractual obligations table. See Note 14 for further details about our
pension and post-retirement plans.
We have excluded from the contractual obligations table payments we
may make for exposures for which we are self-insured, including workers’
compensation, employment practices liability, general liability, automobile
liability, product liability and property losses (collectively “property and
casualty losses”) and employee healthcare and long-term disability claims.
The majority of our recorded liability for self-insured property and casualty
losses and employee healthcare and long-term disability claims represents
estimated reserves for incurred claims that have yet to be filed or settled.
Off-Balance Sheet Arrangements
We have agreed to provide financial support, if required, to a variable
interest entity that operates a franchisee lending program used primarily to
assist franchisees in the development of new restaurants or the upgrade
of existing restaurants and, to a lesser extent, in connection with the
Company’s refranchising programs in the U.S. We have provided guarantees
of approximately $35 million in support of the franchisee loan program
at December 28, 2013. The total loans outstanding under the loan pool
were $38 million with an additional $42 million available for lending at
December 28, 2013.
Our unconsolidated affiliates had approximately $85 million and
$60 million of debt outstanding as of December 28, 2013 and December 29,
2012, respectively.