NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in millions, except share data)

Note 5 - Franchise and License Fees

Franchise and certain license arrangements for our traditional and non-traditional points of distribution, respectively, provide for initial fees. The agreements also require continuing fees based upon a percentage of sales. Initial franchise fees from refranchising activities arise from an initiative we adopted in late 1994 to reduce our percentage ownership of total system units by selling Company units to new and existing franchisees. As disclosed in Note 2, initial franchise fees from the refranchising activities are included as part of refranchising gains.

1997 1996 1995
Initial fees, including renewal fees $ 86 $ 43 $ 28
Initial franchise fees from refranchising activities (41)
_____
(22)
_____
(8)
_____
45 21 20
Continuing fees 524
_____
473
_____
417
_____
$569 $494 $437

Note 6 - Property, Plant and Equipment, net

1997 1996
Land $ 834 $ 933
Buildings and improvements 3,163 3,394
Capital leases, primarily buildings 152 206
Machinery and equipment 2,040
_______
2,319
_______
6,189 6,852
Accumulated depreciation and
  amortization

(2,928)
_______

(2,802)
_______
$ 3,261 $ 4,050
Note 7 - Intangible Assets, net
1997 1996
Reacquired franchise rights $ 544 $ 764
Trademarks and other identifiable intangibles 132 165
Goodwill 136
_____
171
$812 $1,100

Accumulated amortization, included in the amounts above, was $508 million and $550 million at year-end 1997 and 1996, respectively.

Note 8 - Accounts Payable and Other Current Liabilities
1997 1996
Accounts payable $ 453 $ 526
Accrued compensation and benefits 294 261
Other accrued taxes 103 121
Other current liabilities 410
_____
292
_____
$1,260 $1,200
Note 9 - Short-term Borrowings and Long-term Debt
1997 1996
Short-term Borrowings
Current maturities of long-term debt $  19 $  26
Other 105
_____
33
$  124 $  59
Long-term Debt
Senior, unsecured Term Loan Facility,
  due October 2002
$1,968 $ -
Senior, unsecured Revolving Credit Facility,
  expires October 2002
2,435 -
Capital lease obligations (see Note 10) 140 222
Other, due through 2010 (7.7% and 8.2%) 27
_____
35
_____
4,570 257
Less current maturities of long-term debt (19)
_____
(26)
_____
$4,551 $231
On October 2, 1997, we entered into a $5.25 billion bank credit agreement comprised of a $2 billion senior, unsecured Term Loan Facility and a $3.25 billion senior, unsecured Revolving Credit Facility which mature on October 2, 2002.

The facilities are guaranteed by our principal U.S. subsidiaries. Proceeds of $4.5 billion of the initial $4.55 billion borrowed under the facilities were used to make the Distribution to PepsiCo. The $50 million of additional proceeds has been used to provide cash collateral securing certain obligations previously secured by PepsiCo, to pay fees and expenses related to the Distribution and the bank credit facilities, and for general corporate purposes. Interest on amounts borrowed is payable at least quarterly at rates which are variable, based principally on the London Interbank Offered Rate ("LIBOR") plus a variable margin factor as defined in the credit agreement.At December 27, 1997, the weighted average interest rate was 6.6% which includes the effects of associated interest rate swaps. See Note 11 for a discussion of our use of interest rate swaps, our management of inherent credit risk and fair value information related to debt and interest rate swaps.

At year-end 1997, we had unused revolving credit agreement borrowings available aggregating $692 million.We pay a facility fee on the revolving credit facility. The margin factor and facility fee rate is determined based on our leverage ratio or third-party senior debt ratings as defined in the agreement. Facility fees accrued at December 27, 1997 were $1.3 million.

The credit facilities are subject to various covenants including financial covenants relating to maintenance of specific leverage and fixed charge coverage ratios. In addition, the facilities contain affirmative and negative covenants including, among other things, limitations on certain additional indebtedness including guarantees of indebtedness, cash dividends, aggregate non-U.S. investment and certain other transactions, as defined in the agreement. At December 27, 1997, we are in compliance with all covenants governing our credit facilities. The credit facilities contain mandatory prepayment terms for certain capital market transactions and sales of restaurants as defined in the agreement. Once the Term Loan has been repaid in full, mandatory prepayments may be required of the revolving credit agreement which would reduce the facility availability. Absent this circumstance, under the terms of the Revolving Credit Facility, we may borrow up to $3.25 billion until maturity. The Revolving Credit Facility is also reduced for letters of credit. Amounts borrowed under the Term Loan Facility that are prepaid may not be reborrowed.

The annual maturities of long-term debt through 2002, excluding capital lease obligations, are 1998 $5 million; 1999 - $12 million; 2000 - $4 million; 2001 - $3 million and 2002 - $4.4 billion.

Note 10 - Leases

We have non-cancelable commitments under both capital and long-term operating leases, primarily for Company restaurants. Capital and operating lease commitments expire at various dates through 2067 and, in many cases, provide for rent escalations and renewal options. Most leases require payment of related executory costs, which include property taxes, maintenance and insurance.

Future minimum commitments and sublease receivables under non-cancelable leases are set forth below:

Commitments Sublease Receivables
Capital
__________
Operating
__________
Direct
Financing
__________
Operating
__________
1998 $ 26 $253 $3 $ 12
1999 24 219 2 11
2000 23 190 2 9
2001 21 170 2 8
2002 20 152 2 7
Later years 153
______
801
______
15
______
38
______
$267 $1,785 $26 $85

At year-end 1997, the present value of minimum payments under capital leases was $140 million, after deducting $127 million representing imputed interest.

The details of rental expense and income are set forth below:

1997
1996
1995

Rental expense

Minimum

$317 $312 $309

Contingent

30
_____
32
_____
27
_____
$347
_____
$344
_____
$336
_____
Minimum rental income $ 19 $ 16 $ 8

Contingent rentals are based on sales in excess of levels stipulated in the lease agreements.

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